Association for Democratic Reforms v. Union of India (2024)
Author: Prachi Talekar, K.G Shah Law School, SNDT University
To the Point
The landmark ruling of the Supreme Court of India in Association for Democratic Reforms v. Union of India (2024) has significant relevance in terms of international constitutionalism. This case reconciles the conflict between two opposing rights enshrined in the Indian constitution: the citizen’s right to information under Article 19(1)(a) and the donor’s right to informational privacy under Article 21. By invalidating the Electoral Bond Scheme, the unanimous judgment of the five-judge bench of the Constitution Bench concludes that total anonymity in the system of political funding violates the constitution. In this case, although the political association of an individual citizen requires privacy protection against the persecution of the state, the corporate investment in politics is a business transaction that impacts governance.
Use of the Legal Jargon
. Some of the legal doctrines, which had to be formulated, developed, and fine-tuned in order to resolve this constitutional dilemma included:
Right to Informational Privacy: A constitutive element of the right to privacy in Puttaswamy, which provides a person with the right to control personal, financial, and biographic information and protects it from undue state and public monitoring.
Double Proportionality Test: An advanced constitutional doctrine that is invoked in cases of collision of two distinct fundamental rights. While proportionality test evaluates the impact of a state measure on one particular right, double proportionality test evaluates whether the limitation of Right A can be justified proportionately in order to protect Right B.
Manifest Arbitrariness: Judicial review under Article 14 that invalidates laws which are capricious, irrational, and lack intelligent determining principle.
. Chilling Effect: Legal principle that identifies state laws, surveillance programs, or disclosure requirements which in an indirect way discourage people from exercising their basic rights out of fear of social, economic, or political consequences.
Quid Pro Quo: Latin for “something for something.” In law pertaining to corruption and constitutional issues, it refers to an illegitimate deal wherein corporations offer hidden monetary resources to the ruling political party in return for legislative changes, reduced taxes, or government contracts.
Read-Down: Legal maneuver where a court narrowly interprets a statutory provision so as to ensure that the law is constitutional without invalidating it completely.
Ultra Vires: Latin for “beyond the powers.” Term used to refer to any legislative enactment, executive plan, or administrative directive which falls beyond the power of the Constitution or parent legislation.
Approach to Silo: A defunct approach to the interpretation of the Constitution wherein fundamental rights were treated as separate entities or silos. The silo approach was replaced by the adoption of an integrative approach to the Constitution wherein rights complement each other.
Normative Vacuum: A situation where there are no legal provisions or legal standards governing a particular socio-legal issue like data privacy or political financing.
Abstract
This article is a comprehensive constitutional analysis of the landmark decision in Association for Democratic Reforms & Anr. v. Union of India & Ors. (2024), where the Electoral Bond Scheme, 2018 was held as unconstitutional. As a mechanism to reduce the use of unaccounted cash in elections, the scheme enabled people and corporate houses to buy monetary bonds from State Bank of India and give them as donations to political parties anonymously. This statutory regime was questioned on the basis that the scheme was in violation of the fundamental right of voters’ to have an informed electorate as enshrined in Article 19(1)(a).
Union of India justified the scheme by arguing that the scheme is a measure to ensure the fundamental right of the donor’s to informational privacy and his political affiliation, as recognized under Article 21 and to safeguard the donors against any political persecution from rival political parties. This article examines the judicial balancing exercise done by the five-judge bench of the Supreme Court. By adopting the “Double Proportionality Test,” the Court distinguished between privacy of individual citizens and commercial corporations.
This paper analyses the legal invalidity of the changes made in the Representation of the People Act, the Income Tax Act, and the Companies Act by highlighting how the removal of the cap on corporate contributions has been identified as an obvious arbitrariness. Ultimately, this paper demonstrates how the judgment highlights the new dynamics in the interplay between capital, data privacy, and democracy in such a way that the latter cannot be used to hide corruption.
The Proof
These formal judicial coordinates, statutory references, and systemic proof of the above-mentioned historic pronouncement are as under:
I. Case Matrix and Citations
Case Name: Association for Democratic Reforms & Anr. v. Union of India & Ors.
