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Association For Democratics Reforms vs Union Of India (2024)

Case Comment, Publications

Citation: 2024 INSC 113

Bench: Hon’ble Chief Justice of India Dr. D.Y. Chandrachud, Hon’ble Justice Sanjiv Khanna, Hon’ble Justice B.R. Gavai , Hon’ble Justice J.B. Pardiwala , Hon’ble Justice Manoj Misra

Facts:-

The case of Association for Democratic Reforms and Another v. Union of India and others revolved around the constitutional validity of the Electoral Bond Scheme, 2018, introduced by the Government of India. Former Union Finance Minister Arun Jaitley, when presenting the 2017-2018 Union Budget, he also proposed the Electoral Bonds Scheme, which was designed to “cleanse the system” of political funding. The scheme allowed anonymous political donations through electoral bonds issued by the State Bank of India (SBI). 

The Electoral Bond Scheme was introduced as part of the Finance Act, 2017, which made amendments to several key electoral laws, including the Reserve Bank of India Act, 1934, the Representation of the People Act, 1951, the Companies Act, 2013, and the Income Tax Act, 1961. 

Section 11 of the Finance Act, 2017 amended Section 13A of the Income Tax Act exempting political parties from keeping a detailed record of contributions received through electoral bonds. 

Section 135 amended Section 31 of the RBI Act. This permitted the Union government to “authorise any scheduled bank to issue electoral bond[s].” 

Section 137 introduced a proviso to Section 29C of RoPA, exempting political parties from publishing contributions received through electoral bonds in “Contribution Reports.” These reports disclose contributions received by parties “in excess of twenty thousand rupees” from companies and individuals. 

Section 154 amended Section 182 of the Companies Act, 2013 which removed the upper limit on how much a company could donate to a political party. Previously companies could only donate up to 7.5 percent of three years of the company’s net profits.

It allowed individuals, companies, and foreign entities registered in India to contribute to political parties anonymously through electoral bonds. The State Bank of India was authorized to issue these bonds, and donors could purchase them and submit them to a political party of their choice. The electoral bond is like a promissory note, however, it does not contain the details of the payer or payee meaning the identity of the donor remained confidential, with only SBI having access to donor details. An electoral bond has no information on the parties in the transaction at all, this raised concerns about transparency, accountability, and potential misuse of funds by political parties.

Issues raised:- 

  1. Whether unlimited corporate funding to political parties, as envisaged by the amendment to Section 182(1) of the Companies Act infringes the principle of free and fair elections and violates Article 14 of the Constitution; and 
  2. Whether the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to Section 29C of the RPA, Section 182(3) of the Companies Act and Section 13A(b) of the IT Act are violative of the right to information of citizens under Article 19(1)(a) of the Constitution.

Contention:- 

Arguments of the Petitioners:

  1. There is no rational basis for the introduction of electoral bonds. The main objective of introducing the Electoral Bond Scheme was that it would enhance transparency in electoral funding since electoral bond transactions can only be made through legitimate banking channels. However, cash donations are still permitted even after the introduction of the Electoral Bond Scheme;
  2. The amendments and the Electoral Bond Scheme skew free and fair elections by permitting unlimited contributions to political parties by corporate entities and removing the requirement of disclosure of information about political funding;
  3. They violate Article 19(1)(a) which guarantees to the voter the right to information concerning the affairs of the public and the government. 
  4. They violate Article 21 because the non-disclosure of information of political contributions promotes corruption and quid pro quo arrangements. It severs the link between elections and representative democracy because those elected are inclined to fulfill the wishes of the contributors and not the voters. This could be through direct quid pro quo where an express promise is made to enact a policy in favour of the donor and indirect quid pro quo where there is an influence through access to policy makers; 
  5. They violate the rights of shareholders of Companies who are donating money to political parties by preventing disclosure of information to them; and

Arguments of the Respondents:

  1. The Scheme ensures confidentiality of the contributions made to political parties. The benefit of confidentiality to contributors ensures and promotes contribution of clean money to political parties;
  2. Donors to a political party often apprehended retribution from other political parties. Such apprehension incentivized donors to contribute unaccounted money to political parties to avoid identification and victimization by other political parties. The Electoral Bond Scheme maintains the confidentiality of donors and thereby incentivizes them to contribute clean money to political parties;
  3. The fact that one party receives substantially more support through donations than other parties cannot in itself be a legal ground to challenge the validity of the Electoral Bond Scheme.

