ELECTORAL BONDS IN INDIA: A COMPRESHENSIVE ANALYSIS OF THEIR IMPACT, LEGAL CHALLEMGES, AND THE SUPREME COURT’S VERDICT

Author: Sujen Rafik Shaikh, Siddharth College of Law, Mumbai

Electoral Bonds Scheme Declared Unconstitutional: A Landmark Judgement for Transparency in Political Funding

• Abstract 

The Electoral Bonds Scheme, introduced in India in 2018, was marketed as a revolutionary step to cleanse political funding by reducing the influence of black money. However, it soon became an issue of extreme controversy and criticism for lack of transparency and accountability. In a landmark judgement passed in 2024, the Supreme Court of India declared the scheme unconstitutional and set it aside. The Court held that the scheme was violative of the Right to Information, the principle of free and fair elections, and the doctrine of equality. This article is comprehensive analysis of the Electoral Bond Scheme, its legal challenges, the Supreme Court’s reasoning, and the implications of its verdict. It also discusses key case laws, judicial comments, and the broader impact on Indian Democratic framework. Further, it critically analyzes the funding pattern revealed after the Supreme Court’s verdict, how the scheme was harmful and dangerous for a democratic country like India.  

• Introduction 

Political funding has always been a contentious topic in India; issues such as corruption, black money, and lack of transparency dominate the narrative. In the year 2018, the Government of India initiated the Electoral Bonds Scheme for political funding. This scheme empowered the citizens of India and all corporate houses in India to give anonymous donations by buying bonds issued by the eligible banks. While the government claimed it will reduce the use of black money in the elections, the scheme was highly criticized by bringing more obscurity to the source of the political fundings and undermining transparency and accountability. The scheme faces immediate legal challenges when several petitioner averred violations of the fundamental rights and democratic principles. After years of deliberation, the Supreme Court of India, in 2024, finally give a landmark Judgement that striking down the scheme and reiterated the significance of transparency in political funding.

• Key Points

1. What are Electoral Bonds?

Electoral Bonds were introduced as part of the Finance Act 2017, and officially launched in January 2018. These bonds were essentially financial instruments that could be purchased by individuals or corporations from specified branches of the State Bank of India (SBI). The bonds could then be donated to registered political parties, which could encash them through their verified accounts.

Key features of the scheme included

• Anonymity: The identity of the donor was kept confidential, with neither the government nor the public having access to this information.
• No Limits on Donations: There were no caps on the amount that could be donated through electoral bonds.
• Eligibility: Only political parties that secured at least 1% of the votes in the previous general election were eligible to receive donations through electoral bonds.

While the government argued that the scheme would reduce the use of cash and black money in political funding, critics contended that it would lead to a lack of transparency and accountability, favoring the ruling party and corporate interests.

2. Legal Challenges to the Electoral Bonds Scheme

The Electoral Bonds Scheme faced multiple legal challenges soon after its introduction. Petitioners, including NGOs, activists, and opposition parties, argued that the scheme violated several constitutional principles and fundamental rights. The primary legal issues raised were

1. Violation of the Right to Information (Article 19(1)(a)): The petitioners argued that the anonymity of donors under the scheme violated the citizens right to information. In a democracy, voters have the right to know the sources of funding for political parties, as this information is crucial for making informed choices during elections.
2. Undermining Free and Fair Elections (Article 324): The scheme was criticized for creating an uneven playing field, as it allowed unlimited corporate donations without disclosure. This, the petitioners argued, could lead to undue influence by corporations and wealthy individuals, undermining the principle of free and fair elections.
3. Violation of the Doctrine of Equality (Article14): The petitioners contended that the scheme favored the ruling party, as the government had access to donor information through the State Bank of India. This created a disparity between the ruling party and opposition parties, violation the principle of equality before law.

• Case Laws Cited in the Supreme Court’s Judgement

The Supreme Court’s judgements that emphasized the importance of transparency and accountability in electoral processes. Two key cases were particularly significant:

1. Association for Democratic Reforms (ADR) V. Union of India (2002)

In this landmark case, the Supreme Court held the right to know the criminal background, assets, and liabilities of candidates contesting elections is an integral part of the right to information under Article 19(1)(a). The Court emphasized that transparency in the electoral process is essential for a healthy democracy.

The judgement in ADR V. Union of India laid the foundation for subsequent rulings on electoral transparency and was frequently cited in the challenges to the Electoral Bonds Scheme.

2. People’s Union for Civil Liberties (PUCL) V. Union of India (2003)

In this case, the Supreme Court upheld the right to information as a fundamental right under Article 19(1)(a). The Court ruled that voters have the right to know the sources of funding for political parties, as this information is crucial for ensuring free and fair elections.

The PUCL Judgement was instrumental in shaping the arguments against the Electoral Bonds Scheme, as it reinforced the principle that transparency in political funding is a cornerstone of democracy.

• Supreme Court’s Judgement and Reasoning 

In its landmark judgement in 2024, the Supreme Court unanimously declared the Electoral Bonds Scheme unconstitutional. The Court held that the scheme violated the right to information, the principle of free and fair elections, and the doctrine of equality.

