1. FACTS
The Electoral Bond Scheme (EBS) was introduced by the Union Government through a notification dated 2 January 2018, pursuant to amendments brought by the Finance Act, 2017. The scheme permitted individuals and companies to purchase electoral bonds from authorised branches of the State Bank of India (SBI) in denominations ranging from ₹1,000 to ₹1 crore. These bonds could be donated to political parties that had secured at least one per cent of the votes in the last general election to the Lok Sabha or a State Legislative Assembly. The defining feature of the scheme was anonymity: the identity of the donor remained confidential from the public and even from the recipient political party, with only the SBI retaining Know Your Customer (KYC) details.[2]
To operationalise the scheme, the Finance Act, 2017 amended several statutes. Section 29C of the Representation of the People Act, 1951 (RPA) was amended to exempt political parties from disclosing contributions received through electoral bonds. Section 13A of the Income Tax Act, 1961 was modified to relieve parties of the obligation to maintain detailed records of such contributions. Section 182 of the Companies Act, 2013 was amended to remove the earlier ceiling limiting corporate donations to 7.5 per cent of the average net profits of the preceding three financial years, thereby permitting unlimited corporate funding. The definition of “foreign source” under the Foreign Contribution (Regulation) Act, 2010 was also altered to facilitate donations by foreign-owned companies.[3][4][5][6]
Petitioners, including the Association for Democratic Reforms (ADR), Common Cause, and the Communist Party of India (Marxist), challenged the constitutional validity of the scheme and the related amendments. They contended that the opacity introduced by the EBS undermined the voters’ right to information under Article 19(1)(a) of the Constitution and compromised free and fair elections. The petitions were filed in 2017–2018. After prolonged interim proceedings, the matter was referred to a five-judge Constitution Bench led by Chief Justice D.Y. Chandrachud on 16 October 2023. The Bench, comprising Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra, heard arguments in late October and early November 2023. On 15 February 2024, the Court delivered a unanimous verdict striking down the Electoral Bond Scheme and the related amendments.
2. ISSUES RAISED
The Constitution Bench examined the following principal issues:
First, whether the Electoral Bond Scheme and the amendments introduced by the Finance Act, 2017—particularly the non-disclosure provisions under Section 29C of the RPA, Section 13A of the Income Tax Act, and Section 182(3) of the Companies Act—violate the fundamental right of citizens to information under Article 19(1)(a) of the Constitution.
Second, whether the amendment to Section 182 of the Companies Act, 2013, which removed the cap on corporate contributions to political parties, infringes the principle of free and fair elections and violates Article 14 of the Constitution by enabling unlimited corporate funding without corresponding transparency.
Third, whether the anonymity conferred by the scheme could be justified on the ground of protecting the donors’ right to privacy under Article 21, and whether such privacy interests outweigh the voters’ right to information.
Fourth, whether the scheme, by facilitating opaque funding, threatens the democratic process and the purity of elections, which form part of the basic structure of the Constitution.
3. CONTENTION
The contentions of the parties may be summarised as under:
Contentions of the Petitioners:
- Transparency in political funding is indispensable to the functioning of a democracy. The right to information under Article 19(1)(a) includes the right of voters to know the sources of funding of political parties, as such information is essential for making an informed electoral choice.[7][8]
- The anonymity of electoral bonds creates a veil of secrecy that enables quid pro quo arrangements between donors and political parties, thereby fostering corruption and undermining free and fair elections.
- The removal of the corporate donation limit under Section 182 of the Companies Act permits companies, including loss-making entities and those with foreign ownership, to channel unlimited funds into politics without public scrutiny.
- Unlimited and opaque corporate funding distorts the electoral playing field in favour of well-funded parties and violates the equality guarantee under Article 14 of the Constitution.
- The amendments to the Representation of the People Act and the Income Tax Act, by exempting disclosure of electoral bond contributions, were a deliberate legislative design to shield political funding from accountability.
Contentions of the Union of India (Respondents):
- The Electoral Bond Scheme was a progressive reform aimed at curbing the flow of black money into politics.
- Electoral bonds, being banking instruments subject to Know Your Customer (KYC) norms, ensure that only legitimate funds enter the political system.
- Anonymity was necessary to protect donors from political victimisation and retribution, thereby safeguarding their right to privacy under Article 21 of the Constitution.
- The scheme struck a careful balance between the need for transparency and the confidentiality of donors.
- Judicial interference in matters of economic and electoral policy was unwarranted, as the amendments fell within the legislative competence of Parliament and did not violate any fundamental rights.
4. RATIONALE
The Supreme Court, in a unanimous judgment authored primarily by Chief Justice Chandrachud (with a concurring opinion by Justice Sanjiv Khanna), held that the Electoral Bond Scheme and the related amendments were unconstitutional. The Court reaffirmed that the right to information under Article 19(1)(a) extends to information that enables citizens to participate meaningfully in the democratic process. Building upon the principles laid down in Association for Democratic Reforms (2002) and PUCL (2003), the Court observed that information about the funding of political parties is essential for voters to assess the influence that donors may exert on policy and governance.[9][10]
The Court applied the proportionality test to examine whether the restriction on the right to information was justified. It held that while the State’s objective of curbing black money and protecting donor privacy was legitimate, the means adopted—complete anonymity—were not the least restrictive alternative. The scheme failed the proportionality analysis because less restrictive measures, such as limited disclosure thresholds or delayed disclosure, could achieve the same goals without extinguishing the voters’ informational rights. The Court emphasised that the right to privacy of donors cannot override the larger public interest in electoral transparency.
