Supreme Court Strikes Down Electoral Bond Scheme: A Landmark Judgment in Association for Democratic Reforms v. Union of India (2024)

Abstract

The Supreme Court of India, in Association for Democratic Reforms & Anr. v. Union of India & Ors., delivered a landmark ruling on February 15, 2024, striking down the Electoral Bond Scheme, 2018. This case was pivotal in determining the legality of anonymous political funding and its impact on electoral transparency. The petitioners contended that the scheme promoted secrecy in political donations, violating the right to information under Article 19(1)(a) and the principle of equality under Article 14 of the Constitution. The Court, in its judgment, declared the scheme unconstitutional, reinforcing the need for transparency and accountability in electoral processes. This article provides an in-depth analysis of the case, including its background, legal arguments, judicial reasoning, related precedents, and its implications for India’s democracy.

Introduction

Democracy thrives on transparency, accountability, and the informed participation of citizens in governance. Political funding plays a crucial role in electoral processes, influencing policies, governance, and the overall democratic framework. In an effort to curb black money in elections, the Government of India introduced the Electoral Bond Scheme in 2018. However, instead of enhancing transparency, the scheme facilitated anonymous donations to political parties, raising concerns about undisclosed corporate and foreign influence over the democratic process.

The Association for Democratic Reforms (ADR), a non-governmental organization advocating electoral transparency, challenged the constitutional validity of the scheme, arguing that it undermined citizens’ right to information, facilitated corruption, and allowed unchecked corporate and foreign influence in Indian politics. The Supreme Court’s ruling in this case is a watershed moment in India’s legal and political history, reinforcing the principles of electoral integrity and democratic fairness.

Background of the Case

The Electoral Bond Scheme was introduced by the Union Government through the Finance Act, 2017, which amended various provisions of laws regulating political donations. Under this scheme:

• Any Indian citizen, corporate entity, or association could purchase electoral bonds from the State Bank of India (SBI).
• The donor could then hand over the bond to any eligible political party.
• The recipient political party could encash these bonds through its designated bank account.
• The identities of both the donor and the recipient were kept confidential.

The government justified the scheme as a reform to curb black money in elections, arguing that since donations would be made via banking channels, the system would be cleaner and more accountable. However, critics, including ADR and other civil society groups, contended that the scheme encouraged opacity by keeping the source of donations hidden from the public.

Arguments by the Petitioners 

The petitioners, led by Association for Democratic Reforms (ADR), challenged the Electoral Bond Scheme (EBS), 2018, arguing that it violated fundamental democratic principles by allowing anonymous political donations. Their key arguments were as follows:

1. Violation of Article 19(1)(a) – Right to Information

• The secrecy surrounding electoral bonds prevented voters from knowing who was funding political parties.

• In Union of India v. Association for Democratic Reforms (2002), the Supreme Court held that voters have a fundamental right to know the financial sources backing political candidates and parties.

• Lack of transparency in political funding directly impacted voters’ ability to make informed electoral choices.

2. Violation of Article 14 – Right to Equality

• The scheme created an uneven playing field as it disproportionately favored the ruling party.

• The State Bank of India (SBI), which was responsible for issuing bonds, had access to donor identities, but opposition parties and the public did not.

• This gave the ruling party undue advantages and violated the principle of equal political competition.

3. Encouragement of Corruption and Quid Pro Quo Arrangements

• The scheme removed the cap on corporate donations, allowing even loss-making companies to donate unlimited amounts to political parties

• This could lead to quid pro quo deals where corporations funded parties in exchange for favorable policies, contracts, or regulatory advantages.

• The risk of corporate capture of political processes increased significantly due to the lack of transparency.

4. Possibility of Foreign Influence and Money Laundering

• The amendments made via the Finance Act, 2017, allowed for foreign donations without scrutiny.

• Foreign corporate entities could fund political parties, potentially influencing national policies and decisions.

• The opacity of the scheme provided a legal channel for money laundering, as shell companies could be used to funnel illicit funds into the political system.

5. Against Free and Fair Elections

• The scheme distorted electoral integrity by allowing undisclosed financial influence over political parties.

• The Election Commission of India (ECI) had itself raised concerns about the scheme undermining democracy.

• The secrecy of donations prevented voters from knowing whether policies were being shaped by private interests rather than public welfare.

Arguments by the Respondents 

The Union of India defended the Electoral Bond Scheme, asserting that it was a progressive step towards clean political funding. Their main arguments were:

1. Ensuring Transparency and Curbing Black Money

• The scheme aimed to reduce black money in elections by ensuring that all donations were made through banking channels.

• Since electoral bonds could only be purchased via cheque, demand draft, or digital transactions, cash donations—which are prone to being undisclosed—were minimized.

