INTRODUCTION
The electoral bonds decision has been one of the most controversial and significant judegements in the history of the courts. It’s a judgment that has stamped the contour of democracy. It was a statement of transparency in our election system, of accountability for our representative politicians, and of our society’s understanding that the politicians do not have the power to do whatever they please. This was the matter of Association for Democratic Reforms v. Union of India, 2024. This ruling underscored the constitutional right of citizens to be informed, linking it with the core democratic principles. This article critically examines the scheme, the Supreme Court’s reasoning, and the broader implications for campaign finance in India. To understand this complex judgement, we must first understand the basics or the foundation. The electoral bonds essentially are a promissory note that can be bought by an Indian citizen or company from selected State Bank of India branches. Through this, the citizen or company can donate to any political party of their choice. The decision made by the Supreme Court in the case of Association of Democratic Reforms v. Union of India (2024) striking down the Scheme has become a turning point in the Indian jurisprudence of campaign finance. The judgement was a reiteration of the importance of transparency of a free and fair election under Article 19(1) (a) of the Constitution.
BACKGROUND
The Electoral Bonds Scheme was introduced through the Finance Act, 2017. The Finance Act of 2017 brought significant changes to the Representation of the People Act, 1951, Income Tax Act, 1961, Companies Act, 1956, and the Reserve Bank of India Act, 1934, to facilitate the Electoral Bond Scheme. This scheme was created to permit anonymous and unrestricted political contributions by eliminating limits and disclosure obligations. The intention was to cleanse political financing, although it has raised contrary concerns regarding transparency and accountability. Let’s look into the basic details and conditions of acquiring electoral bonds. Essentially, these are similar to bank notes and it is payable to the bearer on demand and are free of interest. The bonds are issued in multiples of Rs 1,000, Rs 10,000, Rs 10,00,000 and Rs 1 crore. These are available at 29 selected SBI branches, those at New Delhi, Gandhinagar, Chandigarh, Bengaluru, Bhopal, Mumbai, Jaipur, Lucknow, Chennai, Kolkata and Guwahati.
So, ideally, the process is that the bonds are purchased by buyers/customers and are further donated to political parties anonymously by the SBI. The electoral bonds are available for purchase for 10 days at the beginning of every quarter. Specifically, the first 10 days of January, April, July and October are dedicated to the purchase of electoral bonds. In the year of the Lok Sabha elections, an additional 30 days are to be specified by the government. There is a criterion to be eligible for electoral bonds. Any party that is registered under section 29A of the Representation of the People’s Act, 1951 and has secured at least one percent of the votes in the most recent general elections or assembly elections will be eligible. The eligible party will be provided a verified account by the Election Commission of India for all the transactions regarding electoral bonds. The most standout feature is that the electoral bonds would be anonymous and not bear the name of the donor. Thus, the political party will not know who has made the donations.
To introduce the electoral bonds scheme, the legislature had to bring in amendments and changes to fit in the same. Initially, the Finance Act, 2016, this act amended Section 2(1)(j)(vi) of the Foreign Contribution Regulation Act, 2010 (FCRA), thus allowing foreign companies that have a majority share in an indian company to donate to political parties. This was the initial change, later backed up by more changes in 2017 when the Finance Act, 2017 was passed. The major amendments pertained to the Reserve Bank of India Act 1934, the Income Tax Act 1961, the Companies Act 2013 and the Representation of the People Act 1951.
Section 11 of the Finance Act, 2017, amended Section 13A of the Income Tax Act. This exempted the political parties from keeping a record of the electoral bond contributions.
Section 135 amended Section 31 of the RBI Act, giving the central government to authorise scheduled banks to issue the electoral bonds. Thus, only the banks that the government chooses have this power. Section 137 introduced a proviso to Section 29C of RoPA. This liberates the political parties from publishing contributions in their contribution reports. These reports disclose contributions received by parties “in excess of twenty thousand rupees” from companies and individuals. Section 154 amended Section 182 of the Companies Act, 2013, which removed the upper limit on how much a company could donate to a political party. Previously, the limit was set at 7.5 percent of three years of company’s net profit.
