This article is authored by Anmol Chaudhary, who has recently finished the Integrated Course (B.A. LL.B.) at the University School of Law, Rayat Bahra University, Mohali, Punjab. Throughout the internship at LeDroit India.
Keywords:
∙ Electoral Bonds
∙ Strengthens Transparency in Political Funding
∙ Legal Provisions
∙ Indian Constitution, 1950
∙ Landmark Judgements
1. ABSTRACT:
On February 2024, India’s Supreme Court ruled unanimously that the electoral bonds program was illegal. The Court found that the program’s secrecy violated the right to information under Article 19(1) (a). By allowing unlimited anonymous donations, especially from companies, and protecting the identities of donors, the program reduced transparency and tilted the playing field. The verdict brings back previous legal limits on corporate donations and requires disclosure of bond buyers’ identities, marking a significant move toward open political funding. This article examines the legal reasoning behind the judgement, its political effects, and how it changes transparency in Indian elections.
2. INTRODUCTION:
This piece discusses the Supreme Court’s judgment in February 2024 to overturn India’s Electoral Bond Scheme. The scheme, introduced in 2017, allowed individuals and firms to donate to political parties using anonymous bonds. Lawyers argued that it confused voters’ rights to information, while the government
defended it as a way to curb black money. The Court found that the scheme violated basic rights, particularly the freedom of speech and expression under Article 19(1)(a). It also determined that lifting limits on corporate donations was arbitrary and breached Article 14. The Court ordered the immediate end of new bonds and required the State Bank of India (SBI) to reveal all past bond purchases and cash-outs to the Election Commission, which must publish the information publicly. We examine the legal principles and precedents behind this decision, discuss its effects on political finance laws, and explore its wider implications for democracy and India’s international reputation. By bringing back transparency in campaign funding, the verdict highlights the public’s right to know.
The Constitution’s Article 19(1) (a) guarantees freedom of speech and expression, which includes the public’s right to information. Article 14 ensures equality before the law and bans arbitrary treatment. The judgment used judicial review, allowing the Court to dismiss laws that go against the Constitution. It also applied the proportionality test under Article 19(2) to assess the scheme. Other important issues include instructional sequestration claimed by donors, quid pro quo corruption— the concern that undisclosed donations influence policy, and free and fair choices, which emphasizes the importance of transparency. An Electoral Trust was proposed as a way to fundraise transparently. Understanding these terms is crucial for the case. The Court rejected “anonymous donation” and “confidentiality” as false comparisons to the secret ballot because the State Bank of India, a public authority, had complete KYC details for all bond transactions.
3. ELECTORAL BOND SCHEME:
In January 2018, the Indian government launched the electoral bond scheme. This scheme allows individuals and domestic companies to buy interest-free bearer bonds from the State Bank of India (SBI) in specific amounts. Electoral bonds are interest-free financial instruments issued in fixed amounts, ranging from 1,000 to 10 million rupees. Donors can give these bonds to any political party, and the parties must cash them within 15 days. Importantly, the recipient does not have to disclose the names of the people or organizations that donated the bonds. Supporters of the electoral bond scheme argue that it encourages transparency by ensuring political parties get donations through formal banking channels. Government authorities can audit these transactions. The identities of the donors remain secret, which lowers the risk of retaliation or intimidation based on political beliefs. However, opponents claim that these bonds enable anonymous donations from individuals and organizations to all political parties through banking channels. While the scheme promises transparency with donations, it has been criticized for allowing anonymity. Free and fair elections are vital for democracy. Political parties should have a level playing field in elections. Keeping the identities of donors hidden disrupts this balance. Voters have a right to know where political parties get their funding. Without this information, making informed choices becomes difficult.
