Author: Devalay Dey
College: Maharishi University of Information and Technology
To the Point
Political funding has always been one of the most debated aspects of democratic governance. While political parties require financial resources to contest elections and carry out public outreach, the source and transparency of such funding directly influence the integrity of the electoral process. In India, concerns over unaccounted cash donations, corruption, and the use of black money in elections prompted the Union Government to introduce the Electoral Bonds Scheme, 2018. The Government argued that the scheme would encourage clean political funding by replacing anonymous cash donations with banking instruments issued through authorized financial institutions.
The Electoral Bonds Scheme was introduced through amendments made by the Finance Act, 2017 to several legislations, including the Representation of the People Act, 1951, the Companies Act, 2013, the Income-tax Act, 1961, and the Reserve Bank of India Act, 1934. Electoral Bonds could be purchased from the State Bank of India and donated to eligible political parties. Although transactions were conducted through formal banking channels, the identity of donors remained confidential from the public.
The scheme soon attracted widespread criticism from constitutional experts, civil society organizations, former Election Commissioners, and transparency advocates. Critics argued that while the Government and banking authorities could potentially trace the purchaser of a bond, the electorate remained unaware of who financed political parties. Such secrecy, according to the challengers, undermined democratic accountability and violated citizens’ constitutional right to make informed electoral choices.
The constitutional validity of the scheme was challenged before the Supreme Court of India. The principal question before the Court was whether anonymous political funding, facilitated through Electoral Bonds, violated the principles of transparency, free and fair elections, equality, and the fundamental right to information guaranteed under the Constitution.
In Association for Democratic Reforms & Another v. Union of India (2024), a Constitution Bench of the Supreme Court unanimously declared the Electoral Bonds Scheme unconstitutional. The Court held that unrestricted anonymity in political donations disproportionately infringed the citizens’ Right to Information under Article 19(1)(a) and weakened democratic accountability. The judgment reaffirmed that informed voting is an indispensable component of representative democracy and that transparency in political finance is essential to preserve public confidence in electoral institutions.
Accordingly, the verdict has become one of the most significant constitutional decisions on electoral reforms in recent years and has reignited the debate on balancing donor privacy with the public’s right to know.
Use of Legal Jargon
The Electoral Bonds litigation involved several important constitutional and legal principles that define the relationship between electoral finance and democratic governance.
Constitutional Validity refers to judicial examination of whether a law or governmental policy conforms to the provisions and spirit of the Constitution of India.
Judicial Review is the power of constitutional courts to scrutinize legislative and executive actions and invalidate measures that violate constitutional guarantees.
Article 19(1)(a) guarantees the fundamental right to freedom of speech and expression. Judicial interpretation has consistently recognised that this provision also protects the Right to Information, particularly where access to information enables meaningful participation in democratic governance.
Article 14 embodies the principle of equality before law and prohibits arbitrary State action. Any legislative measure creating unreasonable classifications or manifest arbitrariness may be declared unconstitutional.
Free and Fair Elections constitute a part of the Constitution’s democratic framework and have repeatedly been recognised by the Supreme Court as an essential feature of India’s constitutional system.
Manifest Arbitrariness is a constitutional doctrine under which legislation may be invalidated if it is irrational, disproportionate, or lacks a reasonable nexus with its stated objective.
Proportionality Test is a constitutional standard used by courts to determine whether restrictions imposed by the State upon fundamental rights are necessary, suitable, and proportionate to the legitimate objective sought to be achieved.
Democratic Accountability refers to the constitutional obligation of elected representatives and political parties to remain answerable to the electorate regarding their financial support, policy decisions, and exercise of public power.
Transparency in Political Funding denotes disclosure of financial contributions made to political parties so that voters can evaluate potential conflicts of interest, influence over policymaking, and the integrity of democratic institutions.
The Supreme Court applied these constitutional doctrines while examining whether the objective of preventing black money could justify restricting citizens’ constitutional right to know the sources of political funding.
This completes Part 1 (around 800 words). In Part 2, I’ll write “The Proof” with constitutional provisions, statutory amendments, factual background, arguments of both sides, and then the Abstract exactly as required by your assignment.
