Unveiling the Intersection of Political Funding, Transparency, and Constitutional Values in India

This article is written by NISHA KIRAN , BA-LLB, PRESIDENCY UNIVERSITY, during her internship at LeDroit India.

Introduction

The landscape of political funding in India underwent a seismic shift with the introduction of the Electoral Bonds Scheme in 2018. This system, designed to facilitate anonymous donations to political parties, sparked a nationwide debate about the merits and demerits of secrecy in political financing. At the heart of the legal and constitutional scrutiny of this scheme is the case titled “Association for Democratic Reforms (ADR) & Anr. v. Union of India & Ors.,” adjudicated by the Supreme Court of India. The litigation not only tested the legality of the scheme but also examined the foundational principles of transparency, free and fair elections, and the right to information in Indian democracy. This comprehensive case analysis delves into the background, statutory framework, constitutional questions, arguments, judicial reasoning, and the far-reaching implications of the Supreme Court’s verdict in the Electoral Bonds Case.

Background of Political Funding in India

Historical Context

Political funding in India has traditionally been shrouded in opacity. Before the Electoral Bonds Scheme, donations to political parties were regulated under the Representation of the People Act, 1951, the Companies Act, and the Income Tax Act. Contributions exceeding ₹20,000 required disclosure of the donor’s identity, but the system was riddled with loopholes, such as splitting donations, making them difficult to track and regulate.

Genesis of the Electoral Bonds Scheme

The NDA government, led by the Bharatiya Janata Party (BJP), introduced the Electoral Bonds Scheme in 2018, purportedly to cleanse the system of political funding. The scheme was operationalized through amendments in the Finance Act, 2017, which amended the Representation of the People Act, 1951, the Companies Act, 2013, the Income Tax Act, 1961, and the Foreign Contribution (Regulation) Act, 2010. The central plank of the scheme was to ensure that political donations could be routed through banking channels, ostensibly increasing accountability and reducing cash-based black money donations.

The Electoral Bonds Scheme: Statutory and Regulatory Framework

Key Provisions

• Issuance: Electoral bonds, in denominations from ₹1,000 to ₹1 crore, could be purchased by Indian citizens or entities incorporated or established in India from specified branches of the State Bank of India (SBI) during designated periods.
• Anonymity: The bonds could be donated to registered political parties, which could then encash them within 15 days. The donor’s identity was known only to the SBI, and even the recipient parties would not necessarily know the identity of the donor.
• Eligibility: Only parties that had secured at least 1% of votes in the last general election to the Lok Sabha or a State Legislative Assembly were eligible to receive electoral bonds.
• Disclosure Requirements Diluted: Amendments to the Representation of the People Act removed the requirement for political parties to report donations received through electoral bonds in their contribution reports.
• Corporate Donations: The cap limiting corporate donations to 7.5% of average net profits over three years was removed, and companies were no longer required to disclose the names of parties they donated to.

Objectives as Stated by the Government

The government claimed that the scheme would boost transparency by curbing the use of cash donations and channeling political funding through the banking system. It was argued that this mechanism would also protect donors from political retribution and promote a level playing field.

Petitioners and Legal Challenge: Association for Democratic Reforms

The Association for Democratic Reforms (ADR), a prominent non-governmental watchdog working on electoral and political reforms, filed a Public Interest Litigation (PIL) in the Supreme Court of India, challenging the constitutionality of the Electoral Bonds Scheme. ADR was joined by Common Cause and the Communist Party of India (Marxist) as co-petitioners, reflecting the broad concern across civil society and certain political actors.

Grounds of Challenge

The petitioners’ challenge was multifaceted:

• Violation of the Right to Know: The scheme, by enabling anonymous donations, deprived citizens and voters of their right to know the sources of political funding, which they argued was integral to informed voting and free and fair elections—key components of the basic structure doctrine.
• Threat to Democracy: The lack of transparency enabled the potential for unchecked corporate and foreign influence in Indian politics, undermining the integrity of public institutions and democratic processes.
• Arbitrariness and Discrimination: The scheme, by conferring anonymity and removing caps on corporate donations, was alleged to enable quid pro quo arrangements and discriminate against smaller political parties less able to attract large donors.
• Violation of Equality: The amendments allegedly violated Articles 14 (equality before law), 19(1)(a) (freedom of speech and expression), and 21 (right to life and personal liberty) of the Constitution.