4. MOTIVATIONS BEHIND CORPORATE DONATIONS TO POLITICAL PARTIES THROUGH ELECTORAL BONDS:
∙ AVOIDING DIRECT ASSOCIATION:
Corporations often prefer electoral bonds because they create distance from political parties. When they contribute through these bonds, they establish a legal separation between themselves and the party receiving the funds. Electoral bonds enable corporations to donate without disclosing their identity publicly. Only the issuing bank, usually the State Bank of India, knows the donor’s details. Corporations have various stakeholders, including customers, investors, and employees. Supporting a specific party can be risky, as it might alienate stakeholders with different political views. Public backing of a party can lead to controversies or negative perceptions. By donating through electoral bonds, corporations reduce reputational risks. Keeping a legal distance allows companies to respond to changes in the political landscape. If a party’s policies change, a corporation can modify its support without being linked to previous ties. These bonds offer a legal way for donations.
∙ BUSINESS INTERESTS:
Corporate involvement in political funding is a complex issue. Some companies contribute to political parties because they feel a civic duty or have similar beliefs, while others do it to boost their business interests. Corporations exist within a complicated system of laws, regulations, and policies. These legal and regulatory structures greatly affect how businesses operate, their profits, and their growth. By supporting political parties, companies try to influence policy decisions that match their interests. These interests can differ widely across industries, including taxes, trade, labor laws, environmental rules, and intellectual property rights. Corporate donations act as a tool to sway policy outcomes. Companies decide where to allocate resources based on which parties or candidates are most likely to support their goals. Corporations often look for tax policies that lessen their financial load. Donations to parties that favor tax reforms can directly help a company’s profits. Companies in sectors such as pharmaceuticals, energy, or technology may back parties that promise friendly regulations. Multinational corporations frequently support parties that advocate for open markets, trade agreements, and a smoother business environment. Companies involved in infrastructure, such as construction and transportation, may donate to parties that focus on developing infrastructure. Technology firms often support parties that safeguard patents, copyrights, and intellectual property rights. Corporations also want flexible labor laws. Donations to parties that encourage business-friendly labor reforms can help achieve this goal. Corporate donations function as a type of lobbying. Companies use financial contributions to gain access to lawmakers, join discussions on policies, and push for their interests. Lobbying can happen through direct meetings, participation in industry groups, or financial backing of political parties. Corporations carefully assess the risks linked to political involvement. Public opinion is important, and companies aim to avoid any negative publicity.
5. CORPORATE SOCIAL RESPONSIBILITY (CSR) AND POLITICAL DONATIONS:
Corporate Social Responsibility (CSR) refers to a company’s choice to include social and environmental issues in its business practices and relationships with stakeholders. CSR efforts go beyond making a profit. They aim to create positive effects on society, the environment, and local communities. Some companies see political donations as a way to give back. By backing political parties, they connect their goals with larger societal aims. These donations serve a dual purpose: promoting business interests and helping community growth. Being associated with political parties allows companies to push for policies that benefit society. Political donations become part of this broader commitment. Companies believe these donations can influence decisions that affect society as a whole. Firms may give to parties that support education reforms, scholarships, and skill development programs. Supporting parties that focus on healthcare infrastructure, disease prevention, and access to medical services fits well with CSR goals. Corporations that care about protecting the environment may contribute to parties that back sustainable practices and conservation efforts. Donations can also help fight poverty by supporting policies that create jobs, improve living conditions, and strengthen social safety nets. Companies should be open about their political donations to keep trust with stakeholders. Some companies share yearly CSR reports that detail their donations, initiatives, and impacts. While CSR-driven political donations are meant to be positive, companies must find a balance. Donations should not lower ethical standards or involve any kind of quid pro quo. Firms need to ensure their political connections match stakeholder expectations. Critics say political donations can lead to excessive influence, especially if companies want something in return. Balancing a genuine social impact with business interests is not easy. Different countries have various rules regarding corporate political donations. Some demand transparency, while others permit anonymity. Companies must deal with legal issues while staying true to their CSR commitments. How the public views these actions matters. Companies can face backlash if their donations seem self-serving or unethical. Finding the right balance is crucial.
6. ELECTORAL COMPETITIVENESS AND FINANCIAL RESOURCES IN INDIA:
Electoral competitiveness refers to how much competition there is among political parties during elections. It includes factors like party strength, voter turnout, campaign effectiveness, and money available for campaigns. In India, there is a lively multi-party system, with many parties competing for power at the national, state, and local levels.
