Author: Himani Tomar
College: Madhav Vidhi Mahavidhyalaya, Gwalior
To the Point
The Electoral Bonds Scheme, 2018 permitted individuals and companies to make unlimited donations to political parties by virtue of bearer instruments which could be purchased without the public ever knowing who funded whom. Introduced by means of Finance Act, 2017 amendments, the scheme promised to clean election funding of cash by moving it to bearer instruments. On 15 February 2024, a five-judge Constitution Bench of the Supreme Court in Association for Democratic Reforms v. Union of India held the scheme to be unconstitutional for violating the voter’s right to information under Article 19(1)(a) and on grounds of manifest arbitrariness under Article 14. The Court invalidated the amendments to the Representation of the People Act, 1951, the Companies Act, 2013 and the Income Tax Act, 1961, and directed that the issuing bank disclose all bond purchases and redemptions. This article examines the mechanics of the scheme, the grounds on which it fell, the evidence which informed the verdict, and its transformative impact on India’s electoral jurisprudence.
Use of Legal Jargon
The electoral bonds controversy involved several constitutional and statutory concepts, necessitating the use of precise legal terminology:
Bearer Instrument: An electoral bond was a bearer instrument similar to a promissory note, payable to the holder on demand. Section 31 of the Reserve Bank of India Act, 1934 was amended to permit the Central Government to authorise a scheduled bank to issue such bonds.
Right to Information (Article 19(1)(a)): The Supreme Court has held the voter to have a right to know about the candidates and parties he votes for. The Court extended this right to cover information on political funding as money influences policy.
Manifest Arbitrariness (Article 14): A law can be struck down if it is capricious or irrational as in Shayara Bano v. Union of India (2017). The removal of the cap on corporate donations was tested on this ground.
Doctrine of Proportionality: A restriction on a fundamental right must have a legitimate aim, a rational connection to that aim, be necessary since no less restrictive alternative is possible, and strike a fair balance with the right affected. The scheme failed the necessity limb.
Quid Pro Quo Corruption: An arrangement where a donation is made in exchange for a policy favour, licence or contract. The Court noted that anonymous and unlimited donations create a real risk of such exchange.
Informational Privacy (Article 21): The Union argued that donors have a privacy interest in their political affiliations. The Court held this protection did not extend to contributions that can buy influence over policy.
Section 29C, Representation of the People Act, 1951: Requires political parties to report to the Election Commission of India (ECI) all contributions above ₹20,000. The scheme exempted electoral bonds from this reporting.
Section 182, Companies Act, 2013: Earlier capped corporate donations at 7.5% of the average net profit of the preceding three years. The 2017 amendment removed this cap and the disclosure requirement.
Section 13A, Income Tax Act, 1961: Grants income tax exemption to political parties. The proviso allowing parties to omit recording donor details for bond contributions was struck down.
Public Interest Litigation (Article 32): The scheme was challenged directly in the Supreme Court by civil society organisations and political parties via writ petitions.
The Proof
The case against the scheme rested on documents, official objections, and later disclosures, not a single smoking gun:
Warnings from Regulators: Before its launch, the Reserve Bank of India warned the Government that bearer instruments could be misused for money laundering and would detract from transparency. The Election Commission of India separately objected to the amendments deleting disclosure of corporate donations, calling the changes a retrograde step.
Structural Asymmetry: Although the scheme promised donor anonymity, donors had to complete KYC with SBI. The State-owned bank therefore had a complete record of who bought and who redeemed bonds. The public and the Opposition had no access to this information, while the Government could practically reach it.
Removal of Statutory Safeguards: The 2017 amendments deleted the 7.5% cap on corporate donations and the requirement to disclose the recipient party. As a result, even a loss-making or newly incorporated company could donate any amount, exposing the risk of shell companies being used as conduits.
Interim Orders of 2019: On 12 April 2019, the Supreme Court directed all political parties to submit details of bond donations to the ECI in sealed covers. This revealed that parties already held donor-linked information which was withheld from the public.
Data Released after the Judgment: SBI first disclosed bond details to the ECI in March 2024 but omitted the unique alphanumeric numbers connecting a donor to a recipient. After rebuke from the Court, SBI provided these numbers and the ECI published the complete data. The data covered purchases and redemptions from April 2019 to January 2024, worth thousands of crores of rupees.
Extension Refused: SBI requested extension till 30 June 2024 to compile the data. On 11 March 2024, the Court rejected this and ordered disclosure within a day, observing that the information was already stored digitally.
Allegations of Quid Pro Quo: After the data became public, media and civil society analyses raised questions about donations from companies under investigation or which had obtained large government contracts. The Supreme Court did not find any individual guilty of corruption in this case.
Abstract
The Electoral Bonds Scheme, 2018 was one of the most contested changes to India’s political funding framework. It permitted donors to buy interest-free bearer bonds from SBI in denominations from ₹1,000 to ₹1 crore, valid for 15 days, and donate them to any registered political party that had secured at least 1% of votes in the last Lok Sabha or State Assembly election. The party could encash the bond only through its designated bank account. The donor’s identity was not disclosed to the public or entered into the party’s contribution report. The Government argued that the scheme would reduce cash donations and black money in elections while protecting donors from victimisation.
