Electoral Bonds Judgment (2024)**: Implications for political funding litigation

This article is written by Gauri Jaiswal, B.A.LL.B (hons), 5^th year, C.M.P. Degree College (University of Allahabad) during her Internship at LeDroit India. 

Keywords

Electoral bond, electoral bond scheme, political funding, litigation, electoral bond judgement

Abstract

Electoral bonds were in the nature of promissory notes that can be bought by any company or individual and thereafter can be donated to political parties leading to political funding. The sole purpose of electoral bond was to ensure use of white money in political funding and to curb black money while protecting the identity of donor so as to prevent and political retribution towards him. The mechanism was introduced by the electoral bonds scheme in 2018 after amending multiple acts via finance act, 2017. The major issue revolving around this scheme was the anonymity factor of the donor, the donor’s name was not mentioned on the electoral bond further it exempted from the income tax. This scheme was challenged in the Supreme Court on the grounds of violating the right to information. The apex court held it to be unconstitutional and also struck down the amendments made to other acts along with directing the election commission to release the electoral bond transaction data.

Synopsis

1. Introduction 
2. Background of the controversy
3. What is political funding litigation 
4. Supreme Court’s stance 
5. Analysis of Supreme Court’s Judgement on electoral bonds

• Facts
• Issues
• Arguments 
• Ratio Decidendi 
• Judgement 

6. Implications of the Judgement on Political funding litigation
7. Conclusion
8. Reference 

Introduction

Electoral bonds as per the electoral bond scheme, introduced in 2018¹, is in the nature of  promissory note that is available at SBI in denominations of Rs 1000, Rs 10,000, Rs 1 lakh and Rs 1 crore which can be bought and thereafter can be donated to any political party. These bonds do not contain the name of the buyer with validity for 15 days and were exempted from being taxed. Any individual, company, firm, Hindu undivided family, etc. are eligible to buy these bonds by way of digital transfer or cheque. The aim of this scheme as stated by the govt. was to keep control over the use of black money in political funding. 

Background of the controversy 

The major controversy surrounding this scheme was the hidden identity or anonymity of the buyer as it was alleged that this scheme was introduced to help big corporate donate without revealing their identity. Moreover it was argued by experts and opposition that it’ll adversely impact the democracy as the anonymity factor in political elections is against the public interest and the voters have all the rights to know how a party has been funded and who has funded the parties. The major problem with this scheme was the non-transparency. Along with this it was also opined that this scheme will profit those having black money.²

What is political funding litigation?

Political funding litigation refers to the legal cases where the laws, schemes or practices are in question through which a political party receives or uses money. These cases majorly involve issues like transparency, fairness, equality, donor anonymity, corporate funding, etc. In such cases the constitutional courts asses whether the funding mechanism violates any of the constitutional rights like right to information, right to equality of the citizens and the political parties and whether it is anyhow ultra vires to the constitution. 

Supreme Court’s Stance

A writ petition was filed in the Supreme Court of India Challenging the constitutionality of the Electoral bonds scheme. The case was named as Association for Democratic Reforms & anr v. Union of India & ors. Electoral bond scheme was held to be unconstitutional for the reason that it curtailed right to information of the citizens by anonymity clause that stated the name of the buyer of the electoral bond shall not be disclosed. Furthermore the apex court directed the State Bank of India to disclose the information of the bond transactions to the election commission of India which was required to publish the same. This scheme was held as violative of the Fundamental right under Article 19(1)(a) (i.e.) Right to information.   

Analysis of Supreme Court’s Judgement on electoral bonds

Name of the Case: Association for Democratic Reforms & anr v. Union of India & ors.

Citation: 2024 INSC 113

CJI DY Chandrachud. 

Facts

The government of India introduced the Electoral bonds scheme by amending section 31 of the RBI Act and Section 182 of the Companies Act. Prior to this amendment only RBI or Central Government authorized by RBI could draw, accept, issue the bill of exchange or promissory notes including bonds and a company could donate up to 25,000 or 5% of their net profit and also has to disclose the amount donated to any political party in their profit-loss account and any violations to these rules were met by stringent repercussions. Post the amendment the central govt. got the authority to authorize any scheduled bank to issue electoral bonds and the cap set on the companies regarding the political donations was removed and only total amount contributed towards political funding was to be disclosed in place of disclosing particulars of amount donated to each political party. 

The finance act further exempted the electoral bonds from the income tax and made amendment to IT Act which further released the political parties from the obligation to form the account of money received from electoral bond, however it required the buyer to pay by cheque or digital method to buy an electoral bond. Furthermore by the amendment made by finance act, 2017 the political parties were not required to disclose the contributions received through the electoral bonds whereas prior to the amendment all the parties had to disclose contributions received in excess to 25,000 to the election commission. 

RBI and Election Commission of India objected to these amendments via letters citing possible risk of money laundering and non-transparency in political parties funding respectively. Electoral Bond Scheme was introduced in 2018. 

Issues 

• Whether unlimited corporate funding to political parties violate article 14 and adversely affects the principle of free and fair election?
• Whether non-disclosure of information regarding the funding under electoral bond scheme violate right to information of the citizen as envisaged under Article 19(1)(a)?