Writ Petition Number: Writ Petition (Civil) No. 880 of 2017 with Writ Petition (Civil) No. 59 of 2018, Writ Petition (Civil) No. 434 of 2018, and Writ Petition (Civil) No. 975 of 2022.
Digital Citation: 2024 INSC 113 / (2024) 5 SCC 1.
Date of Judgment: February 15, 2024.
Constitution of Bench: 5-Judge Constitution Bench (Unanimous).
Authorship Details: The lead plurality judgment in the case is authored by Dr. D.Y. Chandrachud, Chief Justice of India (for himself, Justice B.R. Gavai, Justice J.B. Pardiwala, and Justice Manoj Misra). There is also another judgment in the case authored by Justice Sanjiv Khanna through an alternate legal reasoning framework.
II. Statutory Provisions that have been Struck Down
The court judgement has made the following provisions of law invalid, namely:
Electoral Bond Scheme, 2018 (notified by the Department of Economic Affairs, Ministry of Finance):
Section 13A(b) of the Income Tax Act, 1961 (amended through the Finance Act, 2017): This section exempted political parties from the requirement of maintaining an audit trail of names and addresses of donors who made their donation through electoral bonds.
Section 29C of the Representation of the People Act, 1951 (amended): This section explicitly exempted political parties from the mandatory requirement of disclosing donations received through electoral bonds in their contribution statements to the Election Commission of India.
Section 182(1) of the Companies Act, 2013 (amended): This provision of law was important since it deleted the first proviso, which limited corporate donations to political parties to 7.5% of a company’s net profits in the last three financial years. Section 182(3) has also been deleted, requiring companies to mention the name of political parties and contribution amounts in their Profit and Loss account.
III. Evidentiary Findings and Operational Mechanisms
The judicial record relied on the analysis of transactional data presented by the State Bank of India (SBI) in sealed envelopes, which brought out an operational reality that shattered the government’s argument:
Concentration of Funds: It was found from the data that the bulk of the electoral bonds bought were not the smaller sums donated in search of anonymity by private citizens. Rather, more than 94% of the value of the bonds issued was at the topmost denomination of ₹1 Crore. This concentration meant that the real recipients of the anonymity arrangement were corporations making huge financial contributions rather than private citizens indulging in political expression.
Information Asymmetry: It was held that the scheme did not ensure anonymity for everyone. Since all transactions went through a government-run bank (SBI), the ruling executive branch always had the statutory power to get the data which could match the donor to the political party. There was thus an unconstitutional information asymmetry where the opposition parties and the voting populace were completely in the dark while the government was fully informed.
Case Laws
The legal evolution which led to the decision of the ADR (2024) is based on a complex balance between the case laws on two separate paths of the Constitution: the voter’s right to transparency and the development of the right to privacy.
I. The Jurisprudential Framework for Voter Transparency
The premise of the case law which formed the basis for the petitioner’s case law involved the right to information as an inherent part of freedom of speech and expression:
State of Uttar Pradesh v. Raj Narain (1975): In this landmark Constitution Bench case, it was held that in a government of responsibility like ours, where all the agents of the public must be responsible for their conduct, there can be few secrets. The people of this country have a right to know every public act, everything that is done in a public way, by their public functionaries. The right to know under Article 19(1)(a) was thus established through this judgment.
Union of India v. Association for Democratic Reforms (2002): This was a landmark case in which the Supreme Court held that a voter has a right to know the uninformed electorate, which reduces the integrity of the democratic process.
II. The Privacy Doctrine and Proportionality Test
The defense taken up by the Union of India under the privacy doctrine to protect data secrecy forced the Court to construe its own precedents regarding privacy:
Justice K.S. Puttaswamy (Retd.) v. Union of India (2017): This landmark nine-judge ruling of the Court was the main pillar on which the case of the state rested. According to the Union, the landmark ruling in Puttaswamy acknowledged “informational privacy” as an essential aspect of Article 21, including the right to confidentiality of an individual’s political opinions and financial decisions. While the Court in ADR conceded the protection of political association privacy, it held that the Puttaswamy precedent mandates that any state encroachment on any right needs to clear a rigorous proportionality test.