Financial resources play an important role in shaping electoral competitiveness. They allow parties to build a broad campaign infrastructure. This includes rallies, advertisements, social media outreach, and grassroots mobilization. Well-funded campaigns improve the party’s visibility, reaching voters in various regions. This visibility turns into votes during elections. Financial resources also let parties field strong candidates in different constituencies. High-profile candidates attract attention and influence voter choices. Funds help with logistics, such as transportation, accommodation, and event organization. Strong logistics increase campaign effectiveness. A party’s donor base includes corporations, business leaders, and individual contributors. Corporate donations match the party’s pro-business stance. Corporate interests often overlap with policy decisions. Donations may aim for favorable policies, tax reforms, or benefits for specific industries. India’s multi-party system includes regional, national, and ideological parties. Each party serves specific constituencies and issues. Regional parties enjoy strong local support. They rely on local donors, community leaders, and grassroots supporters. Their funding usually reflects regional interests. Left-leaning parties receive contributions from labor unions, intellectuals, and activists who share their views. Some parties thrive on small individual donations, focusing on mass participation.
Over the past 20 years, corporate funding of electoral campaigns has grown in India. Corporate groups donate large sums of money to political parties. According to research from the Observer Research Foundation, corporate donations have risen significantly. For instance, corporate organizations gave Rs. 621.4 million during the 2004-05 Fiscal Year (FY). By FY 2009-10, the total donations reached about Rs. 1.6 billion. In the fiscal year 2014-15, corporate donations increased to Rs. 5.7 billion. Corporate power has a large influence over the democratically elected government, as shown by their support for political parties.
7. CHALLENGES FACED BY SMALLER PARTIES:
Smaller parties find it hard to compete with the big parties’ money. Limited funds impact their campaign reach and ability to organize. Lesser-known parties struggle to get media attention and connect with voters outside their base. There needs to be a balance between money power and democratic diversity. Transparency and accountability are essential features of democracy, and they must be upheld. All parties should clearly disclose their funding sources. This ensures accountability and stops outside influence. The recent Supreme Court decision that declared the Electoral Bonds Scheme unconstitutional highlights the need for transparency. Electoral reforms can help create fairness. Ideas like state funding for elections or spending limits aim to create a level playing field. Supporting small donations and grassroots fundraising can strengthen smaller parties.
8. NEXUS BETWEEN CORRUPTION AND POLITICAL FUNDING:
Election-related corruption creates inequalities in government and policymaking, distorts representation, and lowers accountability. The current funding model for political campaigns encourages significant corruption in the public sector. Commissions on contracts, unreported illegal gains, and bribes from corporate connections are common funding sources for elections. Hiding the financial sources of parties enables corruption. When parties depend mainly on a few contributors for funding, those contributors’ interests can sway policy decisions. Many committees have recommended that the state finance election costs since 1998. State funding could lead to greater transparency and reduce dependence on private donations. According to the Legislative Department of the Ministry of Law and Justice Government of India Electoral Reforms (2010), it is crucial to reform how political parties are funded immediately. Restoring the Finance Act of 2017 to its earlier state is a sensible step. Transparency and accountability measures are vital for preventing corruption and ensuring fair government (State Bank of India v. Association for Democratic Change and Others, 2024).
9. THE SUPREME COURT’S VERDICT: A BALANCED APPROACH:
The Supreme Court’s important judgment provided clarity and addressed concerns raised by various groups, including opposition parties and civil society organizations. While ruling against the Electoral Bonds scheme, which had the potential to reduce unaccounted funds in political financing, the Supreme Court stressed the need for more transparency and accountability measures. The court’s observations showed a careful and balanced approach, aiming to keep the main goals of the scheme while fixing its issues. In a significant decision, the Supreme Court declared Section 182(3) of the Companies Act, changed by Section 154 of the Finance Act 2017, as unconstitutional. This provision had allowed unlimited corporate contributions to political parties, which violated Article 19(1)(a) (the right to freedom of speech and expression) and Article 14 (the right to equality).
