CASE COMMENT Association of Democratic Reforms and Another v. Union of India and Others (2024)

Citation: 2024 INSC 113

Judgement date: 15 February 2024

Bench (5‑Judge Constitution Bench): D. Y. Chandrachud (then Chief Justice), Sanjiv Khanna, B. R. Gavai, J. B. Pardiwala and Manoj Misra, JJ.

Facts

The Ministry of Finance, on 2^nd January 2018, notified the Electoral Bond Scheme under section 31(3) of the RBI Act, 1934[1]. Electoral bonds are bearer banking instruments issued like promissory notes, which allows individuals and companies to purchase them and donate them to eligible political parties, i.e., the political parties registered under section 29A of the Representation of the People Act[2]and securing at least 1% of votes in the previous Lok Sabha or state assembly election. The identity of the people or companies purchasing bonds and the political parties to which it donates were not revealed to anybody. The payments for the bonds could be made only through banking channels, and the bonds were issued in fixed denominations with a validity of 15 days. The donor’s identity was kept confidential, even from the Election Commission. Along with the introduction of this scheme, several amendments were passed through the Finance Act, 2017, removing the previous restrictions in political funding, as well as removing the cap or limit on corporate donations and eliminating the requirement for disclosure of political parties receiving contributions.

Multiple petitions were filed under Article 32[3] challenging the Electoral Bond Scheme, amendments made to the RBI Act, RPA Act, IT Act and Companies Act. The petitioners argued that the anonymous and undermining corporate funding undermines free and fair election, and it violates transparency, and also infringes the citizen’s Right to Information guaranteed under Article 19(1)(a) of the Constitution of India[4].

This matter was earlier listed before a smaller bench but was later transferred to a five-judge constitutional bench due to the constitutional importance of the case.

Issues

1. Whether the introduction of unlimited corporate funding to political parties enabled by the amendments made to section 182 of the Companies Act, 2013[5], violates Article 14 of the Constitution[6] by giving undue and opaque influence to corporate donors, thereby affecting the free and fair election process.
2. Whether the confidentiality and non- disclosure of donor identity under the Electoral Bond scheme and the amendments to: section 29C of Representation of the People Act[7], section 13A(b) of the Income Tax Act[8],and section 182(3) of the Companies Act, violate the citizen’s Right to Information under Article 19(1)(a) of the Indian Constitution[9].
3. Whether the infringement on the right to information could be constitutionally justified, applying the doctrine of proportionality.
4. Whether the court had jurisdiction to adjudicate the challenge, given the government’s argument that the matter concerned economic policy and should be left to legislative or executive discretion.

Contentions

Petitioners

1. The petitioners challenged the electoral bond scheme on the premise that it dilutes the transparency of electoral democracy. The argument they presented was that the scheme and the amendments made through the Finance Act creates a system of anonymous and unlimited political funding which is violative of fundamental constitutional principles.
2. First, it was argued that this scheme infringes the voters’ right to information which is guaranteed under Article 19 (1)(a) of the Constitution of India[10]. In a representative democracy, the citizens are entitled to make electoral choices based on the relevant information provided to them. The political funding influences policy decisions, candidate selection, and governance outcomes, and hence keeping the identity of the donors confidential deprives the citizens’ ability to make an informed choice electoral decision of whom to vote.
3. The second argument presented by the petitioners was that the scheme structurally results in an uneven political playing field, as the State Bank of India collects the KYC data of the purchasers, the ruling party, by virtue of controlling the central government can gain indirect access to donor identities, which enables it to track and influence corporate or individual contributions. In contrast, the party of the opposition remains unaware of the funding pattern. This creates an imbalance and strikes the core of free and fair elections.
4. Thirdly, the petitioners argue that the removal of the cap or the limit on the corporate donations under Section 182 of the Companies Act[11] was highlighted as an open door for corporate dominance in the realm of politics. A company can now donate any amount, even if a company is newly incorporated or financially distressed. This raises the possibility of the shell companies being set up solely for political funding, facilitating quid pro quo arrangements between the political parties and the corporations. In the view of petitioners, such unregulated financial participations enable economic interests to overshadow public interest.
5. It was also argued that the Finance Act 2017 was introduced as a money bill merely to bypass scrutiny of the Rajya Sabha, rendering the legislative process constitutionally suspect. Although the challenge to the money bill was pending before the larger bench, the petitioner stressed the root chosen for the amendments reflected a colourable exercise of power.
6. Finally, the petitioners contended that anonymity, unlimited donations, corporate dominance and legislative shortcuts constitute arbitrariness under Article 14 of the Indian Constitution[12] as they place power and information asymmetrically between the state political parties, donors and the voters.