Out of these changes came a new framework which permitted untraceable political donations. This led to fears about the legitimacy of elections and the possible power of massive corporations over public opinion. While the Finance Bill for 2017 set the ground for electoral bonds, the 2018 Electoral Bond Scheme was put it into place validly.
Soon after these amendments were introduced to the Finance Bill 2017, petitions were filed in the SC challenging them. This was brought by two Non-Governmental Organisations Association for Democratic Reforms and the Communist Party of India (Marxist). The main challenge is the wrongful passing of the bill, a larger challenge of using money bills under Article 110, and the non transparency in funding.
The Election Commission of India had also expressed its concerns regarding the scheme in 2017 through a letter shared by them to the Union Government. They highlighted their main concern of keeping the foreign funds in the dark, which exposes our country to political influence by foreign companies. After the electoral bond scheme was introduced, the ECI opposed that too.
This however wasnt the only petition filed against the scheme. There was an RTI filing by activists Commodore Lokesh Batra (Retd.), Anjali Bhardwaj and others which led to some information being released in November of 2019. In 2022 the scheme was amended again to extend the number of days the bonds will be available for purchase. ADR approached the Supreme Court Again challenging these amendments.
Just as the 2024 elections were around the corner, the petitioners approached the court regarding the same. The previous petitions were combined and this matter was referred to a five-judge Constitution Bench, led by then CJI Chandrachud, with Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra.
ADR V UOI 2024
The petition before the Supreme Court essentially challenged the validity of the electoral bond scheme notified in 2018 under Section 31(3) of the RBI Act, along with the amendments that took place to make the act possible. The main issues raised before the constitutional bench were, firstly, whether unlimited corporate funding to political parties through the amendment to the Companies Act infringes the principle of free and fair elections and violates Article 14 of the Constitution. And secondly, if the non-disclosure of donors under the scheme violated the citizens’ right to information under Article 19(1)(a). Senior Advocates Mr. Prashant Bhushan and Mr. Kapil Sibal represented the petitioners, Association for Democratic Reforms and the Communist Party of India (Marxist). They argued that the amendments undermined the transparency inculcated by democracy and distorted the same unequivocally.
The article written by the then Finance Minister, Mr. Arun Jaitley, reflected the aim of introducing the EBS, which was essential to enhance transparency in electoral funding so that electoral bond transactions could happen only through legitimate banking channels. However, cash donations were further permitted even after the introduction of this scheme. The Central Government ignored the objections that were raised by both the RBI and the ECI to the Electoral Bond Scheme.
Further, this violates Article 19(1)(a), which guarantees the right to information to the citizens about the financial contributions to the political parties. The constitution, through the tenth schedule, recognizes that political parties have decisive control over the formation of the Government and voting by members of the Legislature. The data available clearly showed that most of the bonds are purchased by corporations and not individuals, and are predominantly in the denomination of 1 crore.
This opens the door for unlimited quid pro quo arrangements and policy capture tactics by companies. It has been argued that there is further information asymmetry created, where, while the public was denied access to the information, the government, through SBI, could access all the details. Further, the limited disclosure clause prevents investigating agencies such as the Central Bureau of Investigation and the Enforcement Directorate. Corporate funding per se is violative of the Constitution because corporate entities are not citizens and thus are not entitled to rights under Article 19(1)(a).
Further, the funds contributed to the scheme can be used in any manner possible and are not restricted to electoral campaigns. The Electoral Bond Scheme undermines the connection between elections and representative democracy, as those in power may prioritize the interests of their contributors over those of their constituents. This influence can manifest in two ways, through direct quid pro quo, where a clear commitment is made to implement a policy that benefits the donor, and through indirect quid pro quo, where contributors gain access to policymakers and exert influence on their decisions.
