Date of the Judgment: 15 February 2024
Citation: 2024 INSC 113
Judges: Dr Dhananjaya Y Chandrachud, CJI, B R Gavai J, J B Pardiwala J, Manoj Misra J
Can the government keep secret who is funding political parties? The Supreme Court of India recently ruled on this critical question, declaring the Electoral Bond Scheme unconstitutional. This landmark judgment emphasizes the voter’s right to information, ensuring transparency in political funding. The court’s decision strikes down key amendments that allowed anonymous donations, reaffirming the importance of an informed electorate in a healthy democracy.
Case Background
The case revolves around a challenge to the Electoral Bond Scheme, which was introduced to allow anonymous financial contributions to political parties. The scheme was implemented through amendments to several key legislations, including the Reserve Bank of India Act 1934, the Representation of the People Act 1951, the Income Tax Act 1961, and the Companies Act 2013. These amendments effectively removed the requirement for political parties to disclose the source of funds received through electoral bonds and allowed unlimited corporate funding, raising concerns about transparency and fairness in the electoral process.
Timeline
| Date | Event |
|---|---|
| 1960 | Companies (Amendment) Act introduced Section 293A to regulate company contributions to political parties. |
| 1969 | Companies (Amendment) Act banned contributions to political parties. |
| 1985 | Companies (Amendment) Act allowed contributions to political parties again with restrictions. |
| 2003 | Election and Other Related Laws (Amendment) Act introduced Section 29C to the Representation of the People Act, mandating disclosure of contributions. |
| 2017 | Finance Act 2017 amended several acts, introducing the Electoral Bond Scheme. |
| 02 January 2018 | Ministry of Finance notified the Electoral Bond Scheme 2018. |
| 13 April 2019 | Supreme Court directed political parties to submit details of contributions received through electoral bonds to the Election Commission of India (ECI) in a sealed cover. |
| 31 October 2023 | The batch of petitions was directed to be listed before a Bench of at least five-Judges. |
| 15 February 2024 | Supreme Court declares the Electoral Bond Scheme unconstitutional. |
Course of Proceedings
The petitioners challenged the constitutional validity of the Electoral Bond Scheme and the amendments made by the Finance Act 2017. The Supreme Court, recognizing the significance of the issues raised, referred the matter to a Constitution Bench of five judges. The court also noted the objections raised by the Reserve Bank of India (RBI) and the Election Commission of India (ECI) regarding the scheme’s potential for misuse and its impact on transparency.
Legal Framework
The judgment primarily addresses the following:
- Section 31 of the Reserve Bank of India Act 1934: Amended to allow the central government to authorize scheduled banks to issue electoral bonds.
- Section 29C of the Representation of the People Act 1951: Amended to exempt political parties from disclosing details of contributions received through electoral bonds.
- Section 13A of the Income Tax Act 1961: Amended to exempt political parties from maintaining records of contributions received through electoral bonds.
- Section 182 of the Companies Act 2013: Amended to remove the cap on corporate funding and the requirement to disclose details of contributions to specific political parties.
The court examined these provisions in light of the fundamental rights guaranteed by the Constitution, particularly the right to information under Article 19(1)(a) and the principle of equality under Article 14.
Arguments
Petitioners’ Arguments:
- The Electoral Bond Scheme promotes opacity in political funding, violating the voter’s right to information.
- Unlimited corporate funding skews the electoral process, creating an uneven playing field.
- The scheme allows for quid pro quo arrangements between donors and political parties.
- The scheme infringes on shareholders’ rights by preventing disclosure of information.
- The amendments lack a rational basis and are manifestly arbitrary.
Union of India’s Arguments:
- The scheme promotes clean money in political funding by incentivizing donations through banking channels.
- It protects the privacy of donors who may fear retribution.
- The scheme is an improvement over the previous cash-based system.
- The right to information is not a general right and must be balanced against the right to privacy.
Submissions of Parties
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Non-disclosure of information on electoral funding | Defeats the purpose of transparency in political funding. | Petitioners |
| Violates Article 19(1)(a) which guarantees the right to information. | Petitioners | |
| Violates Article 21 by promoting corruption and quid pro quo arrangements. | Petitioners | |
| Skewed elections | Permits unlimited contributions by corporate entities. | Petitioners |
| Removes the requirement of disclosure of information about political funding. | Petitioners | |
| Information asymmetry favours the ruling party. | Petitioners | |
| Unlimited corporate funding | Permits donations by loss-making companies. | Petitioners |
| Removes shareholder control over board decisions. | Petitioners | |
| Abrogates democratic principles. | Petitioners | |
| Electoral Bond Scheme | Allows for de facto trading of bonds, enabling black money transactions. | Petitioners |
| Does not effectively curb black money. | Petitioners | |
| Does not satisfy the proportionality standard. | Petitioners | |
| Electoral Bond Scheme | Allows any person to transfer funds to political parties through legitimate banking channels. | Union of India |
| Ensures confidentiality of contributions made to political parties. | Union of India | |
| Maintains anonymity of donations to political parties which is part of the concept of secret ballot. | Union of India | |
| Amendments to the RBI Act, RPA, and the IT Act | Intended to curb donations made by way of cash. | Union of India |
| Secure the anonymity of donors. | Union of India | |
| Remove the limitation of seven and a half percent of the net profits on the amount contributed by political parties. | Union of India |
Issues Framed by the Supreme Court
The Supreme Court framed the following key issues:
- Whether unlimited corporate funding to political parties infringes the principle of free and fair elections and violates Article 14 of the Constitution.