The Government’s Defence

The Union Government, defending the scheme, submitted the following arguments:

• Legitimacy and Cleansing of Political Funding: The government contended that the scheme brought political donations into the formal banking sector, reducing the scope for black money and illegal funding.
• Donor Privacy: The anonymity was justified on the grounds that it would protect donors from possible harassment or retribution from rival parties or regimes.
• No Constitutional Violation: The government insisted that the right to information was not absolute and could be reasonably restricted to balance competing interests such as privacy and security.
• Comparative International Practices: The government also cited the practice of anonymous political donations being permissible in other countries, arguing that the scheme was not unique to India.

Key Issues Before the Supreme Court

The Supreme Court identified several pivotal issues for adjudication:

• Does the Electoral Bonds Scheme infringe upon the constitutional right to information and the principle of transparency in political funding?
• Are the amendments to the Representation of the People Act, Companies Act, and Income Tax Act constitutionally valid?
• Is the anonymity granted by the scheme justified in a representative democracy?
• Does the removal of caps and disclosure requirements for corporate donations subvert the electoral process?

Judicial Proceedings and Interim Orders

The case was heard over several years, with the Supreme Court issuing multiple interim orders. In 2019, the Court directed political parties to submit details of donations received through electoral bonds in sealed covers to the Election Commission, which would hold them pending the final judgment. The final hearings, marked by extensive arguments from both sides, concluded in January 2024.

Judgment of the Supreme Court (2024)

Bench Composition and Approach

A Constitution Bench of the Supreme Court, led by the Chief Justice of India, delivered its long-awaited judgment on February 15, 2024. The bench analyzed the scheme from the perspective of constitutional rights, institutional integrity, and public interest.

Key Findings and Rationale

1. Violation of the Right to Information:

The Supreme Court reaffirmed that the “right to know,” especially regarding political funding, is an essential facet of the right to freedom of speech and expression under Article 19(1)(a). It held that opacity in political funding stifles informed electoral choices, undermines accountability, and erodes the democratic process.

2. Anonymity Unjustified:

The Court found that the state’s interest in ensuring donor privacy does not override the electorate’s fundamental right to know the sources of political funding. Anonymous donations, especially from corporations, could lead to policy capture, quid pro quo arrangements, and undue influence on governance.

3. Amendments to Laws Struck Down:

The amendments made through the Finance Act, 2017 to the Representation of the People Act, Companies Act, and Income Tax Act were declared unconstitutional insofar as they permitted anonymous donations, removed caps, and diluted reporting requirements.

4. Electoral Bonds Scheme Unconstitutional:

The Court struck down the Electoral Bonds Scheme as unconstitutional, reasoning that it violated the principles of transparency and accountability in political funding, which are indispensable to free and fair elections and the basic structure of the Constitution.

5. Direction for Disclosure:

The Court directed the State Bank of India to immediately cease the issuance of electoral bonds and to furnish details of all electoral bonds purchased since the inception of the scheme to the Election Commission of India for public disclosure.

Analysis of the Judgment

Upholding Democratic Values

The Supreme Court’s verdict is widely seen as a robust reaffirmation of the foundational values of Indian democracy. It underscores the necessity of transparency in political funding as a bulwark against corruption, state capture, and erosion of public trust.

Right to Information and Electoral Integrity

By placing the right to know at the heart of the judgment, the Court advanced the jurisprudence on electoral rights. It recognized that in a democracy, the flow of information regarding political funding is critical for voters to make informed choices and for the media and civil society to hold power to account.

Corporate Influence and Policy Capture

The judgment took a dim view of the dramatic increase in corporate donations post-scheme and the lack of accountability enabled by the removal of donation caps and disclosure requirements. The verdict recognized the risk of policy capture and the necessity of safeguards against the concentration of political influence in the hands of a few powerful entities.

