Case Summary: The Association for Democratic Reforms v. Union of India (2024)

Abstract

The Electoral Bonds judgment is one of the most significant constitutional decisions on political funding in India. This case analysis examines the background of the Electoral Bond Scheme, the issues raised before the Supreme Court, the arguments of both parties, and the Court’s reasoning in declaring the Scheme unconstitutional.[1] It also discusses the principles laid down by the Court, particularly the voters’ Right to Information under Article 19(1)(a),[2] and analyses the judgment’s impact on electoral transparency, democratic accountability, and future political funding reforms in India.

I. Introduction

To understand this case, it is important to first understand what an Electoral Bond is. Electoral Bonds are financial instruments through which individuals or companies can make donations to eligible political parties to support election campaigns, public meetings, advertisements, travelling, and other election-related activities. This financial support is known as political funding.[3]

The Government of India introduced the Electoral Bond Scheme in 2018 to regulate political donations through banking channels. Under this Scheme, an individual or company could purchase an Electoral Bond from the State Bank of India (SBI) and donate it to an eligible political party. The political party could then deposit the bond into its designated bank account and receive the amount.[4]

A key feature of the Scheme was anonymity, as the identity of the donor and the amount donated were not disclosed to the public. As a result, many believed that the Scheme reduced transparency in political funding.[6] Critics argued that it could encourage corruption, allow large corporations to influence politics, and prevent voters from making informed electoral choices.[5]

Consequently, several organisations challenged the Electoral Bond Scheme before the Supreme Court of India, contending that it violated the voters’ Right to Information and other constitutional principles. The case ultimately led to one of the most significant constitutional judgments on political funding and electoral transparency in India.[1]

II. Background of the Case

Under the Electoral Bond Scheme, any eligible individual, company, or organisation could purchase an Electoral Bond from selected branches of the State Bank of India (SBI) after completing the Know Your Customer (KYC) formalities.[9] The purchaser could then donate the bond to an eligible political party. Only political parties registered under Section 29A of the Representation of the People Act, 1951, and having secured at least 1% of the votes in the last Lok Sabha or State Legislative Assembly election, were eligible to receive these bonds.[10] The political party had to deposit the bond into its designated bank account within the prescribed validity period, after which SBI transferred the amount to the party’s account.[8] The most important feature of the Scheme was anonymity: the identity of the purchaser was not disclosed to the public, political parties were not required to reveal the names of donors, and the Election Commission of India did not have access to donor details. This secrecy became the main reason for the constitutional challenge.

III. Case Details

The case, Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113, was decided by the Supreme Court of India on 15 February 2024.[15] The matter was heard by a five-judge Constitution Bench comprising Chief Justice Dr. D.Y. Chandrachud, Justice Sanjiv Khanna, Justice B.R. Gavai, Justice J.B. Pardiwala, and Justice Manoj Misra.[15]

The principal petitioner was the Association for Democratic Reforms (ADR), along with other organisations and individuals, while the primary respondents were the Union of India, the Election Commission of India (ECI), and the State Bank of India (SBI).

The petitions were filed under Article 32 of the Constitution of India, challenging the constitutional validity of the Electoral Bond Scheme, 2018 and the amendments introduced through the Finance Act, 2017.[7] The petitioners contended that the Scheme violated fundamental rights by permitting anonymous political donations and reducing transparency in political funding.[16]

IV. Facts of the Case

A. Introduction of the Scheme
The Central Government introduced the Electoral Bond Scheme in 2018 through the amendments made by the Finance Act, 2017. The main objective of the Scheme was to promote political donations through banking channels and reduce the use of black money in political funding.[17]

B. How the Scheme Functioned
Under the Scheme, eligible individuals and companies could purchase Electoral Bonds from the State Bank of India (SBI) after completing the Know Your Customer (KYC) formalities. These bonds could then be donated to eligible political parties, which could receive the amount by depositing them into their designated bank accounts. Although SBI knew the identity of the purchaser through the KYC process, the donor’s identity remained hidden from the public.[18]

C. Amendments Made Through the Finance Act, 2017
To implement the Scheme, Parliament amended several laws, including the Representation of the People Act, 1951,[11] the Companies Act, 2013,[12] the Income Tax Act, 1961,[13] and the Reserve Bank of India Act, 1934.[14] These amendments reduced disclosure requirements and allowed anonymous political donations.[19]

D. Concerns Raised About the Scheme
The Scheme was criticised because the public could not know who funded political parties. It also allowed companies to make large anonymous donations, reduced transparency in political funding, and raised concerns about corruption and corporate influence over the political process.[20]

E. Filing of the Petitions
Several organisations and individuals, including the Association for Democratic Reforms (ADR), Common Cause, and the Communist Party of India (Marxist) [CPI(M)], challenged the Electoral Bond Scheme before the Supreme Court of India by filing writ petitions under Article 32 of the Constitution.[21]