Consequential judgments in UOI v ADR and PUCL v UOI have expanded the right to information to funding of political parties. The underlying principle in the judgments is that an informed voter is essential for a functioning democracy. Furthermore, the infringement of the right to information does not satisfy the proportionality standard vis-à-vis the purpose of curbing black money. The Scheme does not effectively curb black money. Clause 14 of the Electoral Bond Scheme prohibits de jure trading of the bonds. However, trading is de facto permissible. Nothing prevents person A from purchasing the bond and trading it with person B who pays through cash. Although the privacy of donors plays a significant role in our political landscape, the fundamental right to free and fair elections takes precedence. The transparency required for a vibrant democracy far exceeds the need for confidentiality in this context, ensuring that the voices of the public are heard and valued in the electoral process. They infringe the principle of ‘one person-one vote’ because a selected few overpower the voice of the masses because of their economic wealth
The deletion of the limit on corporate contributions is a manifestly arbitrary provision permitting non-disclosure of funding by companies is violative of the shareholders’ rights under Article 25, which includes the right of the shareholder to know how the resources generated from their property are utilized
Thus, the amendments to Section 13A of the Income Tax Act and Section 29C of the RPA are contrary to the object of inserting Section 13A and Section 80GGB and Section 80GGC of the Income Tax Act. Publicly listed companies should not be allowed to make contributions without the consent of the majority of the shareholders or the consent of three-fourths of the shareholders. This puts the shareholders in an even weaker position, violating the right to substantive equality under Article 14. This violates Articles 14 and 15 by disproportionately impacting regional political parties and political parties that represent marginalised and backward sections of society. The removal of the cap on corporate donations has strengthened the position of major political parties and created more barriers for the entry of new political parties
The attorney general and solicitor general of India represented the Union Government in this case. They have argued that the scheme allows any person to transfer funds to political parties of their choice through legitimate banking channels instead of other unregulated ways. The benefit of confidentiality to contributors ensures and promotes the contribution of clean money to political parties. Citizens do not have a general right to know regarding the funding of political parties.
The right to know is not a general right available to citizens. The influence of contributions by companies to political parties ought not to be examined by this Court. It is an issue of democratic significance and should be best left to the legislature. The legal framework prior to the enactment of the Electoral Bond Scheme was mostly cash-based, which incentivized the infusion of black money into political parties. Donor is a public company, they will have to declare the amount contributed in their books of account without disclosing the name of the political party.
The state has a positive obligation to safeguard the privacy of its citizens, which necessarily includes the citizens’ right to political affiliation. The right of a buyer to purchase electoral bonds without having to disclose their preference of political party secures the buyer’s right to privacy. The right of a citizen to know how political parties are being funded must be balanced against the right of a person to maintain privacy of their political affiliations. Maintaining anonymity of donations to political parties is a part of the concept of secret ballot because it enables a person to make political choices without any fear of victimization or retaliation. The removal of the contribution limit was intended to disincentivize creation of shell companies the mere possibility that the law might be abused cannot be a ground for holding the provision procedurally or substantially unreasonable and The fact that one party receives substantially more support through donations than other parties cannot in itself be a legal ground to challenge the validity of the Electoral Bond Scheme.
The close association between money and politics was also discussed. Nevertheless, Section 77 of RPA read with Rule 90 of Conduct of Election Rules 1961 gives a ceiling to the total expenditure that can be incurred by a candidate or his/ her agent in relation to Parliamentary and Assembly elections during the period between the date of nomination by a candidate and the date in which the result is declared. The upper limit of expenditure in a Parliamentary constituency is between seventy five lakhs of rupees to ninety five lakhs of rupees according to the size of the State and Union Territory.
An upper limit of the expenditure by a political party in the Assembly constituency varies between twenty eight lakhs and forty lakhs as per the size of the State. No limits have been provided over expenditure by a political party under the law. The other impact of money over the electoral processing is that it costs money to make partisan party campaigns. Advertising during campaigns does influence the voter behavior and this can be measured due to the influence of television, campaign events and door to door canvassing. Money generates the entry- barrier in politics as it only allows a certain type of candidates and political parties to join the electoral field. Research has established influence of money in the preferences given by political parties in selecting candidates.
