Case Commentary on the Supreme Court’s Verdict on the Electoral Bond Scheme
FACTS
The Electoral Bond Scheme (EBS) was launched by the Indian Government in 2018 as an alleged electoral reform intended to solve the age-old problem of black money in political donations. The scheme, which was notified under the Finance Act, 2017, allowed individuals, firms, and other entities to buy electoral bonds from the State Bank of India (SBI) and donate them to eligible political parties. These bonds would be redeemable by political parties within a given time, with the expressed purpose of ensuring that political contributions were all made through banking means and therefore trackable.
But the EBS was preceded by a number of amendments to prime laws:
– The Representation of the People Act, 1951 was modified to exclude political parties from reporting donations received through electoral bonds, even if these cross the threshold of ₹20,000, which previously required disclosure.
– The Companies Act, 2013 was modified to eliminate the limit on corporate contributions (earlier 7.5% of the average net profits during the last three years) and to permit even loss-incurring companies to contribute.
– The Income Tax Act, 1961 was modified to offer tax exemptions for donations received by way of electoral bonds.
Most importantly, the scheme preserved anonymity of donors: only the SBI knew the donor’s identity, not the Election Commission of India (ECI), the public, or even the receiving political parties. This aspect was defended by the government as a necessary measure to safeguard donors against political victimization.
Several petitions were moved to the Supreme Court, spearheaded by Association for Democratic Reforms (ADR), Common Cause, and Communist Party of India (Marxist). The petitioners argued that the constitutional validity of the scheme and the legislative amendments was challenged because they allowed unregulated and clandestine funding of political parties and undermined the transparency which is necessary for the health of a democracy. The Supreme Court, following prolonged hearings, pronounced its unanimous judgment on 15 February 2024, declaring the Electoral Bond Scheme and the facilitating amendments as unconstitutional.
ISSUES RAISED
1. Right to Information and Transparency:
Whether the Electoral Bond Scheme and the corresponding statutory amendments infringe the citizen’s right to information under Article 19(1)(a) of the Constitution by facilitating anonymous political contributions and weakening electoral transparency.
2. Equality and Free and Fair Elections:
Whether abolition of caps on corporate funding and exclusion from disclosure mandates erodes the integrity of free and fair elections, and therefore infringes Article 14 (equality before law) and the basic structure of the Constitution.
3. Legislative Procedure:
Whether the passage of the amendments in the form of a Money Bill, without going through the Rajya Sabha, was constitutionally justified and in accordance with the doctrine of separation of powers.
CONTENTIONS
Petitioners’ Arguments:
– The scheme established a regime of utter secrecy in political funding, denying citizens access to crucial information regarding who finances political parties and how much.
– The changes to several laws, particularly the exception to disclosure for political contributions of more than ₹20,000, undercut the intent of previous transparency measures and enabled uncontrolled corporate power.
– Unbridled corporate money, possibly from shell or foreign-controlled firms, could pervert the democratic process and policy-making and erode electoral fairness and equality.
– Both the ECI and the Reserve Bank of India had objected to money laundering possibility and undermining transparency, and these objections were not given heed to by the government.
– The use of constitutional procedure by presenting the amendments as a Money Bill was an abuse of procedure, and this was in contravention of the doctrine of separation of powers.
Respondents (Union of India):
– The plan was aimed at wiping out black money by making all political contributions through banking channels only, with KYC norms and audit trails.
– Anonymity of donors was required for protection of donors from political vengeance and safeguarding their right of privacy.
– The details of donors were known to SBI and available for access by enforcement agencies if the need arose, with a guarantee of accountability.
– The scheme and amendments did not violate any basic rights and were a valid exercise of legislative authority to facilitate electoral reforms.
RATIONALE
The Supreme Court, in its historic ruling, abolished the Electoral Bond Scheme and the facilitating amendments as unconstitutional. The rationale of the Court rested on the following pivotal principles:
1. Right to Know as a Fundamental Right:
The Court reasserted that the right to know about the political parties’ funding is an integral aspect of the freedom of expression under Article 19(1)(a). In a democratic society, the public has a right to be informed about the funders of political parties since the information is vital in making sound electoral decisions. The Court relied on its previous judgments, such as *Union of India v. Association for Democratic Reforms* (2002), which held that the right to know the background of electoral contestants was inherent.
