This article is written by Yuvika Semalti, USLLS, GGSIPU. This article analyses the landmark judgment of the Association for Democratic Reforms V. Union of India
In 2024, the Honourable Supreme Court struck down the Electoral Bond Scheme, 2018, while passing the landmark judgment in the case of Association for Democratic Reforms v. Union of India. The Court declared the Electoral Bond Scheme, 2018 and the consequential amendments unconstitutional, holding that they violated voters’ right to information under Article 19(1)(a) and undermined free and fair elections. By passing the landmark judgment, the court upheld the constitutional values of democracy, republicanism and transparency.
Keywords – electoral bonds, democracy, republicanism, transparency, unconstitutional
Background of the Case
- The Electoral Bond Scheme, 2018 – In January 2018, the Ministry of Finance notified the scheme of electoral bonds. The Scheme was introduced with the stated objective of increasing transparency in political funding and curbing the use of black money in elections. The Electoral Bond Scheme was introduced by making several amendments in different acts relating to political funding. An electoral bond is a bearer instrument similar to promissory notes, but it does not contain the name of the donor. An electoral bond can only be purchased by a citizen of India or a company through KYC from SBI or its branches. The buyer then can donate the bond to any political party, and that party has to redeem it within 15 days. Parties having secured 1% of votes in previous elections are eligible to receive such bonds. The main aim of the scheme was to maintain the anonymity of the donor and control corruption in elections.
- Amendments made by the Finance Act, 2017 – Before introducing the scheme, several amendments were made through the Finance Act, 2017. Under section 31 of the RBI Act, RBI and the central government had the authority to make or issue a bearer check or promissory notes, through the Finance Act, 2017, Section 31(3) was inserted, and this power was given to any authorized bank by the central government. Section 182 of the Companies Act, 2013, imposes some checks and balances on companies to fund political parties, but by the 2017 amendment, the cap on corporate political contributions and the disclosure requirements were removed. Under section 13[A] of the IT Act, 1961, political parties are required to provide voluntary contributions exceeding 20,000 rupees and to receive funds in cash. By the 2017 amendment, such requirements were waived off, and funds above 2000 were to be received by a cheque, bank draft, electronic medium, or electoral bond. Under section 29[c] of the RP Act, 1951, political parties were required to report all funds above 20,000 to ECI; this requirement was also waived off by the 2017 amendment.
- Why did EBS become controversial? – After being introduced, the Electoral Bond Scheme was surrounded by controversial questions, with some blaming it for being an unconstitutional scheme. The Government claimed the introduction of the scheme would curb corruption and maintain the anonymity of the donor. However, the public had a completely different opinion, and they considered that the introduction of the scheme would only increase corruption in elections, as all the checks and balances are rescinded through the amendments. The scheme was also considered as a violation of the fundamental right to information of a voter. The scheme was seen as a challenge to free and fair elections, and it was assumed that companies donating funds would be influential in electing the government.
Case Details
In September 2017 and January 2018, the Association for Democratic Reforms and Communist Party of India [Marxist] filed petitions in the Supreme Court challenging the amendments and the scheme. Petitioners also challenged it under Article 110, for wrongful use of constitutional powers by introducing the act as a money bill to avoid discussions at the Rajya Sabha. A five – judge Constitutional Bench led by CJI Chandrachud, with Justices Sanjiv Khanna, B.R Gavai, J.B. Pardiwala, and Manoj Misra, heard the arguments.
Issues
Following issues were before the court of law:-
- Whether unlimited corporate funding to political parties, as envisaged by the amendment to Section 182(1) of the Companies Act infringes the principle of free and fair elections and violates Article 14 of the Constitution; and .
- Whether the non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme and the amendments to Section 29C of the RPA, Section 182(3) of the Companies Act and Section 13A(b) of the IT Act are violative of the right to information of citizens under Article 19(1)(a) of the Constitution.
Arguments by Petitioners
The following arguments were presented by the petitioners’ learned counsel, Mr. Prashant Bhushan:
- Violation of Voters’ Right to Information – Petitioners argued that to make an electoral choice, it is important for a voter to know about the finances of the party. The scheme, by keeping the anonymity of the donor, takes away the right to be informed from the voters.
- Lack of Transparency – Earlier, companies had to disclose their donations to political parties, and parties also had to report funding above Rs.20,000 to the ECI. Such requirements were rescinded by the 2017 financial act, making the funding system opaque for voters.
- Ineffective in curbing black money – Although one of the main purposes of the scheme was to curb black money in elections, providing anonymity to donors undermines this purpose, leading to more corruption in elections.
- Shareholders’ Rights – Majority of the companies use shareholders’ money, and by keeping anonymity of donors, the scheme takes away shareholders’ right to know where the money is being used. It also defers their right to disagree with an investment made with their money.
- Unlimited corporate funding – By removing the cap from corporate funding, the scheme allows corporate structures to provide unlimited funds to the parties, posing a threat of bias in government policies and elections.
Arguments by Union of India
The following arguments were presented in defense by the learned attorney general:
- Curbs Corruption – The defense argued that by making donations authorized by banking channels, cash transactions reduce decreasing chances of corruption. Also, clauses like the purchasing of bonds by KYC and the expiry of bonds within 15 days act as a safeguard against corruption.
- Donor’s anonymity – The defense argued that maintaining the donor’s anonymity is essential to keep him safe from threats by competing parties. Also, as per constitutional provisions, RTI is not absolute; thus, to maintain the donor’s right to privacy, a balance must be maintained.
- Overriding Federalism – Union of India argued that electoral funding is a legislative work and the judiciary should not interfere in parliamentary functions, respecting the federal principles.
Court’s Observation and Directions
After hearing arguments from both the sides’ court reserved its judgment on 2 November 2023 and later on 15 February 2024, it passed the judgment and struck down the EBS scheme and its subsequent amendments as unconstitutional. The Court observed that although the scheme was introduced as an economic policy, it directly interferes with matters of free and fair elections. It violates the voters’ fundamental right to information under Article 19(1)(a) and permits unlimited anonymous corporate donations, thereby increasing the possibility of corporate influence over the electoral process. The Court applied the proportionality test while balancing donor anonymity against voters’ right to information. The Court observed that EBS is not the least restrictive method to curb corruption. The Court held that complete donor anonymity disproportionately restricted voters’ right to information and therefore failed the proportionality test.
The Court also struck down the amendments made through the Finance Act, 2017 to the Companies Act, the Representation of the People Act, the Income Tax Act and the Reserve Bank of India Act, holding that these amendments collectively enabled anonymous political funding in a manner inconsistent with constitutional principles of transparency and informed electoral choice.
The court issued directions to SBI and ECI:
- The Court directed SBI to stop issuing the bonds.
- SBI was directed to submit all the details of bonds purchased from 12th April, 2019, to ECI.
- ECI was directed to publish all the details provided by SBI on its website by 13th March, 20204.
- Electoral bonds that had not been redeemed were to be returned to the purchaser, and the issuing bank was directed to refund the amount.
Conclusion
By passing the landmark judgment, the court reaffirmed the principles of the constitution. It also showcased the court’s duty of safeguarding the fundamental rights of the citizens. The judgment reaffirmed that transparency in political funding is indispensable to free and fair elections and informed democratic participation. And although reforms are necessary, they cannot abridge the fundamental rights of citizens.
REFRENCES
https://api.sci.gov.in/supremecourt/2017/27935/27935_2017_1_1501_50573_Judgement_15-Feb-2024.pd