The court touched upon the breach of the voter right to information, since transparency of political funding ensures the right of the voter to be an informed voter. It said that political parties have an important role to play in the governance process and financial opacity negatively affects the accountability of citizens. The court also ruled that the provisions of non-disclosure warp the competition done during elections, degrades the equality of democracy, and abuses the right to be informed that is ultimately endangering a free and fair election. Although it did not negate the noble intentions on the part of the state such as prevention of use of black money and privacy of donors, the court refused to accept the lawful purposes of the government as an excuse, because the means applied exceeded that which was reasonable.
It identified some major loopholes in it like permitting up to 2000 rupees cash donations and the possible chance of selling bonds. On the issue of unlimited contributions of corporations, the court favored the assertion that, by lifting the restrictions and not requiring the identification of who donated what, the goodness of electoral faireness under Article 14 was skewed. It inferred that the existence of corporate entities, which was not given any right under Article 19(1) (a), resulted in unequal distributions of political power, which harmed smaller parties and restricted competition.
In refuting the Union argument that anonymity of donors was comparable to secret ballot the Court made it clear that secrecy in voting is a constitutional right of political expression, whereas secrecy in the contribution to politics makes concealed influence possible and is contrary to the intent of representative government. The Court also rejected the claim that the presumption of constitutionality took full play as when the prima facie case of a violation of fundamental rights is established, as it did in the instant case which is related to the electoral process, the State must demonstrate the reason why a fundamental right should be restricted and it failed to do so.
Ultimately, the Court struck down: (a) the Electoral Bond Scheme, 2018; (b) the amendment to Section 29C of the Representation of the People Act exempting bonds from disclosure; (c) the amendment to Section 13A of the Income Tax Act removing record-keeping obligations; and (d) the amendment to Section 182 of the Companies Act removing the cap on corporate donations and disclosure requirements.It also instructed the State Bank of India to submit all the information related to purchasing and redemption of bonds to the Election Commission, thus bringing the matters back to open space.
To conclude, the decision of the Court was unequivocal in the sense that transparency and the right of the electorate to know cannot be subjugated at the temple of anonymity and further that fairness of such elections ought to be ensured at the expense of money power which is a severe cancer.
FINDINGS FROM THE DATA
The judgment required SBI to reveal the data of the electoral bonds. And upon analysis of the same, an interesting pattern has emerged. The ruling party in the centre BJP’s funding pattern was seen to be oddly similar to those of other in power regional parties such as DMK, BRS, YSRCP rather than with national parties such as Indian National Congress and AAP.
The analysis indicates that political parties in power tend to attract more donors, and their funding primarily comes from large contributions. In contrast, opposition parties, regardless of their size, usually receive funding from smaller donations. The above chart shows where each party got its funds from.
As per the Supreme Court’s instruction, SBI has submitted the full list of the electoral bonds data to the ECI. The total amount encashed through electoral bonds was Rs 12,145.87 crore, with the top 10 donors contributing 33 percent, or Rs 4,548.30 crore. According to data from SBI, the top contributor to the electoral bond scheme was lottery king Sebastian Martin’s company, Future Gaming and Hotel Services, which acquired bonds valued at Rs 1,365 crore. Following closely was Megha Engineering & Infrastructures, which donated Rs 966 crore, while Reliance-linked Qwik Supply Chain purchased bonds worth Rs 410 crore.
Vedanta Limited contributed Rs 400 crore, and Haldia Energy Ltd., the flagship thermal plant company of the RP-Sanjiv Goenka Group, bought bonds totaling Rs 377 crore. Additionally, mining company Essel Mining purchased electoral bonds worth Rs 224.5 crore, while Western UP Power Transmission Co. encashed bonds amounting to Rs 220 crore. Telecom giant Bharti Airtel ranked eighth with bonds valued at Rs 198 crore. Kolkata-based FMCG group Keventers Foodpark Ltd. and steel manufacturer MKJ Enterprises each purchased electoral bonds worth Rs 195 crore and Rs 192.4 crore, respectively.