On the question of corporate funding, the Court struck down the amendment to Section 182 of the Companies Act. It reasoned that unlimited and anonymous corporate contributions create an uneven playing field and permit the use of corporate resources for political purposes without accountability. Such a regime violates Article 14 by undermining electoral equality. The Court also noted that the scheme disproportionately benefited the ruling party at the Centre. The Court directed the immediate cessation of the sale of electoral bonds and ordered the SBI to disclose to the Election Commission of India details of all electoral bonds purchased from 12 April 2019 onwards, including the names of purchasers and the political parties to which the bonds were credited. The ECI was directed to publish this information on its website.
5. DEFECTS OF LAW
The judgment exposes several structural defects in the legislative framework governing political funding in India. First, the use of the Finance Act route to introduce far-reaching amendments to electoral and company law raised concerns about the propriety of classifying such measures as “Money Bills” under Article 110, thereby bypassing Rajya Sabha scrutiny. Although the Court did not conclusively decide the Money Bill issue in this case, the manner of enactment reflected a legislative design prioritising opacity over deliberative democracy.
Second, the statutory scheme created an asymmetry of information: the State and the banking system possessed knowledge of donors, while the citizenry—the ultimate repository of sovereignty—was kept in the dark. This inverted the democratic principle that the governed must be informed about those who seek to govern. Third, the removal of the corporate donation cap without simultaneous strengthening of disclosure norms created a legal vacuum that permitted the infusion of corporate money into politics without corresponding public accountability.
Fourth, the scheme’s design effectively legalised a form of anonymous funding that earlier jurisprudence and international best practices had sought to discourage. By exempting electoral bond contributions from the disclosure requirements of the RPA and the Income Tax Act, the amendments carved out an exception that undermined the general policy of transparency embedded in electoral law. These defects illustrate a broader legislative failure to treat political funding as a matter of constitutional significance rather than mere fiscal policy.
6. INFERENCE
The decision marks a significant judicial intervention in electoral finance. It reasserts the primacy of the voter’s right to information under Article 19(1)(a) and situates transparency at the core of free and fair elections. Anonymity in political funding is incompatible with an informed electorate. By applying the proportionality doctrine, the Court signalled that restrictions on fundamental rights must be carefully calibrated and cannot be absolute.
The ruling has important implications for corporate governance and political equality. By holding that corporate political contributions cannot be unlimited and opaque, the Court mitigates the risk of policy capture. Directions for disclosure of past bonds serve as a remedial measure. The judgment nevertheless leaves open questions on the future regulatory framework for political funding.
Critically, the decision reinforces the judiciary’s role as guardian of democratic processes. It affirms that free and fair elections are substantive constitutional guarantees requiring an informed citizenry, and links electoral integrity to the basic structure values of democracy and the rule of law.
7. CONCLUSION
Association for Democratic Reforms v. Union of India is a landmark pronouncement that restores the centrality of transparency in India’s electoral democracy. By striking down the Electoral Bond Scheme, the Court affirmed that voters’ right to know the sources of political funding is integral to Article 19(1)(a). The judgment balances donor privacy, the need to curb black money, and the imperative of an informed electorate, concluding that complete anonymity is constitutionally impermissible.
The decision reminds us that democratic legitimacy rests on the openness of processes that shape political power. The responsibility now rests with the legislature to design a coherent and transparent framework for political funding. Until then, the principles in this judgment will guide discourse on electoral integrity.
In the final analysis, the case stands as a robust defence of the informational rights of citizens and a judicial affirmation that democracy thrives only when the sources of political power are visible to those who confer that power through the ballot.
________________________
Mariya Hasan Suri
Maulana Azad National Urdu University, MANUU Law School, Hyderabad
3rd Year/ 5th Sem
[1]Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113 (India).
[2]Electoral Bond Scheme, 2018, Gazette of India, Extraordinary, Part II, Sec. 3(ii) (Jan. 2, 2018).
[3]Representation of the People Act, No. 43 of 1951, § 29C, INDIA CODE (1951); Finance Act, No. 7 of 2017, INDIA CODE (2017).
[4]Companies Act, No. 18 of 2013, § 182, INDIA CODE (2013) (as amended by Finance Act, 2017).
[5]Income-tax Act, No. 43 of 1961, § 13A, INDIA CODE (1961) (as amended).
[6]See also Foreign Contribution (Regulation) Act, 2010 (as amended by Finance Act, 2016/2017) regarding the altered definition of “foreign source”.
[7]Union of India v. Ass’n for Democratic Reforms, (2002) 5 S.C.C. 294 (India).
[8]People’s Union for Civil Liberties v. Union of India, (2003) 4 S.C.C. 399 (India).