Arguments 

Petitioners’  Arguments

• Non disclosure of the information regarding the funding of the political parties deprives the voter from making an infirmed choice which is a crucial aspect of free and fair election and thereby democracy.
• The scheme empowered the companies to donate money to political parties without informing their shareholders which was against their business interest 
• The scheme unduly or disproportionately favoured the ruling party and created an uneven playing field and hence violated right to equality as envisaged under article 14. 
• Anonymous donations would result in corrupt or illegitimate favours in return to the donors. 
• The amendments like removal of donation cap and disclosure rules were against public interest, arbitrary in nature and regressive too.

Respondents’ Arguments

• The scheme promoted only taxed money via banking channels while protecting the identity of the donor. The bonds can be bought only via cheque and digital transactions thereby are bought by white money of the donor.
• The counsel for respondent argued that maintaining anonymity was necessary for safeguarding the donor from political retribution. 
• The scheme falls within the arena of economic policy and legislative wisdom therefore the court must restrain from intervening and exercising judicial review over it.
• Citizens do not have an absolute right to information thereby such political information can be exempted from the view of the said right. 

Ratio Decidendi (legal reasoning)

• The court reasoned that the citizens or voters have the right to know the source of political funding to make an informed decision in the elections and hence upheld right to information of the voters under article 19(1)(a).
• The court reasoned that disclosure supports electoral integrity whereas non disclosure leads to undue favoured move towards the ruling party as they can get the data of the donors from the banks. 
• The court applied the proportionality test and held that the objective of curbing black money and protecting donor’s data could be achieved by the less restrictive mechanisms thence no valid justification for infringement. 
• The court opined that the practise of unlimited corporate funding and removal of 7.5% cap along with non disclosure violated Article 14.
• The court reasoned that electoral finance directly affects the democracy and democratic values therefore strict judicial review is required. 

Judgement 

Supreme Court held the Electoral Bonds Scheme unconstitutional. Further more it invalidated and struck down the amendments to section 182(1) of the Companies Act i.e. removal of donation cap, Section 29C of the Representation of the People Act i.e. non-disclosure, section 13A of the Income Tax Act i.e. exemption from recordkeeping and section 31 of the RBI Act i.e. authorization to banks.

The apex Court also directed the Election Commission to publish the data of the donations received by the political parties since the implementation of the scheme succeeding the direction to SBI to release the bond transaction details. 

Implications of the Judgement on Political funding litigation

 The 2024 judgement⁴ was a watershed moment in the Indian electoral jurisprudence. It not only struck down the electoral bonds scheme as unconstitutional but also set the precedents for future political funding litigation. It was a landmark judgement in the litigation that involves political funding issues. 

1. Enhanced Right to Information : The ruling reinstates that transparency in political funding is a core democratic right. Any future scheme that becomes a hurdle in transparency in political funding can be challenged based on this precedent.
2. Rise in Public Interest Litigation (PIL); The judgement opens gates for more PILs challenging undisclosed funding mechanisms, shell companies incorporated for political contributions, disproportionate access to ruling parties of political financial systems, etc. 
3. Corporate Influence under scrutiny: Litigation challenging corporate donations and anonymous lobbying along with those supporting shareholder’s rights will gain strength and momentum. The judgement sets a principle that private wealth cannot override public electoral fairness.
4. Legal Doctrine of Double proportionality: The court harmoniously constructed and balanced right to privacy with right to information which has now given a guiding framework to courts for future litigation matters. 
5. Judicial oversight over electoral reforms: The court opined with emphasis that electoral reforms are not out of the purview of the judicial scrutiny or judicial review and hence this question will not be a hurdle in future political litigation that whether political funding comes under the purview of judicial review or not. 
6. Push for disclosure obligation:  Political parties may not be legally bound to disclose political funding information either by court orders or by future legislation. 
7. Free and fair elections: oversight over political funding will ensure free and fair election and also the aftermath of the election, e.g. any parties favourable policy or conduct towards a particular donor can be questioned.
8. Reinforcement of level playing field principle: The court have an obligation to look into the equality of political competition to ensure the democracy is intact. Furthermore challenges may arise where public resources like banks are used by ruling parties for their benefit. 
9. Scrutiny of financial institutions: The role of banks can be legally questioned especially when neutrality and data access is in danger while handling similar mechanisms like electoral bonds.
10. Potential revival of state funding debates: The judgement’s emphasis on transparency may strengthen the litigation and advocacy of state funded election thereby out ruling the private party funding. 

Conclusion

Electoral bonds scheme, though introduced for fairer political funding, had major drawbacks due to which it had been struck down and held unconstitutional by the supreme court of India for being violative of right to information and creating an unequal playing field. The scheme was one of a kind as it was brought into existence after deliberately amending multiple acts and statutes. The Association for Democratic Reforms & anr v. Union of India & ors (2024 INSC 113) judgment proved to be a landmark judgement in the political funding arena by analysing various questions of law and laying precedent in the same. 

Reference

1. https://www.scobserver.in/wp-content/uploads/2021/10/Electoral-Bonds-Scheme-2018.pdf 
2. https://www.business-standard.com/amp/about/what-is-electoral-bond 
3. https://api.sci.gov.in/supremecourt/2017/27935/27935_2017_1_1501_50573_Judgement_15-Feb-2024.pdf 
4. Association for Democratic Reforms & anr v. Union of India & ors (2024 INSC 113)