Author: Sahajal Meena, Dharmashastra National Law University
To the Point
The Electoral Bond Scheme (2018) was introduced via Finance Act 2017 as a bearer instrument for anonymous donations to political parties, sold through specified SBI branches. Donors complete KYC processes with SBI, but party identities are not made public.The scheme was challenged by ADR, Common Cause, CPI(M) and others on grounds of unconstitutionality (breach of Articles 19(1)(a), 14, 21) and misuse of the money bill route. The Election Commission also warned that it undermines transparency.
On 15 Feb 2024, a five-judge Constitution Bench of the Supreme Court unanimously struck down the Electoral Bond Scheme and related amendments to the Representation of People Act, Companies Act, and Income Tax Act. The Court held that anonymity under the Scheme violates voters’ right to information (Article 19(1)(a) read with Article 14’s “one person, one vote” ethos), and that allowing unlimited corporate donations is arbitrary and against free elections. The verdict requires SBI to disclose donor/recipient data to the Election Commission, bolstering political funding transparency and accountability in India.
Use of Legal Jargon
An electoral bond: is a financial instrument through which individuals or entities can donate money to political parties in India anonymously. It is issued by select banks and can be redeemed only by eligible political parties.
Right to Information (RTI) v. Right to Privacy: Under Art.19(1)(a), voters have a facet of free speech giving them information to cast informed votes (see PUCL v. UoI, Union of India v. ADR). Donor anonymity implicates donor privacy (recognized under Art.21, Puttaswamy), but no hierarchy exists between informational privacy and right to know.
Article 14 (Equality): The “one person, one vote” principle requires a level playing field. Unlimited corporate funding was deemed arbitrary and violative of equality, as it enables disproportionate influence by a few (Manifest Arbitrariness test).
Quid Pro Quo & Cronyism: The Court noted that anonymous funding fosters quid pro quo arrangements (corrupt exchanges) and crony capitalism, threatening democratic integrity.
Amendments to Election Law: S.137 of the 2017 Finance Act (RPA §29C) exempted Electoral Bond receipts from parties’ published “Contribution Reports.” S.154 (Companies Act §182) removed the 7.5% profit cap on corporate donations and disclosure requirements. These impugned provisions facilitated secrecy.
Proportionality Test: The judgment applied a four pronged test (Modern Dental v. M.P.) to justify any curtailment of fundamental rights. The Court found the objectives (curbing black money, protecting donor privacy) not sufficiently linked to the means (the Scheme’s secrecy), failing the test on suitability, necessity, and balance.
Manifest Arbitrary: A constitutional doctrine that legislation must not be irrational or discriminatory. The Unlimited corporate donations amendment was struck as “manifestly arbitrary” (no rational basis to equate individuals and corporates or to remove caps).
The Proof
The Electoral Bond Scheme was launched in January 2018 (via Finance Act 2017 and a Gazette notification) to “cleanse” political funding by channeling donations through State Bank of India (SBI) without naming donors. Bonds (₹1,000 to ₹1 crore) were sold quarterly for 10 days, and parties must encash within 15 days or forfeit to the PM Relief Fund. Crucially, only SBI (a government‐controlled entity) knows buyer identities (KYC records), keeping funding opaque to the public and opposition.
Legislative Amendments – Enabling the Scheme In 2017, Parliament enacted sweeping changes:
Companies Act (Section 182): Finance Act 2017 (s.154) removed the 7.5% profit cap on corporate donations and scrapped the requirement to disclose donee party names in accounts. Before this, companies had limited political donations and had to name recipient parties. The amendment allowed unlimited corporate funding with no disclosure – a key “proof” enabling large secret inflows.
Representation of People Act (Section 29C): A proviso (s.137) exempted electoral bond contributions from parties’ “Contribution Reports,” meaning parties need not publish these donations. The Act’s transparency provisions were thus undercut, keeping the public in the dark.
Income Tax Act (Section 13A): An amendment (s.11 of Finance Act) excused parties from detailed record-keeping of bond contributions.
RBI Act (Section 31): Amended (s.135) to authorize a scheduled bank (SBI) to issue electoral bonds.
Foreign Contribution (Reg.) Act: Earlier (2016) amendments allowed foreign‐owned companies to donate to parties, by expanding “foreign source” definition. These legal changes together created a framework where any person or company could buy bonds anonymously, and parties had no obligation to reveal donors or amounts. The petitions before the Court attacked these amendments as money bill abuses and as violations of fundamental rights, particularly transparency in political funding.
Voters’ Right to Information (Art.19(1)(a)):
A central pillar of the Court’s reasoning was that voters need to know who funds parties to make informed choices. CJI Chandrachud’s majority opinion held that the right to free speech/expression under Art.19(1)(a) encompasses a right to information about political affairs. The Court invoked earlier precedents (e.g. Union of India v. ADR (2002), PUCL v. Union of India (2003)) which found disclosure of candidate finances essential to effective voting. By analogy, transparency of party funding is equally critical: parties form governments and their policies reflect their financiers’ interests. The Electoral Bonds Scheme, by design, made all large contributions anonymous, thereby “disproportionately restrict[ing]” voters’ right to information. The Court held this restriction not justified by any Article 19(2) exception. The stated goal of curbing black money in elections does not fall under the eight grounds of permissible restrictions. Even if it were a legitimate aim, the bond scheme was found over-inclusive: other methods (e.g. trusted electoral trusts or enforcing existing disclosure rules) could curb illicit money without eliminating transparency. Thus, the secrecy embedded in the law failed the proportionality test: it was not the least intrusive or the most effective means. Hence, “the Electoral Bond Scheme and impugned provisions…that anonymize contributions…are violative of Article 19(1)(a)” .