1. Key Findings of the Court

• Violation of the Right to Information: The Court ruled that the anonymity of donors under the scheme undermined the citizens right to know the sources of political funding, which is essential for a transparent democracy.
• Undermining Free and Fair Elections: The Court observed that the scheme created an uneven playing field, as it allowed unlimited corporate donations without disclosure. This, the Court held, could lead to undue influence by corporations and wealthy individuals.
• Violation of the Doctrine of Equality: The Court found that the scheme favored the ruling party, as the government had access to donor information through the State Bank of India. This created the Disparity between the ruling party and opposition parties.

2. Judges’ Comments

• Chief Justice DY Chandrachud: “Transparency is the cornerstone of democracy. Anonymity in political funding erodes public trust and undermines the very foundation of free and fair elections.”
• Justice Sanjiv Khanna: “The Electoral Bonds Scheme creates an uneven playing field, favoring parties in power and allowing corporate interests to influence the political process.”

3. Direction Issued by the Court:

• The State Bank of India (SBI) was directed to disclose the details of all donations made by the Electoral Bonds, including the names of donors and recipients.
• The Election Commission of India (ECI) was instructed to monitor and audit political funding to ensure transparency.
• The government was directed to establish a new framework for political funding that adheres to the principle of transparency and accountability.

• Funding Patterns Revealed After the Verdict

Following the Supreme Court’s directive, the State Bank of India (SBI) disclosed the details of donations made through electoral bonds. The data revealed significant disparities in funding, with the ruling Bharatiya Janta Party (BJP) receiving the lion’s share of donations.

1. Funding Received by Major Political Parties:

• Bharatiya Janata Party (BJP): The BJP received over 60% of the total donations made through electoral bonds, amounting to thousands of crores of rupees. Major donors included large corporations and conglomerates, many of which had pending contract or regulatory clearances with the government.
• Indian National Congress (INC): The Congress Party received approximately 10% of the total donations. While this was significantly less than the BJP, it still amounted to a substantial sum.
• Regional Parties: Regional Parties like the Trinamol Congress (TMC), Dravida Munnetra Kazhagam (DMK), and Telangana Rashtra Samithi (TRS) also received donations, though their share was much smaller compared to the national parties.

2. Key Donors:

• Corporate Donors: The majority of donation came from the large corporations, including those in the infrastructure, mining, and pharmaceutical sectors. Many of these corporations had ongoing business dealings with the government, raising concerns about potential conflicts of interest. 
• Anonymous Donors: A significant portion of donations came from anonymous sources, with the donors’ identities remaining undisclosed even after the SBI’s disclosure.

• Critical Analysis: How the Scheme Was Harmful and Dangerous for Democracy

The Electoral Bonds Scheme posed several risks to India’s democratic framework, as highlighted by critics and the Supreme Court’s judgement.

• Lack of Transparency: The anonymity of donors under the scheme made it impossible for voters to know who was funding political parties. This lack of transparency undermined the right to information and eroded public trust in the electoral process.
• Corporate Influence: The allowed corporations to make unlimited donation without disclosure, creating a risk of undue influence over political parties and government policies. This was particularly concerning in sectors like infrastructure, mining, and the pharmaceuticals, where government contracts and regulatory clearances are critical.
• Uneven Playing Field: The ruling BJP received the majority of donations, giving it a significant advantage over opposition parties. This created an uneven playing field, undermining the principle of free and fair elections.
• Potential for Corruption: The lack of transparency and accountability under the scheme creating the opportunities for corruption, with donors’ potential using electoral bonds to influence government decision in their favor.
• Erosion of Democratic Principle: By favoring ruling party and allowing corporate interests to dominate political funding, the scheme eroded the principles of equality and fairness that are essential for a healthy democracy.

• Conclusion

The Supreme Court’s decision to strike down the Electoral Bonds Scheme marks a significant milestone in India’s journey toward a more transparent and accountable democracy. While the scheme was introduced with the intention of reducing the use of black money in elections, its lack of transparency made it a tool for opacity rather than reform. The judgment reaffirms the importance of transparency in political funding and sets the stage for a new framework that upholds the principles of democracy.  

The funding patterns revealed after the verdict highlight the dangers of anonymous political funding, particularly in a democratic country like India. By allowing corporate interests to dominate political funding and favoring the ruling party, the scheme undermined the principles of equality, fairness, and transparency. The Supreme Court’s verdict serves as a reminder that democracy cannot thrive without accountability and transparency in political funding.  

• FAQs

1. What were Electoral Bonds?

Electoral Bonds were financial instruments introduced in 2018 to allow anonymous donations to political parties.  

2. Why were they criticized?

Critics argued that the scheme lacked transparency, as the source of donations was hidden from the public.

3. What did the Supreme Court rule?

The Court declared the scheme unconstitutional, citing violations of the right to information and the principle of free and fair elections.

4. What happens to the donations made through Electoral Bonds?

The Supreme Court directed the SBI to disclose details of all donations and recipients.

5. What are the implications of the judgment?

The judgment reinforces the need for transparency in political funding and sets the stage for a new framework for donations.

6. What did the judges say?

The judges emphasized that transparency is essential for democracy and that anonymity in political funding undermines public trust.