Author: Virat Sagar, National Law University, Delhi
Abstract
The unanimous ruling by the Supreme Court of India in Association for Democratic Reforms & Anr. vs Union of India & Ors. (2024) is a landmark moment in strengthening electoral transparency and redrawing the contours of political financing. By declaring the Electoral Bond Scheme (EBS) unconstitutional, the Court resolved a fundamental conflict between the right of the electorate to receive information, which is indispensable for an informed electoral choice, and the donors’ right to privacy, which the scheme claimed to protect. This article traces the genesis of the EBS, an innovation introduced to rationalize and anonymize political contributions, and reviews its purposes, touted as transparency but condemned for the ability to foster obscurity in political finance. It reviews the reasoning of the Supreme Court to invalidate the scheme, notably in its application of the proportionality test to weigh competing fundamental rights and the criticism of the scheme for not setting up sufficient protections for public accountability. The ramifications of the ruling reach well beyond the confines of the courtroom, prompting urgent inquiries regarding the current regulatory structure governing political financing in India. By making comparisons with established practices in nations such as Germany, Canada, and the European Union, this article investigates the potential for India to incorporate international best practices to rectify inherent deficiencies within its electoral financing systems. Through an examination of significant judicial rulings, including Justice K.S. Puttaswamy v. Union of India (2017) and State of Uttar Pradesh v. Raj Narain (1975), this study emphasizes the essential importance of transparency in preserving the integrity of democratic processes. It also highlights the urgent need for legal changes that will rectify some of the flaws created by the invalidation of the EBS, such as setting up tiered privacy protection, mandatory disclosure requirements, and more stringent monitoring of corporate donations.
Introduction
Political finance is an essential component of electoral systems and has far-reaching implications on the equality and fairness of democratic governance. In 2018, the Government of India introduced the Electoral Bond Scheme (EBS) with the aim of curbing non-transparent financial donations and minimizing the influence of black money in the political field. Under this scheme, both individuals and companies were allowed to purchase electoral bonds from designated branches of the State Bank of India (SBI), which could then be encashed by registered political parties. It also concealed donor identities, which technically violates the norms of transparency required under the Right to Information Act, 2005. It had promised to formalize political donations. The EBS faced considerable backlash from legal experts, civil society groups, and opposition political entities for purportedly facilitating quid pro quo arrangements and preferential treatment for governing parties. The petitions contesting its constitutionality culminated in the Supreme Court’s 2024 decision, which deemed the scheme unconstitutional for infringing upon essential democratic values. In prioritizing the voter’s right to information at the expense of donor confidentiality, the ruling highlighted the necessity of transparency as crucial to India’s electoral democracy.
The Electoral Bond Scheme: Genesis and Objectives
The Electoral Bond Scheme (EBS) was established in 2018 as a novel approach to political financing, designed to tackle problems associated with illicit funds and unregulated contributions. This initiative permitted individuals, corporations, and various organizations to acquire financial instruments akin to promissory notes, available in denominations varying from ₹1,000 to ₹1 crore. These bonds, sold only in designated branches of the State Bank of India, were accepted as donations by registered political parties, which were mandated to encash them within 15 days. The EBS was envisioned as a way to make political donations pass through formal banking systems, thereby eliminating cash contributions and curtailing the entry of unaccounted money into the electoral process. A core feature of the EBS was its guarantee of donor anonymity, seemingly created to shield contributors from political victimization or retribution. By masking the identities of donors, the program intended to promote greater participation among corporate interests and high-income persons in political funding, which was otherwise limited by fears of political retribution. The state presented this anonymity as an insurance mechanism meant to enhance the expression of free speech regarding political patronage. However, the operational framework of the EBS introduced significant opacity into the system. Amendments to critical statutes, including the Income Tax Act, 1961, Companies Act, 2013, and Representation of the People Act, 1951, exempted donations made through electoral bonds from standard disclosure requirements. For instance, corporations were not required to include these contributions in their annual financial reports, and political parties were not required to disclose the identity of donors who contributed through bonds. Critics argued that such rules undermined electoral accountability by removing essential transparency mechanisms that help voters make informed choices.
This has been seen to be advantageous to major political parties, especially the ruling party that obtained a majority of financial contributions. The lack of transparency heightened concerns over the likelihood of quid pro quo agreements and the ability of such influence on policymaking, giving the wealthy organizations undue leverage over governance. In addition, critics argued that the scheme further exacerbated imbalances in political funding, pushing minor parties to the periphery and compromising the principles of fair electoral competition. These flaws eventually led to the judicial review of the EBS, with the Supreme Court annulling it in 2024.