As a result, the court’s ruling has changed the rules regarding corporate political contributions. Companies must now follow these guidelines:
1) Contributions to a political party (either directly or through an Electoral Trust) in any financial year should not exceed 7.5% of the average net profits from the three previous financial years. 2) The names of the political parties and the amounts given must be reported in the Profit and Loss account.
3) Companies cannot take part in any Electoral Bond scheme.
10. LANDMARK JUDGEMENTS:
1) State Bank of India v. Association for Democratic Change and Others, 2024: In this landmark constitutional challenge (Writ Petition (C) No. 880 of 2017), the Supreme Court (Constitution Bench) held that the Electoral Bond Scheme and related statutory amendments were unconstitutional. The Court ruled that the scheme violated the voters’ right to information under Article 19(1)(a) and that removing corporate contribution limits was arbitrary under Article 14. It struck down Section 29C’s proviso, Sec. 182(3) of the Companies Act, and Sec. 13A(b) of the IT Act (as amended), and directed SBI to disclose donor details and halt bond issuance.
2) Union of India v. Association for Democratic Reforms & Ors., (2002) 5 SCC 294: In an earlier political-finance case, the Supreme Court recognized that electors have a fundamental right to know the antecedents of candidates (criminal record, assets, liabilities, etc.) as part of Article 19(1)(a). This principle underpins the right of voters to be informed about those who seek power, a theme extended in the Electoral Bonds decision to cover funding transparency.
3) People’s Union for Civil Liberties & Ors. v. Union of India & Ors., (2013) 10 SCC 1: In the “NOTA” case, the Court held that the freedom of speech and expression entitles voters to choose (or reject) candidates freely. The judgment reaffirmed that Article 19(1)(a) covers voters’ informational rights, including knowledge about political processes and party funding, and stressed that voting (and even not voting) are aspects of meaningful political expression.
4) S. Subramaniam Balaji v. State of Tamil Nadu & Ors., (2013) 9 SCC 659: Though not directly about electoral bonds, this case underscored the need for financial transparency. The Court ruled that political contributions by companies, if exceeding tax-exemption thresholds, must be accompanied by full disclosure of the recipients to which they were given. This reinforced the idea that corporate donations should not be hidden from public scrutiny (so that voters can detect any undue influence), aligning with the rationales in the Bonds case.
11. GAP BETWEEN LAW AND REALITY
While the verdict is a step forward, challenges in implementation and ongoing issues reveal the continued disconnect between legal reforms and real-life situations:
1) Delay in Transparency: Even after the ruling, information about past donations was not quickly released. Delays in sharing this data weaken the intent of the judgment.
2) Influence of Black Money and Informal Funding: Political parties continue to get significant cash donations that fall below the disclosure limit, making them difficult to monitor.
3) Lack of Enforceable Penalties: There are few consequences for not following funding disclosure rules and without strong enforcement, transparency stays more hopeful than actual. 4) Corporate Influence Continues: Even with disclosure, corporate donations lead political funding. Smaller parties without big corporate supporters are still at a disadvantage.
12. ANALYSIS: IN OTHER COUNTRIES:
1) United States: The Federal Election Commission (FEC) requires the disclosure of campaign contributions and spending. All significant political donations are publicly accessible through databases like Open Secrets.
2) United Kingdom: Political parties must report donations that exceed a certain amount to the Electoral Commission. Corporate donations are allowed but must come from UK-registered companies that have business activity in the UK.
3) Canada: Political contributions are strictly limited to individuals. Corporate and union donations are not allowed. Donations and donor names are made public. There are strong spending limits and enforcement measures in place.
13. FOR WHAT REASONS DID THE SUPREME COURT INVALIDATE THE SCHEME?
The Supreme Court found that electoral bonds violated voters’ constitutional rights. It stated that the right to vote includes the right to know who funds political parties, allowing voters to make informed choices. The scheme allowed anonymous donations without proper justification, which breached Article 19(1)(a) (the right to free speech and information). Additionally, removing limits on corporate donations was deemed “arbitrary” under Article 14. In short, secrecy in political funding was considered incompatible with a transparent democracy.
