Supreme Court declares electoral bonds scheme unconstitutional

Amendments to the law, which allowed companies to make unlimited financial contributions to political parties under the cover of absolute anonymity, declared ‘manifestly arbitrary’

A five-judge Constitution bench comprising Chief Justice of India D. Y. Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra pronounce the judgement on the petitions challenging the Electoral Bonds Scheme, in New Delhi on February 15, 2024. | Photo Credit: ANI

In a landmark unanimous judgment, the Supreme Court on Thursday struck down as “unconstitutional and manifestly arbitrary” the electoral bonds scheme, which provides blanket anonymity to political donors, as well as critical legal amendments allowing rich corporations to make unlimited political donations.

A five-judge Bench headed by Chief Justice of India D.Y. Chandrachud held that the Union government’s scheme, and preceding amendments made to the Representation of the People Act, the Companies Act, and the Income Tax Act, violated the voters’ right to information about political funding under Article 19(1)(a) of the Constitution.

The lead opinion authored by Chief Justice Chandrachud said that the absolute non-disclosure of the source of political funding through electoral bonds promoted corruption, and a culture of quid pro quo with the ruling party to introduce a policy change or for bagging a license. The scheme and the amendments authorised “unrestrained influence of corporates in the electoral process”, it said.

Corporations vs citizens

The judgment belled the cat on the deep nexus between money and politics, saying that “contributions made by companies are purely business transactions made with the intent of securing benefits in return”. It noted that the scheme allowed the inflow of “huge contributions” by companies and multinational corporations with major business stakes in the country, overawing or even concealing the relatively small financial contributions of the ordinary Indian — the student, the daily wage worker, the artist, or the teacher — who believes in the ideologies of a political party without expecting any substantial favours in return.

“Would we remain a democracy if the elected do not heed the hue and cry of the needy? We ask ourselves whether the elected would truly be responsive to the electorate if companies which bring with them huge finances and engage in quid pro quoarrangements with parties are permitted to contribute unlimited amounts,” Chief Justice Chandrachud noted.

He said that the scheme and the amendments promoted “economic inequality” by giving corporations with financial power an unsurpassable advantage over ordinary citizens in the electoral process and political engagement. “This is violative of the principle of free and fair elections and political equality captured in a value of ‘one person, one vote’,” Chief Justice Chandrachud observed.

Voters’ rights vs donors’ rights

The court dismissed the Union government’s argument that the anonymity of political donors afforded by electoral bonds incentivised financial contributions through banking channels.

The court agreed that the fundamental right to privacy covers a person’s political affiliation. However, it said, there should be a balance between informational privacy and the voters’ right to information.

Chief Justice Chandrachud drew a clear distinction between donations by corporates for favours and contributions by individuals as a mark of their political beliefs. “Not all contributions are made to alter public policy. Contributions are also made by people to political parties which are not substantially represented purely with the intent of extending support… Contributions made for quid pro quo are not an expression of support,” the Chief Justice distinguished.

SC dismisses black money argument

The court rubbished the government’s claim that the scheme was meant to curb the injection of black money into the electoral process. It ruled that “curbing of black money” was not a reasonable restriction to the exercise of the voters’ fundamental right to information about political funding enshrined in Article 19(1)(a).

The Chief Justice asked the Union government how the “absolute” non-disclosure of the sources of political funding introduced in the electoral bonds scheme could rationally help curb black money. “Clause 7(4) of the scheme completely exempts information on the purchasers of electoral bonds. This information is never disclosed to the voters. The purpose of securing information about political funding cannot be fulfilled byabsolute non-disclosure,” the Chief Justice pointed out.

Hinged on anonymity

Applying the “double proportionality standards”, the court said that the clause was unconstitutional as it did not balance the conflicting right to information of voters with contributors’ right to privacy regarding their political affiliations.

The judgment noted that the entire electoral bonds scheme had hinged on the anonymity provided under Clause 7(4). Without this, the scheme was indistinguishable from other modes of financial contributions, including cheques, direct debit, and electronic transfers. Sans the clause, the scheme had to fall.

Watch | Supreme Court’s verdict on the electoral bonds scheme

Amendments facilitated anonymity

The judgment referred to the way that amendments had been introduced in Section 29C of the Representation of People Act, Section 13A of the Income Tax Act, and Section 182 of the Companies Act via the Finance Act 2017, introduced as a Money Bill, to pave the way for blanket anonymity in financial contributions through the electoral bonds route notified in January 2018.

Prior to the amendments, these provisions had maintained the needed balance between donors’ privacy and voters’ right to know, the court said.

Removed restrictions

The original Section 29C required political parties to publicly disclose contributions in excess of ₹20,000, received even through cheques and the electronic clearing system. The amendment, however, allowed a complete exemption for political parties to publish contributions received through electoral bonds.

The amended Section 13A freed parties from the obligation of keeping a detailed record of contributions received through electoral bonds.

Before the amendment, Section 182 had mandated that companies could donate only up to 7.5% of three years of their net aggregate income. The amendment lifted this cap and made room for unlimited and anonymous corporate donations to political parties.

Donations from loss-making firms

The pre-amendment provision had also banned government companies from making contributions to prevent them from entering the political fray. It had, moreover, classified loss-making companies and profit-making ones.

The electoral bond scheme, which was notified by the government on January 2, 2018, introduced money instruments through which companies and individuals in India can donate to political parties anonymously.

“The underlying principle was that it was more plausible that loss-making companies would contribute to political parties with a quid pro quo and not with income tax benefits in mind. The amendment to Section 182 does not recognise that the harm of political contributions by loss-making companies for quid pro quo is higher. The amendment is arbitrary for not making a distinction,” Chief Justice Chandrachud held.

The petitioners in the case were the Association for Democratic Reforms, represented by advocate Prashant Bhushan, and the Communist Party of India-Marxist (CPI-M), represented by advocate Shadan Farasat. The government was represented by Attorney General R. Venkataramani and Solicitor General Tushar Mehta.