The Proof
The Electoral Bonds Scheme was introduced by the Central Government through the Finance Act, 2017, which amended several existing laws governing political funding. Instead of enacting a separate legislation, the Government modified multiple statutes to facilitate anonymous donations through Electoral Bonds. These included the Representation of the People Act, 1951, the Companies Act, 2013, the Income-tax Act, 1961, and the Reserve Bank of India Act, 1934.
Under the Electoral Bonds Scheme, 2018, notified on 2 January 2018, Electoral Bonds were issued exclusively by the State Bank of India (SBI) in denominations ranging from ₹1,000 to ₹1 crore. Any Indian citizen or company incorporated in India could purchase these bonds through a KYC-compliant bank account and donate them to an eligible political party. Political parties registered under Section 29A of the Representation of the People Act, 1951, and which had secured at least one percent of the votes polled in the previous general election or Legislative Assembly election, were eligible to receive and encash these bonds within the prescribed validity period.
The Government defended the scheme by contending that it promoted transparency because donations were routed through formal banking channels rather than cash. It argued that mandatory KYC verification would discourage the circulation of black money and ensure that political contributions entered the formal financial system.
However, several constitutional concerns emerged.
One of the most significant changes was the amendment to Section 182 of the Companies Act, 2013. Before the amendment, a company could contribute only up to 7.5% of its average net profits during the preceding three financial years, and it was required to disclose the names of the political parties receiving such contributions in its profit and loss account. The Finance Act, 2017 removed both the contribution limit and the disclosure requirement. Consequently, even newly incorporated companies with no business operations or profitability could make unlimited political donations without publicly identifying the recipient political party.
Similarly, amendments to the Representation of the People Act, 1951 exempted political parties from reporting the identity of donors contributing through Electoral Bonds. Amendments to the Income-tax Act, 1961 further ensured that such anonymous donations continued to receive tax-related benefits if statutory conditions were satisfied.
The petitioners argued that these legislative changes substantially reduced transparency in political funding. Although the purchaser’s identity was recorded by the issuing bank, ordinary citizens, journalists, shareholders, and even many regulatory stakeholders were denied access to this information. This created an information imbalance where the Government could potentially identify donors while the electorate remained uninformed.
The challenge before the Supreme Court was primarily based on constitutional principles.
The petitioners, led by the Association for Democratic Reforms (ADR) and other organisations, argued that anonymous political funding violated the citizens’ Right to Information under Article 19(1)(a). They relied upon earlier judicial decisions recognisingthat informed voting is a necessary element of democratic participation. According to the petitioners, voters have a constitutional right to know who finances political parties because financial contributors may influence public policy, legislative priorities, and governmental decision-making.
Another important contention related to Article 14 of the Constitution. It was argued that removing disclosure obligations while permitting unlimited corporate donations created an arbitrary legal framework lacking adequate safeguards against undue political influence. The absence of transparency, coupled with unlimited corporate funding, was alleged to undermine the constitutional principle of equality and fair electoral competition.
The Union Government defended the scheme by asserting that donor confidentiality protected individuals and corporations from possible political victimisation or retaliation. It maintained that complete public disclosure might discourage legitimate political donations and drive contributors back towards unaccounted cash transactions. Therefore, according to the Government, confidentiality represented a reasonable legislative choice intended to encourage clean political funding.
After hearing extensive arguments, a five-judge Constitution Bench of the Supreme Court delivered its judgment on 15 February 2024. The Court unanimously held that the Electoral Bonds Scheme violated the constitutional guarantee under Article 19(1)(a) because it disproportionately restricted the voters’ right to access information regarding political funding.
The Court recognised that donor privacy may deserve protection in limited circumstances. Nevertheless, where financial contributions directly influence democratic governance and public decision-making, transparency assumes greater constitutional importance. The Court applied the doctrine of proportionality and concluded that the objective of preventing black money could have been achieved through less restrictive measures that did not completely deny citizens access to information.
