Author: Manisha. K, Christ Academy Institute of Law
To the Point
The Electoral Bond Scheme (EBS) was introduced in 2018 by the Indian government to reform political funding and reduce the use of black money in elections. Under the scheme, donors could purchase electoral bonds from designated branches of the State Bank of India (SBI) and donate them to political parties anonymously. The parties could then encash these bonds within a specific timeframe through verified bank accounts. At first glance, the scheme seemed to formalize and regulate donations through banking channels. However, it soon attracted criticism from legal experts, civil society, and opposition parties for severely compromising transparency in political funding.
The core concern was that the scheme institutionalized donor anonymity, making it impossible for citizens to know who funded which political party. This lack of disclosure contravenes the principle of an informed electorate, which is essential in a democracy. Amendments to laws like the Companies Act, Representation of the People Act, and Foreign Contribution Regulation Act (FCRA) removed caps on corporate donations and erased the need for companies to disclose recipient parties. This opened the floodgates for unlimited and opaque corporate funding, including from potentially foreign entities.
Moreover, the data revealed that the ruling party received the lion’s share of electoral bond donations, raising questions about the misuse of state machinery, unequal political competition, and coercive fundraising. The use of a Money Bill to introduce the scheme meant bypassing the Rajya Sabha, weakening parliamentary scrutiny. These developments sparked concerns about executive overreach, colourable legislation, and a weakening of institutional checks and balances.
The matter reached the Supreme Court, and in February 2024, a Constitution Bench declared the Electoral Bond Scheme unconstitutional. The Court held that anonymous donations violated the right to information under Article 19(1)(a), undermined electoral transparency, and distorted democratic equality.
The Electoral Bond Scheme, though initiated with promises of reform, ended up eroding electoral accountability and enabling corporate influence over political outcomes. This episode underscores the urgent need for comprehensive political funding reforms rooted in transparency, disclosure, and constitutional integrity.
Use of Legal Jargon
The debate surrounding electoral bonds is rooted in several key constitutional and legal doctrines. At the heart of the controversy is Article 19(1)(a) of the Constitution of India, which guarantees the freedom of speech and expression. The right to know, a vital component of this freedom, has been judicially recognized as essential for an informed electorate. In PUCL v. Union of India (2003), the Supreme Court held that voters have a right to know the financial background and sources of funding of candidates and parties, as it directly affects electoral choices.
The Electoral Bond Scheme (EBS) bypassed this principle by permitting anonymous political donations, thereby obscuring the financial relationship between donors and political parties. This opacity was further entrenched through amendments made via the Finance Act, 2017, which was controversially passed as a Money Bill under Article 110. Critics argue that this classification was an act of colourable legislation, as it allowed the government to bypass the Rajya Sabha, undermining the principle of bicameral scrutiny.
The scheme also removed essential safeguards from the Companies Act, 2013, including the 7.5% cap on corporate donations and the mandatory disclosure of recipient political parties in financial statements. These changes diluted corporate governance norms and created avenues for shell companies and foreign-controlled entities to influence Indian politics, raising issues under Article 14 (right to equality) and Article 326 (free and fair elections).
Moreover, the amendments to the Foreign Contribution Regulation Act (FCRA) allowed foreign companies with Indian subsidiaries to fund Indian political parties—posing a threat to electoral sovereignty.
The Supreme Court, in Association for Democratic Reforms v. Union of India (2024), invoked the doctrine of proportionality and held that the infringement of citizens’ fundamental rights could not be justified by the state’s claim of preventing black money. The judgment reinforced that transparency and accountability are non-negotiable features of India’s constitutional democracy.
Thus, the use of legal jargon in this context underscores how electoral bonds disrupted the delicate constitutional balance between state regulation, citizen rights, and democratic integrity.
The Proof
The unconstitutionality of the Electoral Bond Scheme was established through a combination of judicial findings, expert reports, and data analysis. The Supreme Court’s landmark judgment in Association for Democratic Reforms v. Union of India (2024) provided the most decisive proof. The Court held that anonymous political donations violate the fundamental right to information under Article 19(1)(a), which is essential for informed electoral participation.
The Court emphasized that transparency in political funding is critical to ensuring electoral integrity and a level playing field. It found that the scheme disproportionately benefited the ruling party, which received over 90% of total donations through electoral bonds in several financial years. This skewed funding pattern was seen as undermining electoral competitiveness and political equality, which are fundamental to democracy under Article 14.
Further, internal documents and affidavits presented during the case showed that the Election Commission of India (ECI) had earlier raised strong objections to the scheme, warning that it would seriously compromise transparency and open the door to corporate influence and foreign funding.
Investigations by civil society groups like Association for Democratic Reforms (ADR) and responses obtained through the Right to Information (RTI) Act revealed that the State Bank of India (SBI) had records of bond serial numbers and donor identities. This exposed the false claim of total anonymity and indicated a dangerous imbalance—the government could know the donors, but the public could not. Such access could potentially lead to coercion, favoritism, or policy capture.
Thus, the available judicial and factual evidence overwhelmingly established that the Electoral Bond Scheme failed its constitutional test by enabling opaque, unequal, and potentially coercive political funding mechanisms, thereby threatening the very foundation of Indian democracy.
