Legal Narrative
ABSTRACT
Political funding is an essential component of a functioning democracy because political parties require financial resources to organise campaigns, communicate with voters and participate effectively in elections. At the same time, undisclosed political contributions can create serious concerns regarding accountability, equality and the influence of private interests on public decision-making. The Electoral Bond Scheme, introduced in 2018, attempted to provide a banking-based mechanism for political donations while protecting the identity of donors. However, the anonymity attached to the scheme generated a constitutional debate concerning the voter's right to information and the donor's right to privacy. In Association for Democratic Reforms v. Union of India 1, the Supreme Court of India, on 15 February 2024, declared the Electoral Bond Scheme and connected statutory amendments unconstitutional. The judgment has consequently become an important reference point for the future regulation of political finance in India. This article examines the constitutional reasoning of the judgment and considers possible reforms for creating a more transparent, accountable and balanced political funding framework.
Keywords: Electoral Bonds, Political Funding, Transparency, Right to Information, Article 19(1)(a), Privacy, Electoral Reforms, Political Parties, Democracy.
1. INTRODUCTION
“"Where a society has chosen to accept democracy as its creedal faith, it is elementary that the citizens ought to know what their government is doing it." - Justice P N Bhagwati.
Elections are the principal mechanism through which citizens participate in a representative democracy. Although the formal act of voting is central to elections, the financial structure supporting electoral politics is equally significant. Political parties require money for campaigning, organisation, communication and mobilisation. Consequently, political contributions cannot simply be excluded from the democratic process. The real constitutional question is how political funding should be regulated so that legitimate political activity can be financed without allowing undisclosed financial interests to undermine electoral accountability.
India introduced the Electoral Bond Scheme in 2018 with the stated objective of providing a formal banking channel for political donations. Electoral bonds were interest-free bearer instruments available in specified denominations and could be purchased from authorised branches of the State Bank of India. The scheme enabled eligible political parties to receive donations through their verified accounts. At the same time, the identity of the donor was not publicly disclosed. The original research material notes that the scheme was presented as an attempt to create a structured mechanism for political donations while maintaining donor anonymity.
The scheme was accompanied by amendments to several statutes, including the Representation of the People Act, 1951 2, the Companies Act, 2013 3 and the Income-tax Act, 1961 4. Among other changes, the previous restriction on the extent of corporate political contributions was removed.
The constitutional controversy ultimately reached the Supreme Court. On 15 February 2024, a Constitution Bench delivered its judgment in Association for Democratic Reforms v. Union of India 5. The Court held that information concerning political funding was essential for voters and that anonymity under the Electoral Bond Scheme infringed the right to information under Article 19(1)(a) 6.
The judgment therefore raises a broader question: after the Electoral Bond judgment, what should India's political funding system look like?
2. ORIGIN AND STRUCTURE OF THE ELECTORAL BOND SCHEME The Electoral Bond Scheme was introduced through the Finance Act, 2017 7 and subsequently operationalised in 2018. The scheme represented a significant departure from earlier arrangements governing political donations.
Electoral bonds were available in denominations ranging from ₹1,000 to ₹1 crore. Eligible political parties were required to maintain designated accounts through which the bonds could be encashed. The scheme was therefore not a conventional cash-donation mechanism; it placed the transaction within a banking framework.
The principal feature that generated constitutional controversy was anonymity. The purchaser's name was not written on the bond itself and the political party receiving the contribution was not required to disclose the donor's identity in its public contribution reports. The Government defended the mechanism principally on the ground that it could encourage donations through legitimate banking channels and reduce reliance upon unaccounted cash. The opposing argument was that banking traceability between the donor and the authorised bank did not amount to public transparency, because voters remained unaware of the source of political funding.
This distinction became crucial before the Supreme Court.
3. THE CONSTITUTIONAL CHALLENGE
The challenge to electoral bonds was not confined to the question of financial regulation. It involved fundamental constitutional values.
The principal constitutional issue was whether citizens have a right to know about the financial sources supporting political parties. The petitioners relied upon Article 19(1)(a) 8, which guarantees freedom of speech and expression. Over time, the Supreme Court has interpreted this provision as encompassing a right to receive information necessary for meaningful democratic participation.
In Union of India v. Association for Democratic Reforms 9, the Court recognised the voter's right to information concerning candidates. The principle was subsequently reinforced in People's Union for Civil Liberties v. Union of India 10. The uploaded material identifies these decisions as important foundations for understanding the relationship between electoral information and Article 19(1)(a).
