Author: Samrudhi Mohapatra
College: SOA National Institute of Law
Abstract
The competing goals of avoiding black money, protecting donor confidentiality, and preserving voters’ right to know who funds political parties have caused India’s attempts to regulate corporate sponsorship in elections to waver. The Electoral Bonds Scheme, which was announced in 2018 and claimed to legalize donations thru the banking system, was declared unlawful by the Supreme Court in February 2024 because it allowed voters to make anonymous donations. This article discusses the early 2000s disclosure standards, the era of electoral bonds and the resulting modifications to the Companies Act and Income Tax Act, and the Court’s reintroduction of transparency-based regulation. It contends that although the most important loophole was closed by the 2024 ruling, corporate influence in Indian elections is only partially restrained because the statutory cap on corporate donations under Section 182 of the Companies Act, 2013 has not been removed.
To the Point
Up to 2013, corporate contributions to political parties in India were limited to 7.5% of a company’s average net earnings for the three years prior, and the amount and beneficiary had to be disclosed in the company’s annual accounts. Together with the Electoral Bonds Scheme announced that same year, the Finance Act, 2017 eliminated this cap completely, allowed loss-making companies to donate, and allowed businesses to buy bearer instruments from the State Bank of India without revealing the recipient party to the public or shareholders. Voters’ right to know who funds political parties was reinstated by the Supreme Court’s 2024 decision, but the underlying framework that permits unlimited corporate donations under company law has not been reinstated. As a result, corporate influence on parties is now traceable but remains structurally unlimited in scope.
Use of Legal Jargon
• Electoral Bond: A bearer financial product that, until it was overturned in 2024, permitted people and businesses to make contributions to political parties via the State Bank of India without revealing their identities to either the recipient party or the general public.
• Manifest Arbitrariness: As the Court determined with relation to unrestricted corporate political donations, a ground of constitutional illegality under Article 14 applies when a statute measure is arbitrary or excessive without sufficient controlling principle.
• access to Information under Article 19(1)(a): Indian courts have construed this aspect of free speech to encompass a citizen’s access to information required to exercise their right to vote in a meaningful way.
• Quid Pro Quo Arrangement: The Court emphasized the unique harm that anonymous, unrestricted corporate funding permits as an exchange of political contributions for undue favors or policy influence.
• Money Bill Route: The Finance Act, 2017 was passed as a Money Bill under Article 110, which limited the Rajya Sabha’s ability to change it. This is a procedural matter that is still pending before a larger bench separately.
• Shell Company Donation: Traditionally used to conceal the real source of political finance, a donation is made thru a corporation with few independent operations.
The Proof
The amount of asymmetric access that such anonymized fundraising provided was demonstrated by data presented to the Supreme Court, which revealed that between 2018 until the scheme’s invalidation, the ruling party at the center got 57% of all funds funneled thru electoral bonds. In accordance with the Court’s orders, the State Bank of India revealed that bonds totaling more than sixteen thousand crore rupees had been bought and redeemed since April 2019. Researchers cross-analyzed the Election Commission’s data and discovered that a number of significant donor companies had also obtained government contracts or regulatory approvals at the time of their donations. Even after the anonymity restrictions were overturned, the Court observed that the removal of the seven-and-a-half percent profit cap let businesses, including those that were losing money, to make gifts that had nothing to do with legitimate economic interests.
Case Laws
1. Common Cause, A Registered Society v. Union of India, (1996) 2 SCC 752 (Supreme Court of India, decided 4 April 1996)
The Court investigated businesses making unreported, off-the-books donations in violation of Section 293A of the Companies Act, 1956, Section 13A of the Income Tax Act, 1961, and Section 77 of the Representation of the People Act, 1951, in one of the first interventions on political funding. The Court concluded that these unreported contributions amounted to black money corrupting the electoral process.