The Judgment: Key Issues and Findings
In Association for Democratic Reforms vs Union of India (2024), the Supreme Court gave the preference to transparency over privacy to sustain democratic principles. The Court, however, recognized that privacy is a constitutionally protected right as in Justice K.S. Puttaswamy (Retd.) vs Union of India (2017), but made it clear that it was not absolute and had to be weighed against public interest. In the EBS, the Court concluded that anonymity of donors heavily compromises the voters’ right to information as enshrined under Article 19(1)(a), which is indispensable for free and fair elections. It cited the judgment of State of Uttar Pradesh vs Raj Narain (1975) that transparency promotes accountability by revealing financial interests affecting political parties. The Court declared the EBS intrinsically unconstitutional because it provided an exception to donor disclosure, which facilitated quid pro quo arrangements that undermine electoral fairness. In his concurring opinion, Justice Sanjiv Khanna underscored how donor anonymity, especially of corporate donations, may create an unfair political influence favoring economically strong players at the cost of public trust and electoral integrity.
Applying the proportionality test, the Court held that EBS did not balance between privacy and transparency. The scheme was criticized for the blanket restriction on disclosure without safeguarding public accountability. The previously existing frameworks, such as disclosure of contributions above ₹20,000, were treated as less restrictive and better balanced. The Court ended by stating that electoral transparency is a basic tenet of democratic governance and, therefore, declared the EBS unconstitutional as it was violating the right to information enjoyed by voters.
The Association for Democratic Reforms vs Union of India (2024) judgment draws heavily from precedents and incidents emphasizing electoral transparency and accountability. A foundational case is People’s Union for Civil Liberties v. Union of India (2003), where the Supreme Court upheld voters’ right to access information about candidates, asserting that an informed electorate is essential for democracy. This precedent paved the way to extend transparency principles toward political funding, making sure voters also know what financial influence is shaping political parties, in order to maintain institutional integrity . A noteworthy case to consider is Subramanian Swamy v. Union of India (2016), in which the Court utilized the proportionality test to assess limitations imposed on fundamental rights. This test emerged as a pivotal aspect of the ADR judgment, wherein the Court determined that the overarching anonymity feature of the Electoral Bond Scheme unduly violated voters’ right to information without considering less restrictive alternatives. The focus of the Swamy case on reconciling conflicting rights had a significant impact on the Court’s deliberations. Real-life events, including COVID-19 pandemic analyses, showed that more than 60% of electoral bond contributions went to the ruling party, which showed how EBS tilted the playing field. This opacity was the foundation for quid pro quo deals and decreased electoral competitiveness and public trust and accountability. These precedents and events together underscore the systemic risks of EBS and the Court’s emphasis on electoral transparency.
Global Comparative Practices
The Electoral Bond Scheme in India is a notable departure from international standards for the transparency and accountability of political funding. In the United States, campaign finance laws have been enacted, including the Federal Election Campaign Act (FECA), which requires disclosure of political contributions above $200. This has allowed voters and regulatory agencies to question the source of political contributions, thus providing accountability and preventing potential quid pro quo situations. The American framework prioritizes public disclosure as a fundamental component of democratic integrity, even when it may lead to potential political repercussions for donors, thereby underscoring the importance of transparency over confidentiality in political financing. Conversely, Canadian regulations governing campaign finance establish stringent limitations on contributions from corporations and unions to political entities, which substantially mitigates the impact of financial resources on electoral results. The Canada Elections Act caps contributions and requires full disclosure of all political donations. Such a structure ensures fairness in political financing, with no individual organization able to exercise undue influence over the democratic process. By being transparent and limiting financial hegemony, the Canadian model provides a prototype for a well-controlled funding of politics.
The European Union assumes a nuanced position as described in its Regulation on Political Advertising Transparency (2024) and supporting legislation. Provisions strictly prohibit anonymous contributions, while safeguarding the anonymity of small individual donations that are unlikely to impact policy decision-making. The approach by the EU balances the rights of donors and electorates such that it protects the privacy of the ordinary citizen and at the same time maintains total transparency of big donors. This stratified methodology acknowledges the necessity of safeguarding personal information while simultaneously curtailing inappropriate sway exerted by affluent organizations. These international practices underscore the importance of robust legal frameworks that ensure electoral integrity by prioritizing transparency and accountability. In contrast, India’s EBS has pitfalls in excessive anonymity, which risks undermining public trust in democratic institutions. Learning from these global models, India can develop a revised framework for political funding that aligns with international best practices while addressing the unique dynamics of its democratic landscape.
The ADR vs Union of India (2024) judgment brings forward electoral transparency but leaves many issues unsolved, which require legislation. A major weakness is that no clear privacy standards have been established for donors. In particular, the Court successfully guarded the privacy of small contributors but did not establish clear monetary thresholds of what constitutes a small contribution, thereby leaving open a gaping loophole for exploitation by donors who fragment their contributions to avoid transparent reporting. The other concern is the treatment of corporate contributions. The judgment does not explicitly bar corporations from invoking privacy claims, leaving room for opacity in large-scale political funding. Corporate donations, often significant, can disproportionately influence electoral competition and policymaking, which remains unaddressed.