The BJP was the top recipient of electoral bonds, receiving over ₹6,000 crore, with major donors including Megha Engineering (₹584 crore), Qwik Supply (₹375 crore), and Vedanta (₹230.2 crore). TMC followed with ₹542 crore from Future Gaming. Congress received ₹125 crore from Vedanta and ₹110 crore from Western UP Transmission. DMK got ₹503 crore from Future Gaming. Other notable donors include Haldia Energy, MKJ Enterprises, and Yashoda Hospital, with funds spread across BRS, YSRCP, Shiv Sena, and others.
Upon examining the data presented, it becomes strikingly evident that the ruling party emerges as the primary beneficiary of these electoral bonds. Donors supporting the ruling party have frequently been alleged to exhibit bias and favoritism towards it, raising concerns about the integrity of democratic values. This situation raises important questions about the fairness of our electoral process and the influence of money in politics, casting a shadow over the principles of democracy. There’s an unequal advantage for the party in power. This raises the question of whether politically connected individuals influence the government and whether powerful donors enter into dubious agreements with the ruling party. Since a majority of the bonds almost 75 percent are directed towards the ruling party, a disparity is created in a financial perspective., the rulign party clearly has more funds to carry out their election campaign.
The lack of mechanisms to trace funding from parties and donors poses challenges in ensuring that policies serve the public interest. Addressing the risk of policy capture, especially during elections, is essential as a few individuals can disproportionately influence party dynamics.
Furthermore, the advantages of funding through electoral bonds create imbalances in the electoral landscape. Promoting transparency and equitable competition will help ensure that all parties, particularly those with strong public support, can effectively engage in the democratic process and represent the interests of all citizens.
SUGGESTIVE MEASURES
The intent associated with this scheme was to have cashless donations to political parties, upholding transparency and accountability. Though the scheme has been struck down, the underlying problem in our system remains. We will thus discuss some measures that can address our concern about a corruption free electoral process.
Firstly, independent candidates must be allowed to receive donations. Clause 3 of the scheme must be amended for the same. This will help each and every candidate to receive an equal playing field and prevent dominance by large political parties.
Discussions have been running around for a national electoral fund. This would be a common fund to which all donors openly contribute without expressing any preference to any political party. Further, the funds are to be allocated proportionate to the votes obtained. This will address donors’ secrecy as well as mitigate any coerced donations to any political party arising out of criminal ailments and behaviours from concerned parties.
Looking at other countries, we notice a pattern of state funded elections. The state funding may be in terms of giving subsidies or any sort of material help. There should be partial state funding in the form of limited in-kind support for vehicle fuel (which is a primary campaign expense), rental charges for microphones, and issuance of voter identity slips and additional copies of electoral rolls. Howeve,r at this stage of our economic growth, fully funded state elections may not be ideal, but partial funding is possible in the foreseeable future.
The same is seen in the UK, Sweden and Italy. Moreover a single electoral law with a Strong Enforcement Mechanism. The laws governing elections in India are fragmented and cause confusion among stakeholders. This thus highlights the need for a single, integrated election law with an effective mechanism. Illustratively, the Representation of the People Act, 1951 largely governs the electioneering and moral conduct of the candidates but makes no attempt to control the morality of political parties. Nor does it provide sufficient penal sanctions for electoral malpractice, leading to uncertainty and lacunae in enforcement
CONCLUSION
Elections serve as the foundation of democracy, functioning as the primary means through which citizens exercise their right to vote. This process influences the governance of the country, extending from local levels to the highest offices, including that of the Prime Minister. Ensuring fairness in elections is essential. In this context, the electoral bonds scheme was introduced, although it has faced various criticisms. These concerns have been addressed by the government, the Election Commission, and the Hon’ble Supreme Court. A significant portion of the challenges related to the electoral process may be alleviated through increased public awareness of rights, responsibilities, and duties, fostering consideration for the nation’s welfare and the well-being of its citizens.
About Author
Vianca Venkatesh, a law student at Symbiosis Law School, Hyderabad, is an enthusiastic legal learner with a keen interest in Corporate, Criminal, Civil, and Constitutional law. Passionate about understanding the intricacies of legal systems, she actively seeks opportunities to explore diverse legal fields and deepen her knowledge through writing, research, and hands-on experience.