F. Grounds of Challenge
The petitioners challenged the constitutional validity of the Electoral Bond Scheme and the amendments introduced through the Finance Act, 2017. They argued that the Scheme violated the voters’ Right to Information under Article 19(1)(a), reduced transparency and accountability in political funding, enabled undisclosed corporate influence over political parties, and undermined the principles of free and fair elections.[22]

G. Response of the Supreme Court
The Supreme Court admitted the writ petitions and, considering the important constitutional questions involved, referred the matter to a five-judge Constitution Bench. The Court examined whether the Electoral Bond Scheme and the related amendments were consistent with the Fundamental Rights guaranteed under the Constitution and with the principles of transparency, democratic accountability, and free and fair elections.[23]

V. Legal Issues Before the Court

The Supreme Court considered the following important legal issues while deciding the case:[24]

1. Whether the Electoral Bond Scheme, 2018 violated the voters’ Right to Information under Article 19(1)(a) of the Constitution.
2. Whether anonymous political donations under the Scheme reduced transparency and accountability in political funding.
3. Whether the amendments introduced through the Finance Act, 2017 to various laws were constitutionally valid.
4. Whether the removal of disclosure requirements and the 7.5% limit on corporate political donations undermined the principles of free and fair elections.
5. Whether the Electoral Bond Scheme was consistent with the constitutional principles of democracy, transparency, and democratic accountability.

VI. Petitioners’ Arguments

The petitioners argued that the Electoral Bond Scheme violated the voters’ Right to Information under Article 19(1)(a) of the Constitution by concealing the identity of political donors. They contended that access to information about the sources of political funding is essential for enabling citizens to make informed electoral choices.[25]

The petitioners further argued that the Scheme reduced transparency and accountability by allowing anonymous political donations. They submitted that such secrecy could encourage corruption and quid pro quo arrangements, where donations might influence government decisions.[26]

The petitioners also challenged the removal of the 7.5% limit on corporate political donations under the Companies Act, 2013. They argued that unlimited corporate donations could lead to undue corporate influence over political decisions.[27]

Further, the petitioners challenged the amendments introduced through the Finance Act, 2017, arguing that they weakened disclosure requirements and reduced transparency in political funding. According to the petitioners, these amendments were against the principles of free and fair elections and democratic accountability.[28]

VII. Respondents’ Arguments

A. Objective of the Electoral Bond Scheme
The respondents argued that the Electoral Bond Scheme was introduced to reduce the use of black money in political funding. They stated that by encouraging political donations through banking channels instead of cash, the Scheme aimed to make political funding cleaner and more transparent.[29]

B. Transparency Through the Banking System
The respondents submitted that Electoral Bonds could only be purchased after completing the Know Your Customer (KYC) process. They argued that since all transactions were made through the banking system, the source of funds could be traced by the authorities.[30]

C. Protection of Donors’ Privacy
The respondents argued that keeping the identity of donors confidential protected them from political retaliation. They contended that if donor identities were made public, many individuals and companies might hesitate to make political donations.[31]

D. No Violation of Fundamental Rights
The respondents maintained that the Scheme did not violate the voters’ Right to Information under Article 19(1)(a). They argued that this right is not absolute and must be balanced with the privacy rights of political donors.[32]

E. Corporate Donations
The respondents defended the removal of the 7.5% limit on corporate political donations. They argued that companies should have the freedom to support political parties of their choice, provided the donations were made through lawful banking channels.[33]

F. Validity of the Finance Act, 2017 Amendments
The respondents argued that Parliament had the constitutional authority to amend the relevant laws through the Finance Act, 2017. According to them, these amendments were intended to improve and modernise the system of political funding.[34]

G. Constitutional Validity of the Scheme
The respondents submitted that the Electoral Bond Scheme was constitutionally valid. They argued that it struck a balance between cleaner political funding, donor privacy, and the integrity of the electoral process.[35]

VIII. Judgment of the Supreme Court

A. Declaration of the Electoral Bond Scheme
The Supreme Court declared the Electoral Bond Scheme, 2018 unconstitutional. It held that the Scheme violated the voters’ Right to Information under Article 19(1)(a) of the Constitution by allowing anonymous political donations.[36]

B. Invalidity of the Finance Act, 2017 Amendments
The Court declared the amendments made through the Finance Act, 2017 to the Representation of the People Act, 1951, the Companies Act, 2013, and the Income Tax Act, 1961 unconstitutional. It held that these amendments reduced transparency and accountability in political funding.[37]

C. Importance of the Right to Information
The Court held that the voters’ Right to Information is an essential part of the freedom of speech and expression guaranteed under Article 19(1)(a). It observed that voters should have access to information about political funding so that they can make informed electoral choices.[38]