• By shifting donations from unaccounted cash to traceable bonds, the government argued that the system became cleaner.

2. Right to Privacy of Donors

• The government claimed that revealing donor identities would deter individuals and corporations from contributing to political parties due to fear of retaliation or discrimination.

• Donors, particularly businesses, may not want to disclose their political affiliations publicly, and their right to privacy should be protected.

3. Preventing Harassment of Donors

• The government contended that if donor details were made public, opposition parties or activists could harass individuals and companies for their political preferences.

• Anonymous donations ensured that businesses could contribute freely without fear of political or bureaucratic retribution.

4. Encouraging Corporate Donations for Political Stability

• Before the scheme, companies were restricted in their political contributions, leading to illegal funding mechanisms.

• By lifting the cap on corporate donations, the scheme encouraged legal contributions, ensuring political parties received financial support through legitimate means.

• A well-funded political system, according to the government, strengthened democracy.

5. Legislative Backing and Parliamentary Approval

• The scheme was implemented via the Finance Act, 2017, which was duly passed by Parliament.

• Any challenge to the scheme, the government argued, was a challenge to the wisdom of the legislature, which had debated and approved the reforms.

• Since the law was in compliance with financial regulations, it should be presumed to be constitutional unless proven otherwise.

6. SBI’s Role as a Neutral Entity

• The government claimed that the State Bank of India (SBI) was a neutral intermediary in handling electoral bonds.

• SBI, being a government-regulated entity, ensured compliance with all financial laws and had robust mechanisms to track and report any suspicious transactions.

• The government dismissed concerns about SBI giving the ruling party undue access to donor information, stating that the bank was independent in its functioning.

Supreme Court’s Judgment and Reasoning

The Supreme Court, in a 5-judge Constitution Bench, delivered a unanimous verdict striking down the Electoral Bond Scheme as unconstitutional. The Court’s reasoning was rooted in the fundamental principles of democracy, transparency, and fairness in elections.

1. Transparency is Essential for Democratic Participation: The Court emphasized that a well-informed electorate is the foundation of a democracy. By allowing anonymous donations, the scheme deprived voters of crucial information regarding the funding of political parties. This lack of transparency, the Court held, violated the citizens’ fundamental right to information under Article 19(1)(a).

2. The Scheme Created an Unequal Playing Field: The Court observed that the scheme favored the ruling party disproportionately since the government-controlled bank (SBI) had access to donor details, while opposition parties did not. This undermined the fairness of elections and violated Article 14, which guarantees equality before the law.

3. Corruption and Quid Pro Quo Concerns: The removal of caps on corporate donations meant that large corporations, including those with vested interests, could anonymously fund political parties in exchange for favorable policies or government contracts. This, the Court noted, posed a serious risk of policy corruption and state capture.

4. Electoral Bonds Facilitated Money Laundering and Foreign Influence: By allowing anonymous funding, the scheme opened avenues for money laundering and foreign influence in Indian elections. The Court underscored that ensuring clean and fair elections is a basic feature of the Constitution and cannot be compromised.

Impact and Implications of the Verdict

The Supreme Court’s ruling has profound implications for India’s political landscape. By striking down the Electoral Bond Scheme, the judgment restores transparency and accountability in political funding. Political parties are now required to disclose the identities of donors, which will enable citizens to scrutinize financial influences on policy decisions.

Furthermore, the ruling reinforces the role of the judiciary in upholding constitutional principles against executive overreach. It also serves as a precedent for future cases related to electoral reforms and transparency in governance.

Related Case Laws

The Supreme Court’s ruling in Association for Democratic Reforms v. Union of India (2024) was significantly influenced by past judicial precedents that emphasized electoral transparency, the right to information, and democratic accountability. Three key cases played a crucial role in shaping the Court’s reasoning:

1. Union of India v. Association for Democratic Reforms 

• Background of the Case: This landmark case was filed by the Association for Democratic Reforms (ADR), the same organization that later challenged the Electoral Bond Scheme in 2024. ADR approached the Supreme Court seeking greater transparency in elections, particularly concerning the disclosure of candidates’ criminal, financial, and educational backgrounds. The case arose after the Election Commission of India (ECI) issued directives requiring such disclosures, which were challenged by the government.

• Key Issues Before the Court:

• Whether voters have a fundamental right to know about the financial, criminal, and educational backgrounds of candidates contesting elections.

• Whether non-disclosure of such information violates Article 19(1)(a) (Freedom of Speech and Expression) of the Indian Constitution.

• Supreme Court’s Ruling: The Supreme Court upheld the Election Commission’s directives and made the following critical observations:
• Right to Information as a Fundamental Right: The Court ruled that the right to know about the financial and criminal background of electoral candidates is part of the fundamental right to freedom of speech and expression under Article 19(1)(a).