Equality and Electoral Integrity (Art.14):
The petitions also argued the scheme skewed the political playing field, imperiling “free and fair elections” which Art.14 and the constitutional scheme protect. The Court agreed, particularly faulting the unlimited corporate funding amendment as arbitrary. Previously, only profit‐making companies (with shareholder disclosures) could donate up to 7.5% of net profit; the amendment freed all companies (profit or loss) to give unlimited funds without accountability. The Court reasoned that removing these safeguards empowers corporations to “wield their clout and resources” to influence policy far beyond ordinary voters, violating the principle of equal political weight (“one person, one vote”). It emphasized that the fiscal capacity of companies is a matter of corporate law record, not an individual liberty, so privacy claims of companies do not outweigh voters’ interests.
Ultimately, the Court found the Companies Act amendment manifestly arbitrary: it treated individuals and corporations identically and did not guard against shell companies (which the 7.5% cap was meant to deter). Unlimited corporate donations were deemed “antithetical to free and fair elections”. As the RPA and IT Act amendments enabling secrecy were invalidated for violating Art.19, the corresponding Companies Act changes became otiose. In effect, the decision restores the pre-2017 regime of corporate funding limits and disclosures.
Personal Liberty & Privacy (Art.21):
Petitioners had also invoked Article 21 (life and personal liberty), arguing that corrupted electoral outcomes infringe citizens’ fundamental rights. The Court’s judgement, however, did not ground its decision primarily on Art.21. Instead, it juxtaposed the right to privacy of donors (an aspect of Art.21 Puttaswamy) with the right to information under Art.19, and held no constitutional hierarchy between them. The Court acknowledged privacy as a legitimate goal (protecting donors from retribution), but applied proportionality and found it insufficient to justify blanket anonymity. For instance, the RoPA/IT Act already balanced these interests: contributions below ₹20,000 need not be disclosed (protecting small donors’ privacy), whereas larger gifts are reported (protecting voter knowledge). By removing this balance, the Scheme was “not the least restrictive means.” Thus, while reaffirming privacy as fundamental, the Court stressed that transparency in political funding (a public interest tied to free elections) outweighs a donor’s anonymity when they contribute beyond de minimis amounts.
Transparency vs. Anonymity – The Wider Context:
The proof of these legal contentions lay in factual and policy considerations. Observers noted that by 2024 over half of all political funding had flowed through electoral bonds. Most strikingly, government parties (especially the ruling BJP) reaped far more from bonds than opposition: one analysis cited ~$788 million for BJP vs. $134 million for Congress. Critics pointed out the obvious asymmetry: since the ruling party’s leadership alone knew donors’ identities (via SBI/ECI data), donors preferred them, fearing retribution from opponents. This begged the question of how “secrecy” was truly maintained. Indeed, the Court agreed with petitioners that the scheme was not “foolproof”: the SBI and parties could collude to uncover donor names, defeating the supposed confidentiality promise. Meanwhile, other democratic countries mandate public disclosure of political funding – making India’s state of affairs an outlier. All this evidence underpinned the Court’s finding that electoral bonds entrenched selective transparency and risked corruption.
The Supreme Court’s Ruling and Directions:
For these reasons, the Supreme Court declared the Electoral Bond Scheme and all consequential amendments unconstitutional. The five-judge Bench (DY Chandrachud CJI et al.) issued sweeping directions: SBI must cease bond sales and furnish to the Election Commission all purchase and encashment data since April 12, 2019, including donor names and bond serials. The ECI must then publish this information (as ordered by March 2024) for public access. Unencashed bonds still valid must be returned and refunded. These measures aim to undo the opacity created by the scheme. As one succinct summary puts it: “Information about funding to a political party is essential for a voter to exercise their freedom to vote,” and thus the bonds’ anonymity “infringed…voters’ right to information”.
Abstract
The article has examined the Electoral Bond Scheme through an Indian constitutional lens. The Scheme, by enabling anonymous, unlimited political donations (especially corporate), raised questions under Articles 19(1)(a) (free speech/voter information), 14 (equality/one person-one vote), and 21 (privacy). We reviewed how Parliament amended the Companies Act and Representation of People Act to facilitate the bonds, and how civil society, the Election Commission, and political entities challenged this as eroding transparency. The Supreme Court’s February 2024 judgment is analyzed: it struck down the Scheme and related statutes, holding that secret funding impairs voters’ right to know and distorts electoral equality. Key legal doctrines (proportionality, arbitrariness) and precedents (ADR v. UOI, PUCL, Modern Dental) are discussed. Finally, the broader implications for party funding and democracy are considered: the need for a more open, accountable political financing regime, possibly via electoral trusts or reformed laws, is underscored by the Court and commentators.