D. Rejection of the Government’s Justification, Directions to SBI and ECI, and Overall Outcome
The Court rejected the Government’s argument that keeping the identity of donors confidential was necessary to prevent black money. It directed the State Bank of India (SBI) to stop issuing Electoral Bonds and submit the details of all Electoral Bond transactions to the Election Commission of India (ECI). The Court further directed the ECI to publish this information on its official website so that it would be available to the public. As a result, the Electoral Bond Scheme came to an end, and the Court reaffirmed that transparency, accountability, and the voters’ Right to Information are essential for free and fair elections and democratic governance.[39]

IX. Ratio Decidendi

The Supreme Court held that the voters’ Right to Information regarding political funding forms an integral part of the freedom of speech and expression guaranteed under Article 19(1)(a) of the Constitution. The Court observed that access to information about the sources of political funding enables citizens to make informed electoral choices and strengthens democratic participation.[40]

The Court further held that transparency and accountability are essential features of a democratic electoral system. It ruled that the anonymity provided under the Electoral Bond Scheme disproportionately restricted the voters’ Right to Information and failed the doctrine of proportionality, as the objective of curbing black money could be achieved through less restrictive measures.[41]

The Court also held that unlimited and anonymous corporate donations could result in undue influence over the political process, thereby affecting political equality and free and fair elections. Accordingly, it concluded that the Electoral Bond Scheme and the related amendments introduced through the Finance Act, 2017 were unconstitutional for violating the constitutional principles of transparency, democratic accountability, and informed electoral participation.[42]

X. Critical Analysis

The Supreme Court’s judgment was an important step towards strengthening electoral transparency and accountability in India.

By recognising the voters’ Right to Information under Article 19(1)(a), the Court ensured that citizens have the right to know who funds political parties. This helps voters make informed decisions and strengthens free and fair elections.

However, the judgment may also create some challenges. Making political funding public may discourage companies or individuals from making political donations, out of fear of political retaliation.

While transparency is necessary, future reforms should also consider reasonable protection for genuine donors alongside disclosure requirements.

Overall, the judgment strengthens democratic values by placing greater importance on transparency and accountability in political funding. It is a highly significant step towards electoral reform in India. Parliament should now introduce a better system of political funding, one that balances the public’s right to information with the privacy of genuine donors.

XI. Conclusion

The Electoral Bonds judgment is a landmark decision in Indian constitutional law that has strengthened transparency and accountability in political funding. By declaring the Electoral Bond Scheme unconstitutional, the Supreme Court ensured voters’ Right to Information under Article 19(1)(a) and emphasised the importance of free and fair elections.

The judgment is an important step towards ensuring greater transparency in the electoral process and will continue to guide future reforms in political funding while upholding democratic values.

References

[1] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[2] Constitution of India, art. 19(1)(a).
[3] Electoral Bond Scheme, 2018.
[4] Electoral Bond Scheme, 2018.
[5] Constitution of India, art. 19(1)(a).
[6] Election Commission of India, Political Funding in India (background on political funding).
[7] Finance Act, 2017.
[8] Electoral Bond Scheme, 2018.
[9] Electoral Bond Scheme, 2018; Reserve Bank of India, Know Your Customer (KYC) Directions.
[10] Representation of the People Act, 1951, s. 29A.
[11] Representation of the People Act, 1951 (as amended by the Finance Act, 2017).
[12] Companies Act, 2013, s. 182 (as amended by the Finance Act, 2017).
[13] Income Tax Act, 1961, s. 13A.
[14] Reserve Bank of India Act, 1934; Electoral Bond Scheme, 2018.
[15] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[16] Constitution of India, art. 32.
[17] Finance Act, 2017; Electoral Bond Scheme, 2018.
[18] Electoral Bond Scheme, 2018.
[19] Finance Act, 2017; Representation of the People Act, 1951; Companies Act, 2013; Income Tax Act, 1961; Reserve Bank of India Act, 1934.
[20] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[21] Constitution of India, art. 32.
[22] Constitution of India, art. 19(1)(a); Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[23] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[24] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113; Constitution of India, art. 19(1)(a).
[25] Constitution of India, art. 19(1)(a); Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[26] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[27] Companies Act, 2013, s. 182 (as amended by the Finance Act, 2017).
[28] Finance Act, 2017; Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[29] Union of India, Written Submissions in Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[30] Electoral Bond Scheme, 2018.
[31] Union of India, Written Submissions in Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[32] Constitution of India, art. 19(1)(a).
[33] Companies Act, 2013, s. 182 (as amended by the Finance Act, 2017).
[34] Finance Act, 2017.
[35] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[36] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[37] Finance Act, 2017; Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[38] Constitution of India, art. 19(1)(a); Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[39] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[40] Constitution of India, art. 19(1)(a); Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[41] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.
[42] Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.

Bibliography

1. Constitution of India.
2. Electoral Bond Scheme, 2018.
3. Finance Act, 2017.
4. Representation of the People Act, 1951.
5. Companies Act, 2013.
6. Income Tax Act, 1961.
7. Reserve Bank of India Act, 1934.
8. Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113.