The Supreme Court further observed that transparency in political finance is indispensable for ensuring electoral accountability. Anonymous funding creates the possibility of quid pro quo arrangements, conflicts of interest, and disproportionate influence by wealthy individuals or corporate entities. Since voters cannot meaningfully evaluate political decision-making without knowing the financial interests supporting political parties, the secrecy created by the Electoral Bonds Scheme was held to be constitutionally impermissible.
Consequently, the Court declared the Electoral Bonds Scheme unconstitutional, struck down the relevant amendments introduced through the Finance Act, 2017, and directed the State Bank of India to furnish details of Electoral Bond purchases and encashments to the Election Commission of India, which was instructed to publish the information in the interest of public transparency.
Abstract
The Electoral Bonds Scheme represented one of the most significant reforms in India’s political funding framework. While its stated objective was to reduce the use of black money by encouraging donations through formal banking channels, the anonymity granted to donors generated serious constitutional concerns regarding transparency, electoral accountability, and informed democratic participation.
This article examines the legal framework governing the Electoral Bonds Scheme, the statutory amendments introduced through the Finance Act, 2017, and the constitutional challenges raised before the Supreme Court of India. It analyses the competing arguments relating to donor privacy, the prevention of corruption, and the citizens’ fundamental right to information under Article 19(1)(a).
The article further evaluates the Supreme Court’s landmark judgment in Association for Democratic Reforms v. Union of India (2024), which declared the scheme unconstitutional on the ground that transparency in political funding forms an essential component of free and fair elections. The judgment reinforces the constitutional commitment to democratic accountability and establishes that electoral transparency cannot be sacrificed in the pursuit of administrative convenience or donor confidentiality.
Ultimately, the decision marks a significant milestone in India’s constitutional jurisprudence by reaffirming that an informed electorate is indispensable for preserving the integrity of representative democracy.
Case Laws
1. Association for Democratic Reforms & Another v. Union of India (2024)
Facts
The constitutional validity of the Electoral Bonds Scheme, 2018, along with the amendments introduced through the Finance Act, 2017, was challenged before the Supreme Court. The petitioners contended that the scheme enabled anonymous political funding, thereby depriving voters of information regarding the financial contributors to political parties.
Issues
• Whether the Electoral Bonds Scheme violated Article 19(1)(a) by restricting the citizens’ Right to Information.
• Whether the amendments permitting anonymous and unlimited corporate donations were constitutionally valid.
• Whether the objective of preventing black money justified the restrictions imposed on electoral transparency.
Judgment
A five-judge Constitution Bench unanimously held that the Electoral Bonds Scheme was unconstitutional. The Court ruled that the secrecy surrounding political donations disproportionately infringed the voters’ Right to Information, which is an integral component of the freedom of speech and expression guaranteed under Article 19(1)(a). The Court also struck down the relevant amendments made through the Finance Act, 2017, and directed the State Bank of India to disclose Electoral Bond transaction details to the Election Commission of India for publication.
2. Union of India v. Association for Democratic Reforms (2002) 5 SCC 294
Facts
The Association for Democratic Reforms sought mandatory disclosure of criminal antecedents, educational qualifications, and financial assets of electoral candidates before elections. The matter eventually reached the Supreme Court.
Issues
• Whether voters possess a constitutional right to know relevant information about election candidates.
• Whether such disclosure forms part of the freedom guaranteed under Article 19(1)(a).
Judgment
The Supreme Court held that the Right to Information concerning election candidates is a part of the fundamental right to freedom of speech and expression. The Court directed the Election Commission to require candidates to disclose their criminal records, educational qualifications, assets, and liabilities.
3. People’s Union for Civil Liberties (PUCL) v. Union of India (2003)
Facts
The constitutional validity of legislative amendments restricting disclosure obligations imposed upon electoral candidates was challenged before the Supreme Court.
Issues
• Whether Parliament could curtail the information available to voters regarding election candidates.
• Whether the Right to Information is protected under Article 19(1)(a).
Judgment
The Supreme Court reaffirmed that citizens possess a constitutional right to know material information relating to electoral candidates. It held that free expression in a democracy includes the right to receive information necessary for exercising the right to vote meaningfully.