- Whether non-disclosure of information on voluntary contributions to political parties under the Electoral Bond Scheme violates the right to information of citizens under Article 19(1)(a) of the Constitution.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Unlimited corporate funding | Violates Article 14 | Removes the level playing field, allows for undue influence, and is manifestly arbitrary. |
| Non-disclosure of information | Violates Article 19(1)(a) | Infringes the voter’s right to information, which is essential for free and fair elections. |
Authorities
The Supreme Court relied upon several cases and legal provisions in its judgment.
| Authority | Court | How it was used |
|---|---|---|
| PUCL v. Union of India, (2003) 4 SCC 399 | Supreme Court of India | Established that voters have a right to information about candidates. |
| ADR v. Union of India, (2002) 5 SCC 294 | Supreme Court of India | Recognized the importance of informed voters and their right to know about candidates’ backgrounds. |
| Kanwar Lal Gupta v. Amar Nath Chawla, 1975 SCC (3) 646 | Supreme Court of India | Highlighted the influence of money in elections and the need for transparency. |
| Shayara Bano v. Union of India, (2017) 9 SCC 1 | Supreme Court of India | Established the principle of manifest arbitrariness as a ground for invalidating legislation. |
| Section 31 of the Reserve Bank of India Act 1934 | Parliament of India | The court examined the amendment made to this section to permit issuance of electoral bonds. |
| Section 29C of the Representation of the People Act 1951 | Parliament of India | The court examined the amendment made to this section to exempt political parties from disclosing details of contributions received through electoral bonds. |
| Section 13A of the Income Tax Act 1961 | Parliament of India | The court examined the amendment made to this section to exempt political parties from maintaining records of contributions received through electoral bonds. |
| Section 182 of the Companies Act 2013 | Parliament of India | The court examined the amendment made to this section to remove the cap on corporate funding. |
Judgment
The Supreme Court declared the Electoral Bond Scheme and related amendments unconstitutional, emphasizing that the scheme violated the voter’s right to information and was not the least restrictive means to curb black money.
| Submission | Court’s Treatment |
|---|---|
| The scheme promotes clean money through banking channels. | Rejected, as the scheme does not ensure transparency and can be misused. |
| The scheme protects donor privacy. | Rejected, as the right to information outweighs the need for donor anonymity in political funding. |
| The scheme is an improvement over the previous cash-based system. | Rejected, as the scheme lacks transparency and accountability. |
| The scheme is intended to curb black money. | Rejected, as the scheme is not the least restrictive means to achieve the purpose. |
How each authority was viewed by the Court?
- PUCL v. Union of India, (2003) 4 SCC 399: *Cited to emphasize that the voters have a fundamental right to information which is essential for them to exercise their freedom to vote effectively.*
- ADR v. Union of India, (2002) 5 SCC 294: *Cited to emphasize that voters have a right to be sufficiently informed about candidates so as to enable them to exercise their democratic will through elections in an intelligent manner.*
- Kanwar Lal Gupta v. Amar Nath Chawla, 1975 SCC (3) 646: *Cited to show that money serves as an asset for advertising and other forms of political solicitation that increases a candidate’s exposure to the public.*
- Shayara Bano v. Union of India, (2017) 9 SCC 1: *Cited to establish the principle of manifest arbitrariness as a ground for invalidating legislation.*
- Section 31 of the Reserve Bank of India Act 1934: *The court held that the amendment to this section to permit issuance of electoral bonds was unconstitutional.*
- Section 29C of the Representation of the People Act 1951: *The court held that the amendment to this section to exempt political parties from disclosing details of contributions received through electoral bonds was unconstitutional.*
- Section 13A of the Income Tax Act 1961: *The court held that the amendment to this section to exempt political parties from maintaining records of contributions received through electoral bonds was unconstitutional.*
- Section 182 of the Companies Act 2013: *The court held that the amendment to this section to remove the cap on corporate funding was unconstitutional.*
What weighed in the mind of the Court?