14. HOW DOES THE VERDICT AFFECT POLITICAL FUNDING TRANSPARENCY?
By nullifying the scheme, the Court eliminated the legal foundation for secret donations. SBI must disclose all bond purchasers and cash transactions (from April 2019 onward) to the Election Commission, which has to publish this information. As a result, the media, analysts, and voters will soon have access to detailed funding records. Future donations must follow existing laws (including the previous 7.5% corporate cap and disclosure rules). Ultimately, the verdict requires parties and donors to be transparent. It increases transparency by making all significant contributions traceable, which discourages hidden quid pro quo funding.
15. WHAT HAPPENED TO THE BONDS ALREADY ISSUED?
The Court ruled that no new bonds can be issued or sold after its decision. All bonds sold but not yet cashed (within their 15-day validity) must be returned and refunded to the buyers. SBI was instructed to provide records of bonds sold from April 2019 to the present to the Election Commission. The ECI must then make this information public by mid-March 2024. Therefore, all existing electoral bonds will either be turned into public information (through disclosures) or effectively canceled by refunds.
16. DOES THIS JUDGMENT ALLOW UNLIMITED FOREIGN OR CORPORATE DONATIONS?
No. In fact, it does the opposite. The cap on corporate donations (7.5% of profits) and disclosure requirements before 2017 are now reinstated. The Court explicitly invalidated the 2017 amendments that allowed unlimited corporate contributions without details. Moreover, before the introduction of electoral bonds, foreign companies with majority Indian ownership were banned from funding political parties (under FCRA and RBI rules). Those relaxed rules were linked to the bonds scheme and may need to be reviewed. Moving forward, any significant corporate or foreign donations must follow the old FCRA/Companies Act limits and maintain transparent accounting.
17. WHAT ARE THE BROADER IMPLICATIONS OF THE DECISION?
Constitutionally, the decision strengthens democratic rights by stressing that voters need to know about election financing. Politically, it may push parties to find diverse funding sources (like small donors, membership fees) and could affect voters’ choices as they learn who supports each party. It also supports international concerns about hidden campaign financing because most major democracies require donor disclosures, making India’s approach more aligned with those standards. Diplomatically, it boosts India’s credibility regarding anti-corruption commitments. In summary, the verdict enhances transparency, limits the risk of corporate and foreign influence, and reaffirms that openness in funding is vital for election integrity.
18. CONCLUSION:
The Supreme Court’s ruling on electoral bonds marks a significant moment for Indian democracy. It clearly restores the need for transparency in political funding by overturning a scheme that kept large donations secret. According to the Constitution, this decision supports the right to free and informed voting under Article 19(1)(a) and shows that equality under Article 14 prevents laws that favor corporate donors. Legally, it reinstates key parts of the Companies Act and other laws, bringing back the pre-2017 rules on capped, documented contributions. Politically, this ruling force parties to change their fundraising tactics and could affect campaign dynamics since funding will be completely transparent. By requiring SBI and the Election Commission to disclose information, the Court ensures voters can check who funded whom in past elections.
Internationally, this decision aligns India with best practices in fighting corruption and maintaining electoral integrity. It sends a clear message that hidden foreign or corporate money has no role in governance. Critics of the scheme argued that political donations create influence over policy making. The Court has responded to this concern, shifting the balance back toward fairness and accountability. The importance of this judgment cannot be underestimated; it reaffirms democratic values over hidden favoritism. However, its success relies on effective implementation. It is crucial that SBI provides accurate information and that the Election Commission publishes it quickly. Overall, this decision is a major step toward more transparent elections. It expands the constitutional concept of informational rights and strengthens protections against corruption, though the debate over balancing donor privacy and public interest in a lively democracy will likely continue.
19. REFERENCES:
∙ State Bank of India v. Association for Democratic Change and Others, 2024
∙ Union of India v. Association for Democratic Reforms & Ors., (2002) 5 SCC 294 ∙ People’s Union for Civil Liberties & Ors. v. Union of India & Ors., (2013) 10 SCC 1 ∙ Electoral Bonds Verdict and Its Impact on Political Transparency
∙ Electoral Bonds: Transparency Wins India’s Political Funding Battle
