Author: Sakshmit Mathur, Amity Law School, Noida
Abstract
The Electoral Bond Scheme, introduced in 2018, was presented as a tool to cleanse political funding in India by promoting transparency and accountability. However, it has since emerged as a conduit for corporate secrecy and anonymous political donations. This article critically examines the legality and constitutional validity of the Electoral Bond Scheme, focusing on the intersection between corporate donations and electoral transparency. It analyses statutory amendments, the role of corporate entities in political financing, judicial responses, and culminates in a discussion on the recent Supreme Court verdict that struck down the scheme. The article aims to offer a balanced legal perspective, fortified with relevant case laws, statutory provisions, and legal commentary, while suggesting reforms to ensure transparent and accountable political funding.
Introduction
Political financing is the lifeline of electoral democracy. However, unregulated and opaque funding can compromise democratic integrity. In India, corporate donations to political parties have long been a contentious issue, raising concerns over quid pro quo arrangements, undue influence, and lack of transparency.
In 2018, the Government of India introduced the Electoral Bond Scheme (“EBS”) as a part of the Finance Act, 2017, which enabled anonymous donations to political parties through bearer bonds. The stated aim was to formalize donations and reduce cash-based transactions. However, the scheme permitted unlimited and anonymous corporate donations without any requirement of disclosure—raising alarms about corporate secrecy, loss of shareholder accountability, and constitutional violations.
This article provides a comprehensive legal analysis of electoral bonds in the context of corporate political donations, examining legislative developments, judicial scrutiny, and the constitutional balance between transparency, privacy, and democratic accountability.
To the Point
1. What are Electoral Bonds?
Electoral Bonds are financial instruments akin to promissory notes that are issued by the State Bank of India (SBI) under the Electoral Bond Scheme, 2018. These are:
- They are issued in values between ₹1,000 to ₹1 crore.
- Bearer instruments-Bond is not maintained by the record of the buyer.
- Purchasable by individuals and corporate entities.
- Redeemable only by eligible political parties within 15 days of issuance.
This mechanism allowed donors, especially corporates, to contribute to political parties while retaining anonymity, both from the public and from other political rivals.
2. Legislative Amendments Enabling Electoral Bonds
The Electoral Bond Scheme was enabled through crucial legislative changes, notably:
- Representation of the People Act, 1951: Amended to remove the requirement of disclosing the names of donors contributing via electoral bonds.
- Companies Act, 2013: Section 182 amended to:
- Remove the cap of 7.5% of net profits on corporate donations.
- Eliminate the requirement to disclose the names of political parties to whom donations were made.
- Income Tax Act, 1961: Amended to exempt political parties from maintaining records of donations received via electoral bonds.
- Reserve Bank of India Act, 1934: The amendment made to Section 31 powers the SBI to issue bearer bonds which are outside the usual checks set by RBI which regulates such currency-like bonds.
These amendments were passed through the Finance Act, 2017 as a money bill, bypassing Rajya Sabha scrutiny—raising procedural and constitutional questions.
3. Corporate Secrecy and Lack of Accountability
The Electoral Bond Scheme has been widely criticized for enabling corporate secrecy. Key concerns include:
- Anonymity of Donors: Corporations were not required to disclose the identity of the recipient political party, violating principles of transparency.
- Unlimited Donations: The cap on donations based on a company’s net profit was removed, permitting shell companies or loss-making firms to make large contributions.
- Lack of Shareholder Oversight: Shareholders of public companies remained unaware of how company funds were being used for political purposes.
These elements created an opaque ecosystem wherein companies could fund political parties—often the ruling party—without public accountability or regulatory oversight.
Use of Legal Jargon
- Quid pro quo: A Latin term that translates to a trade of a favour or a reward in exchange of something later onwards; the case of the exchange of political favours that are bought and sold in exchange of donations.
- Transparency and Accountability: Principles of governance that require openness in financial transactions and decision-making.
- Money Bill: Defined under Article 110 of the Constitution; a bill that contains provisions dealing with taxes, borrowing of money, or expenditure from the Consolidated Fund of India. It cannot be amended or rejected by Rajya Sabha.
- Manifest Arbitrariness: A constitutional ground for striking down legislation that lacks fair and reasonable justification.
- Doctrine of Proportionality: Used in constitutional analysis to ensure that limitations on fundamental rights are balanced and justified.
The Proof: Facts, Reports, and Authorities
1. Data and Disclosures
According to the Association for Democratic Reforms (ADR) and Election Commission of India (ECI):
- Electoral bonds worth over ₹16,000 crore were sold between March 2018 and January 2024.
- More than 95% of donations went to Bharatiya Janata Party (BJP), highlighting potential misuse of power and political bias.
2. Regulatory Objections
- The Election Commission of India, in an affidavit to the Supreme Court, expressed concerns about the lack of transparency in political funding due to the Electoral Bond Scheme.
- The Reserve Bank of India (RBI) opposed the introduction of bearer bonds, warning that it could undermine the country’s monetary system and facilitate money laundering.
- The Law Ministry overruled the concerns of both ECI and RBI, stating that secrecy was necessary to protect donor privacy and prevent political victimization.
3. Corporate Influence and Misuse
- The Hindenburg Research report on Adani Group and investigative reports by independent journalists (such as Reporters’ Collective and News laundry) revealed patterns of corporate donations closely preceding major government contracts or regulatory relief.
- Shell companies and loss-making firms made substantial donations via electoral bonds, indicating possible kickbacks or indirect benefits.