2. Proportionality and Transparency:
The Court employed the test of proportionality, and ruled that although the state has a valid interest in checking black money, the means adopted by it (absolute donor anonymity) were not proportionate. The Court held that the design of the scheme, i.e., absolute anonymity, was not the minimum restrictive option for the given purpose. Less intrusive methods like the then prevalent scheme of electoral trusts could have served the same purpose without compromising transparency.
3. Unlimited Corporate Financing:
The Court held that the Companies Act, 2013 amendments removing the ceiling on corporate contributions and enabling loss-making or newly formed companies to contribute enabled undue corporate influence on the political process. This was at the cost of the principle of free and fair elections and was contrary to Article 14 by putting individual and corporate donors on unequal par.
4. Procedural Irregularity:
The Court did not rule on the Money Bill issue head-on but highlighted the irregularity of employing the Money Bill route to ram through substantial changes in electoral democracy. The Court insisted on parliamentary oversight and the necessity of stringent institutional checks.
5. Ignoring Institutional Objections:
The Court was sensitive to the objections of constitutional authorities such as the ECI and RBI, which pointed out the risks of money laundering and subversion of transparency. The government’s failure to consider these objections further diluted the legitimacy of the scheme.
DEFECTS OF LAW
- Anonymity and Opaqueness:
The design of the scheme has ensured full anonymity of the donors, eroding the transparency that is the hallmark of democratic accountability. The amendments enabled a regime where neither the public nor the ECI could ask questions about the sources of political funding.
2. Unlimited and Unchecked Corporate Influence:
By eliminating limits on corporate contributions and permitting even loss-making or newly formed companies to contribute, the amendments facilitated shell companies and possible foreign intervention in Indian elections, against the principles of election fairness.
3. Bypassing Parliamentary Scrutiny:
The adoption of the Money Bill route for implementing the changes bypassed the Rajya Sabha, weakening the checks and balances the Constitution intended. The procedural short cut eroded the doctrine of separation of powers.
4. Dismissal of Institutional Objections:
The government ignored grave apprehensions expressed by constitutional bodies such as the ECI and RBI about the danger that the scheme could pose. This ignoring of consultation and institutional oversight further eroded the legitimacy of the scheme.
5. Risk of Money Laundering:
The anonymity of the scheme, together with the lifting of caps on corporate contributions, opened up possibilities for money laundering and the utilization of shell companies to direct illegal funds into the political system.
INFERENCE
The Supreme Court judgment in Association for Democratic Reforms v. Union of India is a milestone in the jurisprudence of electoral transparency and democratic accountability in India. Inholding the Electoral Bond Scheme and the facilitating amendments, the Court has once again asserted the primacy of the right to information in the election process and emphasized the importance of political funding transparency.
The judgment re-establishes the pre-2017 legal framework, mandating disclosure of all donations exceeding ₹20,000 and reintroducing ceilings on corporate donations. It sends out a strong message that legislative or executive action undermining the transparency and purity of the election process will not be upheld under the Constitution.
The judgment also underlines the significance of strong institutional checks and the risks of evading parliamentary oversight through procedural shortcuts. The legitimacy of the electoral process in a democracy relies not merely on free and fair elections but also on the openness of the mechanisms of political funding.
The Court’s orders for forthwith disclosure of all transactions of electoral bonds by SBI and release by the ECI further validate the principle that sunlight is the best disinfectant for issues of public concern. The case establishes a precedent for subsequent challenges to a law or scheme endangering the fundamental values of transparency, accountability, and equality in Indian democracy.
The Supreme Court’s decision is a powerful affirmation of the constitutional values that underpin Indian democracy.
It recognizes that transparency in political funding is not merely a matter of administrative convenience but a fundamental right that is essential for the functioning of a healthy democracy. The verdict is also going to have long-term consequences for political funding regulation in India and could act as an impetus for the next round of reforms for greater transparency and accountability in the electoral process.
Name: Amitosh Panandiker
College Name: NMIMS Kirit P Mehta School of Law