The Limits of Donor Anonymity

The Court carefully balanced the interest in donor privacy against the larger democratic interest, holding that while privacy is important, it cannot serve as a cover for practices that undermine electoral integrity and public accountability.

Basic Structure Doctrine

The judgment invoked the basic structure doctrine, established in Kesavananda Bharati v. State of Kerala, to hold that free and fair elections, transparency, and accountability are part of the basic structure of the Constitution, which Parliament cannot abrogate, even through legislation.

Implications of the Verdict

Immediate and Long-term Impact

• Transparency in Political Funding: The verdict paves the way for greater transparency and public scrutiny in political donations.
• Disclosure Norms: Political parties must now disclose sources of funding, restoring requirements that had been diluted by the scheme.
• Corporate Donations: The judgment reinstates the earlier limits on corporate donations, curbing undue influence.
• Accountability and Enforcement: The Election Commission, the Income Tax Department, and other authorities are expected to play a more active role in monitoring compliance and enforcing disclosure requirements.

Political and Civil Society Reactions

The verdict elicited strong reactions across the political spectrum. Reform-minded voices, civil society, and opposition parties hailed the judgment as a victory for democracy. Critics of the judgment warned of potential harassment of donors and the possible resurgence of cash-based black money donations. The government expressed concerns about donor privacy but ultimately stated its commitment to following the rule of law.

Broader Constitutional and Comparative Perspectives

The Supreme Court’s reasoning resonates with international trends toward transparency in political financing. Many democratic countries impose strict disclosure requirements on political donations to prevent undue influence and foster public trust. The judgment thus aligns Indian law with global best practices.

Court-Directed Reforms and Roadmap Ahead

The Supreme Court’s verdict is not the endpoint, but rather a pivot toward broader reforms in political financing. Among the recommendations and possible future directions are:

• Comprehensive Electoral Reforms: The need for a robust statutory regime governing political funding, with a focus on transparency, limits on corporate and foreign contributions, and stringent enforcement mechanisms.
• Use of Technology: Leveraging digital platforms for transparent, real-time reporting of political donations and expenditures.
• Role of Civil Society: Encouraging watchdog organizations, media, and public-spirited individuals to monitor political funding and demand accountability.

Criticisms and Limitations of the Judgment

While the Supreme Court’s judgment has been widely lauded, some criticisms and limitations persist.

Resurgence of Unregulated Funding?

Skeptics warn that the removal of electoral bonds may drive political funding back into the shadows, with cash donations and informal avenues gaining prominence unless accompanied by robust monitoring and enforcement.

Donor Privacy and Retaliation

Concerns remain about the genuine risk of donor harassment and political vendetta. The need for a balanced approach—safeguarding both transparency and legitimate donor interests—remains an ongoing challenge.

Implementation Challenges

Effective implementation of disclosure and reporting norms, and the capacity of oversight institutions like the Election Commission, will be critical to realizing the promise of the judgment.

Conclusion

The Electoral Bonds Case (Association for Democratic Reforms v. Union of India) marks a watershed in the evolution of Indian constitutional jurisprudence on political funding. The Supreme Court’s robust affirmation of transparency, accountability, and the right to know heralds a new era in the quest for free and fair elections. By striking down the Electoral Bonds Scheme and the associated statutory amendments, the Court has restored critical safeguards against the excesses of anonymous and unlimited political funding.

Yet, the verdict also underscores the need for continued vigilance, institutional strengthening, and public engagement to ensure that the noble ideals of Indian democracy are translated into practice. The battle for clean, transparent, and equitable political funding is far from over, but the Supreme Court’s judgment represents a resounding step forward.

References

• Supreme Court of India Judgment — Association for Democratic Reforms & Anr. v. Union of India & Ors., February 2024
• The Representation of the People Act, 1951
• The Companies Act, 2013
• The Income Tax Act, 1961
• The Finance Act, 2017
• The Foreign Contribution (Regulation) Act, 2010
• Reports and analyses by the Association for Democratic Reforms
• Election Commission of India: Reports and Notifications
• Academic commentaries and legal journals on electoral reforms