Finally, the annulment of the Electoral Bond Scheme (EBS) without proposing an alternative framework poses a threat of establishing a regulatory void. A tiered strategy preserving confidentiality for minor contributors while requiring complete transparency for corporate and substantial donations would reconcile the need for donor protection with the demand for accountability. The court’s omission of definitive political financing reforms places the onus on the legislature to swiftly rectify systemic deficiencies and avert further exploitation.
Proposed Legislative Reforms
The judgment of ADR vs Union of India (2024) underlines the paramount need for reforms to ensure transparency, accountability, and equity in funding political activities in India. Political parties should be mandatorily required to report public donations of more than ₹10,000. This would involve reporting the names of donors and the amounts donated. Such a measure would balance the privacy of small-ticket donors with the transparency of significant contributions that may significantly influence governance and policymaking. Such empowerment of voters will help make informed electoral choices and promote accountability in the political process.
Limiting corporate contributions is crucial to prevent excessive influence. Corporations have significant financial resources that can skew political competition and affect decision-making processes. Strong restrictions on the monetary amounts they are allowed to contribute, coupled with measures to prevent evasion through subsidiaries or intermediary entities, would reduce the risk of policy capture and promote more equitable funding practices. Public financing of elections can be a revolutionary approach toward democratizing the electoral process. It can reduce the dependency of parties on private donations by distributing state funds to political parties on the basis of vote share or performance in previous elections. It has been implemented successfully in countries like Germany and Canada, where public financing has ensured fair competition and reduced the risk of corruption in the electoral system.
In the end, effective oversight mechanisms will be crucial for ensuring compliance. Giving the Election Commission of India (ECI) increased powers to scrutinize political financing, examine discrepancies, and enforce sanctions for non-compliance would strengthen the regulatory structure. Effective oversight would mean that political parties have to adhere to disclosure requirements and funding restrictions, thereby fostering accountability and transparency. Motivated by exemplary international practices, the proposed reforms are specific to the distinct democratic framework of India, addressing the systemic deficiencies the Electoral Bond Scheme (EBS) has underscored. The implementation of these reforms is crucial for restoring the public’s confidence in the mechanisms of elections, ensuring equality, and safeguarding the integrity of democracy in India.
Conclusion
The judgment of the Supreme Court in Association for Democratic Reforms vs Union of India (2024) constitutes a landmark step forward for transparency in the electoral process. By emphasizing the primacy of voters’ entitlement to information in relation to the privacy rights of donors, the judgment reinforces the foundational tenets of accountability and informed engagement within a democratic framework. Nevertheless, the decision simultaneously highlights the necessity for intricate legislative measures aimed at effectively balancing conflicting rights. As India grapples with the intricacies of democratic administration, the ADR case acts as a poignant reminder of the persistent significance of transparency and equity in electoral mechanisms. Such principles must be entrenched into prospective reforms, thereby guaranteeing that India’s democratic system will be robust in the face of emerging challenges.
References
Legislation
Income Tax Act, 1961 (India).
Companies Act, 2013 (India).
Representation of the People Act, 1951 (India).
Regulation (EU) 2024/900 on Political Advertising Transparency (European Union).
Cases
Association for Democratic Reforms & Anr. vs Union of India & Ors. (2024), Supreme Court of India.
Justice K.S. Puttaswamy (Retd.) vs Union of India (2017), Supreme Court of India.
People’s Union for Civil Liberties v. Union of India (2003), Supreme Court of India.
Subramanian Swamy v. Union of India (2016), Supreme Court of India.
Reports and Books
Competition Commission of India, Market Study on E-Commerce in India (2020) https://www.cci.gov.in.
UNCTAD, Competition Issues in the Digital Economy (2019) https://unctad.org/system/files/official-document/ciclpd54_en.pdf.
Articles
Sriya Sridhar, Case Comment on Association for Democratic Reforms v. Union of India, SCRIPTed (2024).
Sumit Jain and Vikrant Singh, ‘Competition in Digital Markets: An Indian Perspective’ (2024), SSRN https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4863926.
Commentary
Frederic Jenny, ‘Competition Law and Digital Ecosystems: Learning to Walk Before We Run’ (2021), SSRN https://ssrn.com/abstract=3776274.
FAQS
What is the Electoral Bond Scheme (EBS)?
The EBS was a financial mechanism introduced in 2018 that allowed individuals and corporations to donate anonymously to political parties through bonds issued by the State Bank of India.
Why was the EBS challenged in court?
It was challenged for violating the voter’s right to information under Article 19(1)(a) and enabling potential misuse of political funds by concealing donor identities.
What did the Supreme Court rule?
The Court struck down the EBS as unconstitutional, emphasizing that the voter’s right to information takes precedence over the donor’s right to privacy in the context of political funding.
What are the implications of this ruling?
The ruling underscores the importance of transparency in political funding while highlighting the need for nuanced safeguards to balance privacy and accountability.
How does this case impact future electoral reforms?
It sets a precedent for ensuring transparency in political funding and may guide future policies to reconcile competing constitutional rights.