Case Laws
Association for Democratic Reforms & Ors. v. Union of India (2024) – A Constitution Bench case (Writ Petition 880/2017) where the Supreme Court struck down the 2018 Electoral Bond Scheme and allied amendments as unconstitutional. It held the Scheme violates voters’ Art.19(1)(a) right to information and Art.14 principles of fair elections. (5-Judge, CJI Chandrachud)
PUCL v. Union of India, (2003) 4 SCC 399 – Earlier case affirming that Article 19(1)(a) entitles citizens to electoral information, enabling effective voting. Established that disclosure of election-related data falls under freedom of speech. This jurisprudence underpinned the 2024 judgment’s reasoning.
Union of India v. ADR, (2002) 5 SCC 294 – Held that candidates’ information (e.g. assets, criminal records) must be disclosed to voters. The 2024 Court extended this right of information to include political parties’ funding.
Modern Dental College v. Madhya Pradesh, (2016) 7 SCC 353 – Laid down the four-prong proportionality test for assessing restrictions on fundamental rights. The Electoral Bonds judgment applied this test to conclude the Scheme failed even the legitimacy and suitability prongs.
Anuradha Bhasin v. Union of India, (2020) 3 SCC 637 – Contributed to proportionality jurisprudence (here in the context of internet shutdowns), which the Court used in determining the necessity and balance of privacy vs. information rights.
K.S. Puttaswamy v. Union of India, (2017) 10 SCC 1 – Here, right to privacy was identified by supreme court as a fundamental right under Art.21. The 2024 Court acknowledged this landmark holding when weighing donor privacy, but found that the electoral context demands prioritizing transparency.
India CPI(M) v. Union of India & Ors. (2019) – A PIL filed by the Election Commission to enforce disclosure standards prior to the issuance of bonds. While not a final ratio on bonds, it shows institutional concern for funding transparency.
Conclusion
The Supreme Court’s decision on electoral bonds reaffirms the constitutional principle that “transparency is the antidote to corruption” in democratic funding. By invalidating the Scheme’s anonymity and unlimited corporate funding provisions, the Court underscored that voters’ right to informed choice and electoral equality outweigh unfettered donor confidentiality. In practical terms, this verdict heralds a return to stricter disclosure norms (complying with RoPA, Companies Act, etc.) unless Parliament enacts a compliant mechanism. The judgment also sets a precedent for interpreting Article 19(1)(a) expansively and applying rigorous tests to electoral regulations.
For political finance, the ruling imposes greater accountability: parties and donors can no longer hide behind bonds without consequence. This may dampen erstwhile opaque flows of money, though critics caution of unintended effects (e.g. resurgence of cash donations). As the Court and observers note, an alternative framework (such as a regulated Electoral Trust with mandatory disclosures) might balance the goals of clean funding and necessary privacy. Ultimately, the decision is a victory for democratic accountability in India. Moving forward, legislators and regulators must work within this constitutional compass to ensure political funding is both fair and transparent, thereby strengthening electoral integrity and public trust in democracy.
FAQS
Q: What were electoral bonds and why were they controversial?
A: Electoral bonds were bearer instruments (sold by SBI) allowing donors to contribute to political parties anonymously. They were controversial because they made all large donations secret, undermining statutory transparency (no public record of who gave money to which party). Critics feared this enabled quid-pro-quo corruption and gave an unfair advantage to the ruling party, which alone could see donors’ identities.
Q: How do electoral bonds affect Articles 19, 14 and 21 of the Constitution?
A: Article 19(1)(a) (free speech/expression) includes an implied right for voters to information essential to voting, which the Court said the bonds violated. Article 14 (equality) was offended by unlimited corporate funding, as it allowed disproportionate influence (undercutting equal vote weight). Article 21 (life and liberty) encompasses privacy; donors’ privacy claims were considered but deemed insufficient to override the public interest in transparent funding.
Q: What legislative changes enabled electoral bonds?
A: The Finance Act 2017 amended several laws: it exempted parties from disclosing bond donations in RPA Section 29C, removed the corporate donation cap (Companies Act §182) and disclosure requirements, and relieved parties of tracking bond receipts (IT Act §13A). Also, a 2022 amendment briefly increased bond sale days before an election. These changes collectively facilitated large, anonymous funding.
Q: What happens to the existing bonds and donations now?
A: Post-judgment, SBI was ordered to stop issuing bonds and to hand over all bond transaction data (purchasers, dates, denominations) since April 2019 to the Election Commission. The ECI must publish these details for public scrutiny. Unused bonds are to be returned to buyers. In effect, the previous secrecy is being undone by full disclosure of past donations.
Q: Can donors and parties still give money anonymously?
A: After the ruling, no legal mechanism like electoral bonds exists. Parties must revert to normal funding laws: corporate donations are again capped and disclosed, and all donations (above ₹20,000) must be reported by law. Congress and other parties had pledged to end electoral bonds, and the verdict now compels full transparency. Any future scheme would have to comply with constitutional requirements for openness.