       Respondents

1. The Union of India defended the scheme i.e., the electoral bond scheme by arguing that it represents a policy measure that is designed to curb black money problems in electoral politics. According to the Union of India, political funding traditionally occurred through unaccounted cash, and this scheme incentivises clean money by ensuring that all the donations pass through authorised banking channels.
2. The respondents also argued that the anonymity clause is necessary and intentional, as many donors fear that if their identities are disclosed, they may face political retribution, especially if they support parties that are not in power. Confidentiality, therefore protects the privacy of the donor and encourages greater participation in legal donations rather than forcing contributors into informal cash-based funding.
3. The respondents on the constitutional front argued that the right to vote does not automatically include a right to know the source of political funding; citizens can evaluate manifestos, track political agendas and records without requiring donor identity. Therefore the scheme is not violative of Article 19(1)(a) of the Constitution[13].
4. The respondents also contended that the scheme is non-discriminatory as it applies equally to all the political parties meeting the minimum electoral threshold, and therefore the scheme does not favour the ruling party, as any eligible party can end cash bonds and any citizen or company is free to purchase them.
5. It was also submitted by the respondents that the judiciary should not interfere with the legislative policy choices for the reason that other models of electoral reform, such as full disclosure of donor identities, may exist. The responsibility of designing electoral finance reforms lies with the legislature and not with the courts.
6. Lastly, the respondents maintained that the Finance Act, 2017 was validly enacted as a Money Bill as it dealt with the financial matters’ incidental to taxation and government expenditure and therefore met the definition under Article 110 of the Constitution[14].

Ratio Decidendi

The Supreme Court in February 2024 struck down the electoral bond scheme, declaring it to be violative of the right to information under Article 19(1)(a) of the Constitution of India. This judgement rests on three constitutional foundations:

1. The court held that the citizen and the voters have the right to information under Article19(1)(a)[15], this includes the right to know who funds political parties, as these financial contributions directly influence policy agendas and governance outcomes therefore, donor anonymity under the electoral bond scheme constituted an unjustified restriction on informed electoral participation, violating the freedom of speech and expression.
2. Applying the proportionality test, the court concluded that the state’s justification that confidentiality was necessary to curb black money could not override the fundamental rights to secrecy in funding was neither the least restrictive nor the rational method to achieve the state’s objective. Therefore, the scheme and connected amendments failed the constitutional standards under Article 19(2)[16].
3. The court also held that the amendments to the FCRA, the Income Tax Act and the Companies Act destroyed the political equality by enabling unlimited and anonymous political corporate funding. The Supreme Court held that this creates an uneven political playing field, giving financially powerful contributors to disproportionate influence and hence it violates Article 14’s guarantee of equality[17], as the electoral process cannot favour some citizens or entitles over others based on economic power.

Based on the above-mentioned reasons, the court declared the electoral bond scheme as unconstitutional and also directed the Election Commission to disclose complete donor and encashment details to the public.

Critical Analysis

Though the judgement was widely celebrated and has a democratic value, it still leaves certain questions unanswered and unresolved:

1. The court primarily relied on article 19(1)(a)[18] but did not fully develop Free and fair elections as a basic structure principle, leaving a doctrinal clarity incomplete.
2. The court avoided deciding the Money Bill controversy, enabling the possibility of bypassing the Rajya Sabha in the future political finance laws.
3. The judgement ensures transparency but still does not address the larger problem of private and corporate dominance in political financing.
4. While the Electoral bond scheme was struck down by the court, but it did not provide an alternative comprehensive framework for future political campaign finance regulation.
5. There is also the possibility that the political funding may revert to its older practices, like the unaccounted cash donations or creative bypassing, until a regulated funding regime is enacted and enforced.

Inferences

1. The constitutional bench verdict represents a historic turning point in India’s electoral and accountability framework by striking down the electoral bond scheme and related amendments to it. The court held that electoral transparency is a constitutional mandate, not just a democratic ideal.
2. The judgement sends a reminder that governmental powers in electoral matters are subject to constitutional limits, even when the policies are framed as financial or economic reforms.
3. This decision emphasised that unrestricted corporate influence cannot dominate individual political agency, thereby safeguarding the constitutional value of political equality.
4. The judgement restores the primacy of voters’ right to know as an essential instrument for electoral fairness and democratic legitimacy.
5. The ruling closes the door on anonymous donations, but it opens another door for the future electoral finance reform grounded in openness and accountability.

The judgement thus reflects that democracy thrives not in the shadows of money but in the clarity of informed citizen choices.

Submitted by: Srishti Mishra

College: New Law College, Bharati Vidyapeeth, Pune, Maharashtra.

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[1] The Reserve Bank of India Act, 1934, § 31(3).

[2] The Representation of the People Act, 1951, § 29A (India).

[3] India Const. art. 32.

[4] India Const. art. 19, cl. 1(a).

[5] The Companies Act, 2013, No. 18 of 2013, § 182 (India).

[6] India Const. art. 14.

[7] Representation of the People Act, 1951, No. 43 of 1951, § 29C (India).

[8] Income Tax Act, No. 43 of 1961, § 13A(b) (India).

[9] India Const. art. 19, cl. (1)(a), supra note 4.

[10] Id.

[11] Companies Act, 2013, § 182, supra note 5.

[12] India Const. art. 14, supra note 6.

[13] India Const. art. 19, cl. (1)(a), supra note 4.

[14] India Const. art. 110.

[15] India Const. art. 19, cl. (1)(a), supra note 4.

[16] India Const. art. 19, cl. (2).

[17] India Const. art. 14, supra note 6.

[18] India Const. art. 19, cl. (1)(a), supra note 4.