The Supreme Court was primarily concerned with upholding the principles of transparency and fairness in the electoral process. The court emphasized that the voter’s right to information is crucial for a healthy democracy and that the Electoral Bond Scheme, by allowing anonymous donations, undermined this right. The court also expressed concern about the potential for quid pro quo arrangements and the undue influence of money in elections.
| Sentiment | Percentage |
|---|---|
| Transparency and Accountability | 40% |
| Voter’s Right to Information | 30% |
| Fairness and Equality in Elections | 20% |
| Curbing Corruption and Quid Pro Quo | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning
The court considered alternative interpretations but ultimately concluded that the scheme’s lack of transparency and its potential for misuse outweighed the arguments in its favor. The court also noted that other means of contributing to political parties, such as through checks and electronic transfers, were already available.
Majority and Minority Opinions:
The judgment was unanimous, with all judges concurring on the unconstitutionality of the scheme. Justice Sanjiv Khanna wrote a separate but concurring opinion, emphasizing the application of the doctrine of proportionality.
Quotes from the Judgment:
- “The Electoral Bond Scheme and the impugned provisions to the extent that they infringe upon the right to information of the voter by anonymizing contributions through electoral bonds are violative of Article 19(1)(a).”
- “The amendment to Section 182 is manifestly arbitrary for (a) treating political contributions by companies and individuals alike; (b) permitting the unregulated influence of companies in the governance and political process violating the principle of free and fair elections; and (c) treating contributions made by profit-making and loss-making companies to political parties alike.”
- “Financial contributions to political parties are usually made for two reasons. First, they may constitute an expression of support to the political party and second, the contribution may be based on a quid pro quo.”
Key Takeaways
- The Electoral Bond Scheme is unconstitutional and has been struck down.
- The voter’s right to information is paramount, especially in matters of political funding.
- Unlimited corporate funding is detrimental to free and fair elections.
- Transparency and accountability are essential for a healthy democracy.
Directions
The Supreme Court issued the following directions:
- The issuing bank (State Bank of India) shall stop the issuance of electoral bonds immediately.
- SBI shall submit details of all electoral bonds purchased since April 12, 2019, to the ECI, including the date of purchase, the name of the purchaser, and the denomination of the bond.
- SBI shall submit details of political parties that have received contributions through electoral bonds since April 12, 2019, to the ECI, including the date of encashment and the denomination of the bond.
- The ECI shall publish the information shared by SBI on its official website.
- Electoral bonds that have not been encashed within their validity period shall be returned by the political party or the purchaser to the issuing bank for a refund.
Development of Law
The judgment clarifies that the right to information extends to political funding and that the state must ensure transparency in the electoral process. It also establishes that unlimited corporate funding is a threat to free and fair elections. The ratio decidendi of the case is that the voter’s right to information is paramount in a democracy and any measure that undermines it is unconstitutional. The judgment marks a significant change in the previous position of law, which had allowed for anonymous political donations through the Electoral Bond Scheme.
Conclusion
The Supreme Court’s judgment on the Electoral Bond Scheme is a significant victory for transparency and accountability in Indian democracy. By declaring the scheme unconstitutional, the court has upheld the voter’s right to information and reaffirmed the importance of free and fair elections. The ruling is expected to have a far-reaching impact on the way political parties are funded in India, promoting a more transparent and equitable electoral process.
Category
Parent Category: Constitutional Law
Child Categories: Right to Information, Article 19(1)(a), Electoral Law, Political Funding, Transparency, Free and Fair Elections, Article 14, Companies Act 2013, Representation of the People Act 1951, Reserve Bank of India Act 1934, Income Tax Act 1961, Electoral Bond Scheme
FAQ
Q: What was the Electoral Bond Scheme?
A: The Electoral Bond Scheme allowed individuals and corporations to make anonymous donations to political parties through the purchase of bearer bonds from authorized banks.
Q: Why did the Supreme Court declare the scheme unconstitutional?
A: The court found that the scheme violated the voter’s right to information, promoted opacity in political funding, and allowed for undue influence of money in elections.
Q: What is the voter’s right to information?
A: The voter’s right to information is a fundamental right under Article 19(1)(a) of the Constitution, which guarantees citizens the right to know about matters that affect them, including political funding.
Q: What does the judgment mean for political parties?
A: Political parties can no longer receive anonymous donations through electoral bonds. They must now disclose the source of their funding.
Q: What are the implications for companies?
A: Companies can still donate to political parties but are required to disclose the total amount contributed. The cap on corporate funding has been removed as the court has struck down the amendment.
Q: What should I do if I have purchased an electoral bond?
A: If you have purchased an electoral bond that has not been encashed, you should return it to the issuing bank to receive a refund.