4. Justice K.S. Puttaswamy (Retd.) v. Union of India (2017)
Facts
A nine-judge Constitution Bench examined whether the Constitution recognises the Right to Privacy as a fundamental right.
Issues
• Whether privacy is protected under Part III of the Constitution.
• How courts should balance competing fundamental rights.
Judgment
The Supreme Court unanimously recognised the Right to Privacy as a fundamental right protected under Articles 14, 19, and 21. However, it also held that privacy is not absolute and may be restricted if the State satisfies the constitutional test of legality, necessity, and proportionality.
5. Indira Nehru Gandhi v. Raj Narain (1975)
Facts
The constitutional validity of the Thirty-ninth Constitutional Amendment, which sought to immunise the election of the Prime Minister from judicial scrutiny, was challenged before the Supreme Court.
Issues
• Whether Parliament could exclude judicial review in election disputes.
• Whether free and fair elections constitute part of the Constitution’s basic structure. n
Judgment
The Supreme Court invalidated the constitutional amendment to the extent that it excluded judicial review and reaffirmed that free and fair elections form part of the Basic Structure of the Constitution.
Conclusion
The Electoral Bonds Scheme was introduced with the objective of reducing the use of black money in political funding by encouraging donations through formal banking channels. While the scheme sought to improve financial accountability, its provision for anonymous political contributions raised significant constitutional concerns regarding transparency, electoral fairness, and democratic accountability.
The Supreme Court’s judgment in Association for Democratic Reforms & Another v. Union of India (2024) reaffirmed that democracy thrives on an informed electorate. The Court held that the citizens’ Right to Information under Article 19(1)(a)extends to knowing the financial sources of political parties, as such information enables voters to make informed electoral choices. By striking down the Electoral Bonds Scheme, the Court reinforced the constitutional principles of transparency, equality, and free and fair elections.
The judgment does not undermine the importance of political funding; rather, it emphasises that the process of financing political parties must be consistent with constitutional values. While protecting donors from unnecessary harassment is a legitimate concern, complete secrecy in political contributions cannot be justified when it affects public confidence in democratic institutions. The decision therefore strikes a balance between electoral integrity and constitutional accountability.
Going forward, India requires a political funding framework that promotes transparency, ensures adequate disclosure, prevents corruption, and maintains public trust in the electoral process. The Electoral Bonds verdict will remain a landmark in Indian constitutional jurisprudence, serving as an important precedent for future electoral reforms and strengthening the foundations of participatory democracy.
(FAQs)
Q1. What was the Electoral Bonds Scheme?
Answer: The Electoral Bonds Scheme, introduced in 2018, allowed individuals and eligible companies to purchase bonds from the State Bank of India and donate them to registered political parties through the banking system while keeping the donor’s identity confidential from the public.
Q2. Why was the Electoral Bonds Scheme challenged before the Supreme Court?
Answer: The scheme was challenged because it permitted anonymous political donations, which allegedly violated the citizens’ Right to Information, reduced transparency in political funding, and weakened democratic accountability.
Q3. Which constitutional provisions were central to the dispute?
Answer: The principal constitutional provisions were Article 19(1)(a) (Freedom of Speech and Expression, including the Right to Information) and Article 14 (Equality before Law). The case also involved constitutional principles relating to free and fair elections and democratic accountability.
Q4. What did the Supreme Court decide in 2024?
Answer: The Supreme Court unanimously declared the Electoral Bonds Scheme unconstitutional, holding that the anonymity of political donations disproportionately infringed the voters’ Right to Information and was inconsistent with constitutional principles of transparency in elections.
Q5. Why is the Electoral Bonds judgment considered a landmark decision?
Answer: The judgment strengthened the constitutional principle that transparency in political funding is essential for free and fair elections. It reaffirmed that informed voting is a fundamental aspect of democracy and that citizens have the right to know who finances political parties.
Q6. What is the significance of this judgment for India’s democracy?
Answer: The decision reinforces public accountability, promotes transparency in electoral finance, and guides future reforms aimed at ensuring that political funding remains consistent with constitutional values and democratic governance.