The Electoral Bonds judgment extended this constitutional reasoning into the area of political party funding. The Court observed that political parties occupy a central position in India's electoral system and that information about their funding can be relevant to a voter's electoral decision.
4. THE SUPREME COURT'S JUDGMENT
In Association for Democratic Reforms v. Union of India 11, the Supreme Court declared the Electoral Bond Scheme unconstitutional. The Court concluded that information about political party funding is essential to a voter exercising the freedom to vote effectively and that anonymisation of political contributions infringed Article 19(1)(a).
The judgment also addressed amendments that enabled unlimited corporate contributions. The Court treated the removal of the earlier corporate contribution limitation as constitutionally problematic under Article 14. A subsequent Supreme Court order records that the Constitution Bench had held the amendments permitting unlimited corporate funding to be arbitrary and violative of Article 14 12.
The judgment thus dealt with two closely connected democratic concerns:
1. the voter's access to information about political funding; and
2. the possibility of disproportionate corporate influence in political finance.
The Court's reasoning was not that every political donor must necessarily surrender every aspect of personal privacy. Rather, it examined whether the particular scheme struck a constitutionally permissible balance between competing rights.
5. RIGHT TO INFORMATION AND DEMOCRATIC ACCOUNTABILITY
The most significant contribution of the judgment lies in its treatment of the voter's right to information.
Democratic choice assumes a minimum level of information. A voter cannot meaningfully evaluate political parties if relevant information concerning their activities and interests is systematically concealed. Political funding is particularly important because financial support may reveal relationships between political organisations and private economic interests. The Court consequently treated information concerning political funding as part of the information necessary for effective electoral choice. The judgment stated that information regarding funding to political parties is essential for voters to exercise their freedom to vote effectively.
This approach is consistent with the earlier jurisprudence of the Supreme Court concerning disclosure of candidates' criminal antecedents, assets and liabilities. The underlying constitutional principle is that electoral democracy requires an informed electorate. The uploaded research similarly observes that Article 19(1)(a) has been interpreted to include citizens' right to information and connects transparency with good governance and accountability.
6. PRIVACY OF DONORS VERSUS THE VOTER'S RIGHT TO KNOW
One of the most difficult questions in the Electoral Bonds case was the conflict between privacy and transparency.
Political participation can itself be an expression of political belief. Consequently, there can be legitimate circumstances in which individuals may fear retaliation or social pressure if their political preferences become publicly known.
The Court therefore had to consider the donor's privacy alongside the voter's right to information. The judgment used a double proportionality approach to examine the competing rights. The four-part proportionality inquiry considers whether a measure has a legitimate objective, whether it is suitable for that objective, whether a less restrictive but equally effective alternative exists, and whether the impact on the affected right-holder is disproportionate.
According to the judgment, the scheme provided anonymity against the public while leaving the political party capable of knowing the donor. The Court also identified less restrictive alternatives, including electoral trusts and electronic transfers, through which legitimate privacy interests could be addressed without completely eliminating public disclosure.
Thus, the judgment should not be understood simply as privacy versus transparency. It is more accurately understood as an attempt to determine the appropriate degree of transparency compatible with legitimate privacy interests.
7. CORPORATE FUNDING AND ELECTORAL EQUALITY Another important issue was the removal of the statutory ceiling on corporate political contributions.
Previously, corporate contributions were subject to restrictions linked to corporate profits. The Finance Act, 2017 removed the earlier ceiling and permitted companies to make political contributions without the previous quantitative restriction.
Unlimited corporate contributions create a structural concern even when the money itself is legally received. Large financial contributions can provide political organisations with greater campaign resources and therefore greater capacity for political communication.
The Supreme Court's approach connects with earlier decisions concerning the relationship between money and electoral equality. In Kanwar Lal Gupta v. Amar Nath Chawla 13 The Court recognised that excessive financial resources can create unequal electoral opportunities. The uploaded research also refers to Dr. P. Nalla Thampy Terah v. Union of India 14 for the proposition that democratic government depends upon free and fair elections.
The future regulatory framework therefore needs to consider not merely whether political contributions are legal, but whether the overall funding structure preserves reasonable equality among political participants.
8. CURBING BLACK MONEY: THE OTHER SIDE OF THE DEBATE A balanced analysis must also acknowledge the principal justification advanced for electoral bonds.
The scheme's supporters argued that political donations should be encouraged to move through formal banking channels rather than remain entirely dependent upon cash transactions. The government contended that donor anonymity could encourage legitimate contributions and reduce the possibility of harassment or retaliation.