Modern Dental College and Research Centre v. State of Madhya Pradesh (2016): This case set up the four-pronged proportionality test in Indian legal history, which has been accepted in Puttaswamy.
III. Doctrine of Manifest Arbitrariness
In order to declare the amendment to the Companies Act concerning corporate funding invalid, the Court resorted to the doctrine of manifest arbitrariness:
Shayara Bano v. Union of India (2017): This ruling established that if legislation is considered manifestly arbitrary, it may be invalidated under Article 14. According to the Court, manifest arbitrariness means the capricious, irrational, or lack of a determining principle in legislation. In ADR, the total abolition of the 7.5% corporate profit cap for political funding was declared manifestly arbitrary as it allowed loss-making and shell corporations to invest as much money in the elections as possible without any rational public interest.
IV. Balancing of Conflicting Rights
In order to resolve the direct clash of Article 19(1)(a) and Article 21, the Court abandoned hierarchical approaches in favor of modern balancing:
Mazdoor Kisan Shakti Sangathan v. Union of India (2018): This decision was concerned with the conflict of the right to protest and the residents’ right to live undisturbed. The Court recognized that when two fundamental rights collide,the judiciary must balance them so that both are preserved to the maximum extent possible, using a context-specific structural assessment.
Conclusion
The judgment in the case of Association for Democratic Reforms v. Union of India (2024) marks a sophisticated development in the judicial approach to handling conflicting fundamental rights. Through methodically dismissing the government’s arguments regarding the absolute right to confidentiality of the donors, the Supreme Court made sure that a fundamental human right does not turn into a tool of institutional secrecy. The ruling skillfully distinguishes between privacy of a common person and political expenditures by companies; while an ordinary person needs his/her privacy to safeguard his/her political decisions from government intervention, a company which makes donations of millions is actually using its political power.
In addition, the application of double proportionality test in this case will serve as a model for resolving future conflicts of the Constitution. With the Court declaring the amendment to the Companies Act and the Representation of the People Act as unconstitutional, it makes clear that the integrity of the election process is a part of the basic structure of the Constitution. Thus, with this ruling the Court ensures the ability of voters to remain accountable to both politicians and companies.
FAQs
1. What was the core constitutional issue in the Electoral Bonds case?
In this case, there was a direct conflict between two fundamental rights: the right of the voter to have information regarding the source of funding for political parties under Article 19(1)(a) and the right of the donor to maintain his/her political affiliation and financial details under Article 21. The question before the Supreme Court was whether the State could enforce absolute anonymity to ensure privacy at the cost of transparency.
2. Why was the Supreme Court reluctant to provide corporate entities with the same privacy as individual citizens?
A clear distinction was made between an individual citizen and a corporation by the Supreme Court. Privacy for individuals is a consequence of personal liberty, human dignity, and freedom of belief and hence needs to be protected from state persecution. However, corporate donations are always substantial and done in order to gain some policy advantage through quid pro quo. Since corporate donations affect governance, they need to be disclosed to the public.
3. What was the Double Proportionality Test and its application?
The double proportionality test refers to a rule followed by the courts when two constitutional provisions or basic rights conflict with each other. It involves more than the usual requirement of determining whether an action taken by the state interferes with a particular right for a valid purpose; it requires the court to consider both the rights at once. In this case, the Court considered whether complete confidentiality was essential to ensure donor privacy and found that it unduly impaired the right of the voters to information. Less drastic measures like keeping individual small donations confidential while revealing large donations made by corporates were sufficient to achieve the objective.
4. Why did the Court declare the amendment, which exempted the 7.5% profit limit on corporate donations, unconstitutional?
The amendment made to Section 182 of the Companies Act, 2013 removed the restriction of 7.5 percent profit on corporate donations to political parties. It was held to be arbitrary and manifestly so, under Article 14. It made unlimited corporate donations possible irrespective of whether the company was incurring losses or not.
5. Is it necessary for all political donations in India to be disclosed after this verdict?
Not really. The court ruling specifically struck down the scheme of Electoral Bonds and reinstated the old requirement of disclosure. According to the provisions of the Representation of the People Act, political parties are required to disclose the names of all those who have donated more than ₹20,000. Thus, there is a balance between privacy and transparency.