• Informed Voting: The Court emphasized that democracy thrives on informed choices, and withholding such information from voters compromises the integrity of elections.

• Transparency in Elections: The Court held that transparency in political and electoral processes is essential for ensuring free and fair elections, which form the bedrock of Indian democracy.

• Relevance to the 2024 Electoral Bond Case:
• The 2002 ADR judgment recognized voters’ right to information as a constitutional right, which was the primary argument against the Electoral Bond Scheme.

• The secrecy of donations under the scheme violated this precedent, as it prevented voters from knowing which entities were funding political parties.

• The Supreme Court in 2024 relied on this judgment to strike down electoral bonds, reaffirming that political funding must be transparent and accountable.

2. People’s Union for Civil Liberties v. Union of India 

• Background of the Case: This case was filed by the People’s Union for Civil Liberties (PUCL), a human rights organization, challenging the government’s amendments to the Representation of the People Act (RPA), 1951. The amendments sought to limit the Election Commission’s power to mandate disclosures regarding candidates’ criminal antecedents.

• Key Issues Before the Court:

• Whether voters have a constitutional right to know about a candidate’s criminal history before casting their votes.

• Whether limiting such disclosures violates Article 19(1)(a) (Right to Freedom of Speech and Expression)

• Supreme Court’s Ruling:
• The Court struck down the restrictive provisions of the amended Representation of the People Act (RPA), 1951, reaffirming that voters have the right to be informed about candidates’ criminal backgrounds.

• The Court emphasized that in a representative democracy, an informed electorate is essential, and withholding critical information undermines the democratic process.

• The judgment reinforced that electoral transparency is integral to free and fair elections.

• Relevance to the 2024 Electoral Bond Case:
• The PUCL judgment reaffirmed the right to information in electoral matters.

• The 2024 Electoral Bond ruling applied this principle to political parties, holding that voters must also have access to information about the funding sources of parties.

• Just as hiding a candidate’s criminal history is unconstitutional, hiding the source of political funding was ruled unconstitutional in 2024.

3. Lily Thomas v. Union of India 

• Background of the Case: This case challenged Section 8(4) of the Representation of the People Act (RPA), 1951, which allowed convicted lawmakers to continue holding office if they filed an appeal within three months.

• Key Issues Before the Court:

• Whether allowing convicted MPs/MLAs to remain in office violated Articles 14 (Right to Equality) and 19(1)(a) (Right to Information and Free Expression).

• Whether legislators convicted of serious offenses should be immediately disqualified from holding public office.

• Supreme Court’s Ruling:
• The Court struck down Section 8(4) of the RPA, ruling that any Member of Parliament (MP) or Member of Legislative Assembly (MLA) convicted of a criminal offense attracting a sentence of two years or more must be immediately disqualified.

• The judgment reinforced accountability in governance by ensuring that individuals with criminal convictions could not continue to hold elected office.

• The ruling was a major step toward cleaning up Indian politics by ensuring that representatives remain free of criminal influence.

• Relevance to the 2024 Electoral Bond Case:
• The Lily Thomas judgment underscored the importance of accountability in democratic institutions.

• The 2024 Electoral Bond ruling extended this principle to political parties, holding them accountable for their financial dealings.

• If lawmakers can be disqualified for criminality, then political parties cannot be allowed to operate under a veil of secrecy in their funding mechanisms.

Conclusion

The Supreme Court’s decision in Association for Democratic Reforms v. Union of India (2024) is a landmark ruling that reinstates transparency in political funding and strengthens democracy. By invalidating the Electoral Bond Scheme, the Court has upheld citizens’ right to information, ensured a level playing field in elections, and mitigated the risks of corporate influence and corruption in governance. The verdict is a step forward in fostering greater electoral integrity, reinforcing public trust in democratic institutions, and ensuring that political power remains accountable to the people.

FAQs

Q1: What was the primary issue in the case?

The case challenged the constitutional validity of the Electoral Bond Scheme, 2018, on grounds of lack of transparency, potential corruption, and violation of citizens’ right to information.

Q2: How did the Supreme Court rule on the matter?

The Supreme Court struck down the Electoral Bond Scheme as unconstitutional, holding that it violated Articles 14 and 19(1)(a) of the Constitution by promoting opacity in political donations.

Q3: What does this judgment mean for political funding in India?

Political parties are now required to disclose the identities of donors, ensuring greater transparency and accountability in electoral financing.

Q4: Does this judgment affect past donations made under the scheme?

While the judgment does not retrospectively invalidate past donations, it mandates transparency in future political contributions.

This ruling marks a significant shift in Indian electoral jurisprudence, reaffirming the principles of openness, fairness, and democracy.