The Supreme Court, however, examined whether these objectives were sufficient to justify restricting voters' access to information. The judgment concluded that curbing black money could not, by itself, justify the particular restriction on Article 19(1)(a), because the grounds for restricting that right are specified in Article 19(2).
This aspect of the judgment is important for future reforms. A legitimate policy objective does not automatically validate every legislative method adopted to achieve it. The means must remain constitutionally proportionate.
9. THE FUTURE OF POLITICAL FUNDING TRANSPARENCY The Electoral Bond judgment does not eliminate the need for political funding. Political parties will continue to require financial resources. The future challenge is therefore to construct a system that combines legitimate political financing, donor protection, public disclosure and institutional accountability.
First, substantial political contributions should be subject to timely disclosure. Transparency should be meaningful rather than merely formal. Information should be accessible in a searchable digital format so that citizens, researchers and regulators can examine patterns of political funding.
Second, reasonable contribution limits may be considered, particularly for corporate donations. Any such limits should be based on objective criteria and periodically reviewed.
Third, political parties should maintain stronger financial records and undergo independent audits. The uploaded material recommends auditing the assets and expenditure of candidates and political parties through an appropriate statutory mechanism.
Fourth, India may examine models involving partial public funding. The Indrajit Gupta Committee 15 supported the principle of state assistance to create conditions in which parties with fewer private financial resources could participate competitively, while the Law Commission emphasised the importance of an effective regulatory framework.
Finally, any future donation mechanism should avoid complete anonymity where public disclosure is constitutionally required. The uploaded study also refers to the Chilean mode 16, under which an intermediary electoral authority can play a role in distributing election funds.
10. CONCLUSION AND SUGGESTIONS
The Electoral Bond judgment represents an important constitutional development in India's law of elections and political finance. Its central contribution is the recognition that information about political funding is connected with the voter's ability to make an informed electoral choice. The Supreme Court's decision also demonstrates that privacy, although constitutionally important, cannot automatically justify complete secrecy in a matter having a direct relationship with democratic accountability.
The future of political funding should therefore be based upon a balanced transparency model rather than complete secrecy or unrestricted disclosure. A workable framework should protect genuine individual donors from unnecessary exposure while ensuring that significant political contributions are publicly accountable.
The following measures may assist in developing such a framework:
1. Mandatory disclosure of significant political contributions within a fixed period.
2. Reasonable and periodically reviewed limits on corporate contributions.
3. Independent auditing of political party accounts and election expenditure.
4. Digital and publicly accessible funding databases maintained in a standardised format.
5. Realistic election expenditure ceilings accompanied by effective enforcement.
6. Stronger institutional oversight by the Election Commission and other competent authorities.
7. Consideration of partial public funding, particularly where it can reduce excessive dependence on private donors.
8. Protection of genuine donor privacy through narrowly tailored safeguards rather than complete anonymity.
9. Disclosure of the ultimate beneficial source of corporate contributions, including appropriate safeguards against circumvention.
10. Regular legislative review of political-finance rules based on empirical evidence and democratic experience.
Ultimately, electoral finance is not merely a question of accounting. It concerns the relationship between money, political power and democratic choice. The Electoral Bond judgment has provided a constitutional foundation for greater transparency. The next stage requires legislators, electoral institutions, political parties and citizens to develop a funding system that permits legitimate political participation while preserving accountability to the electorate.
FOOTNOTES-
1 Association for Democratic Reforms and Anr. vs Union of India and ors. (2024) INSC 113 ;Writ Petition (Civil) No. 880 of 2017.
2 The Representation of People Act, 1951(Act No. 43 of 1951).
3 The Companies Act, 2013(Act No. 18 of 2013).
4 The Income-tax Act, 1961(Act No. 43 of 1961).
5 Association for Democratic Reforms and Anr. vs Union of India and ors. (2024) INSC 113 ;Writ Petition (Civil) No. 880 of 2017.
6Indian Constitution Art. 19,cl.1(a).
7 The Finance Act, 2017(Act No. 7 of 2017).
8 Constitution Supra note 6.
9 Supra note 1.
10 People Union for Civil Liberties vs Union of India (2013) 10 SCC 1
11 Supra note 1.
12 Supra note 1.
13 Kanwar lal Gupta vs Amar Nath Chawla(1975) 3 SCC 646.
14 1985 Supp SCC 189(Bench led by Y. V. Chandrachud CJ).
15 Indrajeet Gupta Committee on State Funding of Elections(Set up in May 1998).
16 Mixed system that relies heavily on public financing and strict transparency rules designed to curb corporate influence and corruption scandals.