Rationale:- 

Shortly after the amendments were made, these changes were challenged in the court. The Non-Governmental Organisations – Association for Democratic Reforms (ADR) filed a writ petition challenging the scheme and later on, the Communist Party of India (Marxist) also filed writ petition challenging the scheme in the Supreme Court.

In 2019, the Election Commission of India submitted the overwhelming concerns it had regarding the utility of the scheme and how the amendments can have serious “repercussions”.

On 15th February 2024, the five-judge constitutional Bench gave its verdict and declared the EBS as being ‘unconstitutional’. The following directions were issued:

  1. The issuing bank shall herewith stop the issuance of Electoral Bonds;
  2. SBI shall submit details of the Electoral Bonds purchased since the interim order of this Court dated 12 April 2019 till date to the ECI. The details shall include the date of purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased;
  3. SBI shall submit the details of political parties which have received contributions through Electoral Bonds since the interim order of this Court dated 12 April 2019 till date to the ECI. SBI must disclose details of each Electoral Bond encashed by political parties which shall include the date of encashment and the denomination of the Electoral Bond;
  4. SBI shall submit the above information to the ECI within three weeks from the date of this judgment, that is, by 6 March 2024;
  5. The ECI shall publish the information shared by the SBI on its official website within one week of the receipt of the information, that is, by 13 March 2024; and
  6. Electoral Bonds which are within the validity period of fifteen days but that which have not been encashed by the political party yet shall be returned by the political party or the purchaser depending on who is in possession of the bond to the issuing bank. The issuing bank, upon the return of the valid bond, shall refund the amount to the purchaser’s account.

Defects of law:-

The Supreme Court has definitely struck down the Electoral Bond Scheme but no other alternative scheme had been introduced to fill out the gap which was left by the EBS. Also, for contesting an election it requires a lot money and we also know that the politics and money go hand in hand, money is required for advertising, campaigns, and so on.  

  1. Lack of effective enforcement mechanism:

Even when the Electoral Bonds have been declared invalid/struck down, illicit cash donations and other opaque funding channels continue to pose a challenge.

  1. Regulatory loopholes:

There are some regulatory loopholes which even this decision does not cover i.e., that possibility of backdoor political financing through trusts, shell companies, or other non-transparent entities. 

  1. No direct contribution by the corporate entities:

The next scheme which will be introduced must prohibit the direct donations by the corporate companies contributions to the political parties or else it would result in corporate influence in politics and will room for potential misuse.

  1. Obligation for political parties:

A rule of law must be there which put such an obligation and is binding on the political parties to produce statements containing the record of money where it is being spend by the parties that will give a clear idea and knowledge about the utilization of the donated money as well as what exactly they are getting into.

Inference:-

The Electoral Bond Scheme was introduced to bring more transparency and cleanse the system i.e. to carry out the political funding in a clean and responsible manner but rather then fulfilling this purpose, it was used as a veil by the corporate companies to fund the political parties in return for their personal gains or advantages with no cap on the donation due to the amendments that were made to several acts. Before the amendments, there were limitations to the corporate companies were prohibited to donate not more than 7.5% of their net profit. But after the amendments that were made to the acts it gave rise to various violation of fundamental rights of the people of India: (1) Article 19(1)(a) of the Constitution was violated because the Electoral Bond Scheme was designed to guarantee confidentiality and the right to privacy of the donors but it blocked the voters right to information about political parties source of funding, as it informs the policies and views of that party. (2) Article 14 in a way was violated by bringing the corporate companies to compete with an individual for the donation purposes and we cannot equate companies with individual because the capital power of a company is far greater than to a common person.  

It took six years for the judicial system of India to strike down the scheme of Electoral Bonds. The judgment in Association for Democratic Reforms v. Union of India (2024) is a significant milestone in the evolution of electoral jurisprudence in India. By reaffirming the voters’ right to information and striking down the amendments, the Supreme Court has reinforced the principles of transparency and accountability in the electoral process. But still no alternative was introduced by the court for the gap which had been left by the Electoral Bond Scheme. 

ASHU SINGH

STAREX UNIVERSITY