2. Union of India v. Association for Democratic Reforms, (2002) 5 SCC 294 (Supreme Court of India, decided 2 May 2002)
The Court established the fundamental principle—later expanded to party funding that free and fair elections depend on an informed electorate under Article 19(1)(a), holding that meaningful voting includes the citizen’s right to know pertinent information about candidates and ordering the Election Commission to require disclosure of assets, liabilities, and criminal histories.
3. People’s Union for Civil Liberties (PUCL) v. Union of India, (2003) 4 SCC 399 (Supreme Court of India, decided 13 March 2003)
The Court overturned Parliament’s amendment to the Representation of the People Act, which nullified the 2002 disclosure directives. The Court reiterated that the right to know a candidate’s background is essential to the right to vote and that legislative attempts to undermine transparency standards violate the electorate’s fundamental rights. The Court would later use this reasoning nearly verbatim in the electoral bonds case.
4. Association for Democratic Reforms & Anr. v. Union of India & Ors., 2024 INSC 113; (2024) 5 SCC 1 (Supreme Court of India, decided 15 February 2024)
Chief Justice D.Y. Chandrachud led a five-judge Constitution Bench that unanimously overturned the Electoral Bonds Scheme and the related changes to the Companies Act and Income Tax Act that allowed corporate donations to remain undisclosed. The court held that the scheme violated Article 19(1)(a) by depriving voters of information necessary to make an informed decision and that unlimited, undisclosed corporate contributions distort political equality. The Court ordered SBI to provide the Election Commission with all bond purchase and redemption information so that it could be published.
5. Association for Democratic Reforms v. Union of India, Supreme Court order dated 11 March 2024 (compliance proceedings, W.P.(C) No. 880 of 2017)
The Court denied SBI’s request for an extension until June 30, 2024, on the grounds that it could not postpone a constitutional mandate for administrative reasons. Instead, it mandated full disclosure by March 12, 2024, guaranteeing that the February ruling was translated into actual public data rather than a symbolic declaration.
Conclusion
From Common Cause in 1996 until the electoral bonds ruling in 2024, Indian courts have continuously treated transparency as essential to free and fair elections, constantly overturning attempts to replace voter information with donor privacy. Despite its importance, the 2024 ruling merely reinstated disclosure; the profit-linked cap on corporate contributions was not reinstated. Companies can still donate an unlimited amount to political parties, but their identities are now publicly known, as Parliament eliminated in 2017. In order to ensure that transparency is matched by a meaningful limit on the scale of corporate influence rather than serving as a stand-in for regulation entirely, genuine reform would require Parliament to reinstate a reasonable cap on corporate political spending, extend disclosure to funding routed thru electoral trusts, and close any remaining gaps, such as anonymous cash donations below the reporting threshold.
FAQs
Q1. Describe electoral bonds and explain the controversy around them.
SBI sold bearer instruments called electoral bonds, which allowed people and businesses to donate anonymously to political parties. Although parties could frequently identify contributors using bond serial numbers and banking records, the donor’s identity was hidden from voters.
Q2. Why was the plan invalidated by the Supreme Court?
Since informed voting necessitates knowing who funds political parties, the Court ruled that the program infringed the voter’s right to information under Article 19(1)(a) of the Constitution. This right superseded the government’s declared interest in donor privacy.
Q3. Does the amount that a business can contribute to a political party still have a cap?
No, even after the electoral bonds program was overturned, the previous cap of seven and a half percent of average net earnings under Section 182 of the Companies Act, 2013 was eliminated by the Finance Act, 2017.
Q4: What information about political donations must businesses now reveal?
Companies must return to disclosing political contributions in their financial statements as required prior to the 2017 amendments, and historical electoral bond transactions are publicly available following the 2024 ruling and subsequent data disclosures by the State Bank of India and the Election Commission.
Q5. Does India use electoral trusts or any other method to control corporate donations?
Indeed. Businesses may also make donations thru registered electoral trusts under the Electoral Trusts Scheme, 2013, which mandates that the trust notify the Election Commission of contributions received and disbursed; however, this method’s enforcement and transparency are still uneven.