Case Laws: Judicial Scrutiny and Landmark Precedents
1. Association for Democratic Reforms v. Union of India (2002)
Citation: AIR 2002 SC 2112
The Supreme Court, in this seminal judgment, held that the right to know the antecedents of candidates contesting elections was part of the fundamental right to freedom of speech and expression under Article 19(1)(a). Though the case focused on candidate disclosures, the ruling established that electoral transparency is central to participatory democracy.
This principle laid the groundwork for challenging the Electoral Bonds Scheme on the grounds that secrecy violates citizens’ right to informed voting.
2. PUCL v. Union of India (2003)
Citation: (2003) 4 SCC 399
The Court emphasized that democracy cannot thrive unless citizens have the right to know about the functioning of their government and representatives. It interpreted Article 19(1)(a) broadly to include the right to know about political financing and governance practices.
3. Lok Prahari v. Union of India (2018)
Citation: (2018) 4 SCC 699
In this case, the Court reiterated that electoral reforms and transparency in political funding are critical to preventing corruption and fostering public confidence in democracy. Although it did not deal directly with electoral bonds, it reflected the judiciary’s concern over unregulated political funding.
4. Association for Democratic Reforms v. Union of India (2023)
Case challenging Electoral Bonds Scheme
The petitioners (ADR, Common Cause, and others) challenged the constitutional validity of the Electoral Bond Scheme on multiple grounds:
- Violates Article 19(1)(a) – Right to information about political funding.
- Undermines democratic accountability and equality of political participation.
- The passage of enabling provisions via Money Bill was unconstitutional under Article 110.
5. Supreme Court of India, Constitution Bench Judgment (Feb 15, 2024)
Citation: ADR v. Union of India, Writ Petition (Civil) No. 880/2017
The 5-Judge Constitution Bench in a landmark judgement ruled unanimously that the Electoral Bond Scheme was unconstitutional on the ground that:
- Corporate donations without disclosure violate Article 19(1)(a).
- Unlimited corporate donations amount to manifest arbitrariness under Article 14.
- The adoption of Money Bill procedure to pass amendments was unconstitutional and it bypassed scrutiny by both houses.
- Directive of State bank of India was directed to release information on purchase and redemption of bonds.
Chief Justice D.Y. Chandrachud, writing for the bench, emphasized that voters have a right to know the financial backers of political parties to make informed electoral choices.
This ruling has become a defining precedent for future electoral reforms in India.
Conclusion: Toward Transparent and Accountable Political Funding
The Electoral Bond Scheme, while introduced with a promise of reform, effectively institutionalized opacity in political funding—especially through corporate entities. The legislative amendments allowed corporate donors to influence electoral outcomes without scrutiny or accountability, thereby undermining democratic principles.
The Supreme Court’s 2024 judgment is a watershed moment that restores the balance between donor privacy and public interest. It reasserts the constitutional primacy of transparency, equality, and informed participation in the electoral process.
However, the path forward demands more than judicial intervention. It requires legislative reforms, institutional vigilance, and citizen activism. Some suggestions include:
- Enacting a comprehensive Political Funding Transparency Law.
- Imposing caps on corporate donations linked to net profit and requiring shareholder approval.
- Mandating quarterly disclosures of political donations.
- Strengthening independent institutions like the Election Commission to audit and regulate political financing.
Only through such systemic reforms can India aspire to build a democratic framework that is not only electorally vibrant but ethically robust.
FAQs (Frequently Asked Questions)
Q1: What are Electoral Bonds?
Electoral Bonds are bearer instruments introduced by the Government of India in 2018, allowing individuals and companies to make anonymous donations to political parties.
Q2: Why were Electoral Bonds declared unconstitutional by the Supreme Court?
The Court held that the scheme violated the right to information under Article 19(1)(a), promoted corporate opacity, and was passed improperly through a Money Bill.
Q3: Can companies still donate to political parties?
Yes, but post the 2024 ruling, such donations must be transparent. Companies are expected to disclose the amount and recipient political party in compliance with the Companies Act and Election Commission regulations.
Q4: What was the issue with the “Money Bill” route in this case?
The enabling provisions became law through the Finance Act, 2017 that bypassed scrutiny in Rajya Sabha. The Supreme Court ruled this misuse of the Money Bill provision unconstitutional.
Q5: Do electoral bonds exist in other countries?
No. India’s electoral bond mechanism was unique and had no global precedent, particularly due to its provision for total anonymity in political donations.
Q6: Were opposition parties also beneficiaries of electoral bonds?
Yes, but disproportionately. Over 90% of donations via electoral bonds went to the ruling party, raising concerns about political favouritism.
Q7: Can voters access information about who donates to political parties now?
Yes. Following the Supreme Court’s 2024 ruling, SBI has been ordered to disclose all details of bond purchases and redemptions, which are now publicly accessible.
Q8: How can corporate political donations be regulated in a fair way?
Possible methods include:
- Restoring donation caps.
- Mandating board and shareholder approval.
- Requiring timely disclosures to regulators and the public.
Q9: What is the role of the Election Commission in political funding regulation?
The Election Commission is tasked with ensuring free and fair elections. It plays a critical role in auditing political parties’ finances and recommending reforms to the government.
Q10: What reforms are expected after the 2024 judgment?
The government may consider new legislation regulating political donations with enhanced transparency norms. Civil society groups are also pushing for broader electoral and democratic reforms.