The petitioners, including the Association for Democratic Reforms, the Communist Party of India (Marxist), Common Cause and others, argued that anonymity benefited only those with power to access the data, and that unlimited corporate donations enabled the purchase of political influence. After years of pendency, a Constitution Bench headed by Chief Justice D.Y. Chandrachud, together with Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra, unanimously held the scheme unconstitutional on 15 February 2024. The Court directed the issuing bank to stop issuing bonds, to disclose details to the ECI, and to refund unencashed bonds to purchasers. This article examines the legal basis of the decision, the supporting case laws, and its transformative impact on transparency in electoral finance, supported by FAQs.
Case Laws
The electoral bonds judgment drew upon a long line of precedent on electoral transparency and fundamental rights. Key case laws include:
1. Association for Democratic Reforms v. Union of India (2024), Writ Petition (Civil) No. 880 of 2017
◦ The Constitution Bench struck down the Electoral Bonds Scheme and the related amendments.
◦ Held that voters have a right to information about political funding under Article 19(1)(a).
◦ Held that the aim of curbing black money could not justify the scheme, since less restrictive means were available.
◦ Held that unlimited corporate donations were manifestly arbitrary under Article 14.
2. Union of India v. Association for Democratic Reforms (2002) 5 SCC 294
◦ Recognised the voter’s right to know the criminal, financial and educational background of candidates.
◦ Became the foundation for later claims to transparency in elections.
3. People’s Union for Civil Liberties v. Union of India (2003) 4 SCC 399
◦ Reaffirmed that the right to know about candidates flows from Article 19(1)(a).
◦ Struck down Section 33B of the Representation of the People Act, 1951, which tried to override the 2002 ruling.
4. Indira Nehru Gandhi v. Raj Narain (1975 Supp SCC 1)
◦ Held that free and fair elections form part of the basic structure of the Constitution.
◦ Supported the argument that opaque election funding undermines electoral fairness.
5. Common Cause v. Union of India (1996) 2 SCC 752
◦ Directed political parties to file income tax returns.
◦ Marked an early judicial push for financial accountability of parties.
6. K.S. Puttaswamy v. Union of India (2017) 10 SCC 1
◦ Recognised privacy as a fundamental right and laid down the proportionality test.
◦ Applied by the Court in 2024 to test the scheme, and informational privacy was held not to shield political donations that can influence policy.
Conclusion
The Electoral Bonds Scheme illustrates how a law presented as a reform can diminish the very transparency it claims to promote. By making political donations anonymous to the public but accessible to the State-owned bank, and by removing the limits on corporate contributions, the scheme tipped the scales between the voter’s right to know and the donor’s need for secrecy. In ADR v. Union of India, the Supreme Court restored that balance. It confirmed that the voter’s right to know covers who funds political parties, and that the stated aim of fighting black money cannot justify a measure which is not the least restrictive means available.
The verdict also has limitations. It struck down the scheme but did not itself decide whether any donor or party committed a crime. In August 2024, the Court declined to order a Special Investigation Team probe into alleged quid pro quo arrangements at that stage, leaving such complaints to ordinary criminal remedies. Political funding in India therefore rests on electoral trusts, cheques, digital transfers and cash donations below the reporting threshold, and the debate on state funding of elections and stricter caps remains open. What the judgment settles is a principle: transparency in political finance is part of free and fair elections, and Parliament cannot legislate around it. Its legacy will lie in how future funding laws are drafted and reviewed against this standard.
FAQs
What was the Electoral Bonds Scheme? It was a 2018 scheme under which individuals and companies could buy bearer bonds from SBI and donate them to eligible political parties without the donor’s name being disclosed to the public.
Who challenged the scheme? The Association for Democratic Reforms, the Communist Party of India (Marxist), Common Cause and other petitioners challenged it before the Supreme Court under Article 32.
What did the Supreme Court hold? On 15 February 2024, a five-judge Constitution Bench unanimously held the scheme unconstitutional for violating Article 19(1)(a) and Article 14.
Which laws were affected by the judgment? The amendments to Section 29C of the Representation of the People Act, 1951, Section 182 of the Companies Act, 2013 and Section 13A of the Income Tax Act, 1961 were struck down along with the scheme.
What happened to the bonds that were not yet encashed? Political parties holding bonds still within their validity period were directed to return them to the issuing bank, which would refund the purchasers.
Did the Court find any political party or company guilty of corruption? No. The Court examined the constitutionality of the scheme, not individual wrongdoing. Allegations of quid pro quo remain subject to ordinary legal remedies.
What was the effect on political funding in India? The scheme ended, donors now have to use other lawful channels such as electoral trusts, cheques and digital payments, and the demand for further reform of election funding continues.