Abstract
The Electoral Bond Scheme (EBS), introduced by the Indian government in 2018, was presented as a progressive step toward curbing black money in elections and ensuring clean political financing. The scheme allowed individuals and corporations to purchase bonds from the State Bank of India (SBI) and donate them to political parties anonymously. While it was promoted as a move toward transparency by encouraging banking transactions over cash donations, the scheme soon came under legal and ethical scrutiny for fostering opaqueness, unequal influence, and a lack of accountability in political funding. This article examines the constitutional, legal, and democratic implications of the Electoral Bond Scheme, highlighting how it undermined transparency, voter rights, and electoral fairness. Amendments introduced through the Finance Act, 2017, notably via the Money Bill route, altered key provisions of the Companies Act, Representation of the People Act, and FCRA—allowing for unlimited, undisclosed donations by corporations and even foreign entities. This created an environment where corporate lobbying, political favoritism, and policy capture became increasingly plausible. The turning point came with the Supreme Court’s 2024 judgment in Association for Democratic Reforms v. Union of India, which struck down the scheme as unconstitutional. The Court ruled that the anonymity of donors infringed upon the citizens’ right to know under Article 19(1)(a) and distorted the electoral playing field. By analyzing legal texts, court judgments, expert reports, and data from election watchdogs, this article establishes that the Electoral Bond Scheme, despite its stated aims, resulted in a concentration of political power, erosion of democratic accountability, and undermining of constitutional principles. It argues for the urgent need to implement transparent, equitable, and accountable mechanisms for political funding in India’s democratic process.
Case Laws
Association for Democratic Reforms v. Union of India (2024)
Citation: (2024) 6 SCC 1
This landmark 5-judge Constitution Bench judgment of the Supreme Court struck down the Electoral Bond Scheme as unconstitutional. The Court held that anonymous political donations violate the right to information under Article 19(1)(a). It emphasized that the scheme disproportionately benefited the ruling party and created an opaque mechanism for political contributions. The judgment also criticized the misuse of the Money Bill route to push through amendments without adequate parliamentary debate.
People’s Union for Civil Liberties (PUCL) v. Union of India (2003)
Citation: (2003) 4 SCC 399
In this foundational case, the Supreme Court recognized that the right to know the background of electoral candidates is part of the freedom of speech and expression under Article 19(1)(a). This case laid the groundwork for extending the right to know to political party funding, reinforcing the importance of electoral transparency for a functional democracy.
K.S. Puttaswamy v. Union of India (2017)
Citation: (2017) 10 SCC 1
Although primarily a privacy case, the Supreme Court held that informational privacy is a part of Article 21. It also reiterated that the state must be transparent and accountable, especially in matters impacting public interest, including political financing.
Rojer Mathew v. South Indian Bank Ltd. (2019)
Citation: (2020) 6 SCC 1
This case questioned the classification of bills as Money Bills under Article 110 and stated that such classification is not immune from judicial review. The principles laid down here were later relied upon in the 2024 Electoral Bond judgment.
Union of India v. Association for Democratic Reforms (2002)
Citation: (2002) 5 SCC 294
This earlier case, often cited with PUCL, held that voter awareness about candidates and political parties is a fundamental right. The Court ruled in favor of disclosing criminal and financial antecedents, forming the basis for later challenges to anonymous political funding.
Conclusion
The Electoral Bond Scheme, intended to reform political funding, ultimately undermined the very democratic principles it sought to protect. By enabling anonymous and unlimited donations from corporations, including potential foreign entities, it severely diluted transparency, accountability, and fairness in the electoral process. The scheme allowed for opaque transactions, disproportionately benefited the ruling party, and created a breeding ground for quid pro quo arrangements between donors and political entities.
A larger institutional issue executive overreach and parliamentary bypassing, was brought to light by the use of the Money Bill method to change important legislation such as the Companies Act, FCRA, and Representation of the People Act. A key component of India’s parliamentary democracy, bicameral legislative scrutiny, is compromised by such procedural manipulation.
The Supreme Court’s 2024 verdict quashing the scheme re-established the importance of the citizen’s right to know and reaffirmed that political transparency is a constitutional necessity, not a policy choice. The judgment also clarified that parliamentary processes and fundamental rights cannot be circumvented under the guise of administrative convenience or financial regulation.
As India continues to evolve as a democracy, the focus must shift to robust reforms in political finance, including: Mandatory real-time disclosure of donations, Reinstating caps on corporate contributions, Prohibiting foreign influence and Enhancing the powers of the Election Commission of India
True electoral reform requires consultative lawmaking, civil society involvement, and judicial vigilance. Political funding must be transparent and equitable, ensuring that no single entity or party can monopolize the democratic space through financial dominance. Only then can India fulfill the constitutional promise of free and fair elections.
FAQS
what are electoral bonds?
Electoral bonds were financial instruments introduced in 2018 that allowed anonymous donations to political parties via State Bank of India.
What caused the Supreme Court to invalidate the plan?
The Court held it violated the voter’s right to information under Article 19(1)(a) and created an unfair and opaque political funding system.
How did the scheme benefit ruling parties?
Data showed that over 90% of bond donations went to the ruling party, raising concerns about unequal competition and state coercion.
What was the role of the Money Bill in this issue?
The government used a Money Bill to pass amendments without Rajya Sabha approval, undermining legislative scrutiny.
What reforms are needed in political funding?
Reforms should include donation caps, real-time public disclosures, ban on foreign and anonymous funding, and independent oversight by the Election Commission.
