Electoral Bonds Unconstitutional: India Supreme Court

The Indian Supreme Court today delivered its much-awaited verdict on the electoral bonds issue, deeming anonymous electoral bonds as a violation of the right to information under Article 19(1)(a) of the Constitution. Consequently, the scheme has been declared unconstitutional.

A constitution bench, led by Chief Justice DY Chandrachud and including Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra, heard several cases challenging the controversial electoral bonds scheme over three days before reserving the verdict in November. The judgment was delivered on Thursday morning.

Despite reaching a unanimous decision, with Chief Justice DY Chandrachud delivering the primary judgment, Justice Khanna wrote a concurring opinion with slightly varied rationale. Both rulings tackled two primary inquiries: firstly, whether the omission of disclosing information on voluntary contributions to political parties through the electoral bond scheme and associated amendments to several acts breaches the right to information under Article 19(1)(a) of the Constitution, and secondly, whether unrestricted corporate financing of political parties, as outlined in the Companies Act amendment, undermines the ideals of equitable and transparent elections.

"Information about the funding of political parties is essential for the effective exercise of the choice of voting," Chief Justice Chandrachud stressed the importance of open governance. Authoring an opinion on behalf of himself and Justices Gavai, Pardiwala, and Misra, the chief justice held that the electoral bonds scheme violated Article 19(1)(a) of the Constitution.

"At a primary level, political contributions give a seat at the table to contributors, i.e., it enhances access to legislators. This access also translates to influence over policymaking. There is also a legitimate possibility that financial contributions to a political party would lead to a quid pro quo arrangement because of the close nexus between money and politics. The electoral bond scheme and the impugned provisions, to the extent that they infringe upon the right to information of the voter by anonymising contributions through electoral bonds, are violative of Article 19(1)(a)," the verdict noted.

The court held that the restrictive means test of the doctrine of proportionality is not satisfied and that there are other means, apart from electoral bonds, to achieve the purpose of curbing black money, even assuming it to be a legitimate objective. The infringement of the right to information is not justified, the court held.

Acknowledging that the right of informational privacy extends to financial contributions, which is a facet of political affiliation, Chief Justice Chandrachud revealed that a double proportionality standard was applied to balance the conflicting rights to information and to informational privacy.

Rejecting the Union's argument that Clause 7(4)(c) of the scheme balances the two rights, the court said that the provision tilts the balance in favour of the right to informational privacy because the suitability prong of the proportionality standard is only partly fulfilled. Chief Justice Chandrachud accordingly held that the union government has failed to establish that the measure adopted in clause 7(4)(1) of the electoral scheme is the least restrictive measure.

Accordingly, the amendments to the Income Tax Act, the Representation of Peoples Act and the Companies Act have been held to be unconstitutional.

The court issued the following directions:

1.  The issuing bank shall herewith stop the issuance of electoral bonds.

2. The State Bank of India (SBI) shall submit the details of electoral bonds purchased since the interim order of the Court dated April 12, 2019, till date to the Election Commission of India (ECI). The details shall include the date of purchase of each electoral bond, the name of the purchaser of the bond, and the denomination of the electoral bond purchased.

3. SBI shall submit the details of the political parties which have received contributions through electoral bonds since the interim order dated April 12, 2019, till date to the ECI. SBI must disclose details of each electoral bond encashed by the political parties, which shall include the date of encashment and the denomination of electoral bond.

4. SBI shall submit the above information to the ECI within three weeks from today, i.e., by March 6.

5. ECI shall publish the information received from the SBI on its website by March 13, 2024.

6. Electoral Bonds which are within the validity period of 15 days but which have not been encashed by the political parties yet shall be returned by the political party to the purchaser. The issuing bank shall then refund the amount to the purchaser's account.

Senior Advocates Kapil Sibal, Advocate Prashant Bhushan, Advocate Shadan Farasat, Advocate Nizam Pasha, Senior Advocate Vijay Hansaria appeared for the petitioners.

Attorney General for India R Venkataramani, Solicitor General of India Tushar Mehta appeared for the Union Government.

The Petition

At the heart of the petitions lie objections to the electoral bonds scheme, introduced through amendments in the Finance Act 2017. The petitioners, including the Association for Democratic Reforms (ADR), the Communist Party of India (Marxist) and Congress leader Jaya Thakur, argued that the anonymity associated with electoral bonds undermines transparency in political funding and encroaches upon voters' right to information. They further contend that the scheme facilitates contributions through shell companies, raising concerns about accountability and integrity in electoral finance.

In defense of the scheme, the union government had asserted its role in promoting the use of legitimate funds in political financing, ensuring transactions occur through regulated banking channels. Additionally, the government cited the need for donor anonymity to shield contributors from potential retribution by political entities.

Throughout the hearings, the bench posed probing questions to the government, questioning the rationale behind the scheme's 'selective anonymity' and expressing apprehension about its potential to institutionalise kickbacks for political parties.

Notably, concerns were raised regarding the unequal access to donor information, with the ruling party potentially possessing insight into contributors' identities while opposition parties lack such access. The bench also scrutinised the removal of the cap on corporate donations, previously restricted to a maximum of 7.5 per cent of net profits.

As the hearing drew to a close, the bench ordered the Election Commission of India to furnish details of political party contributions via electoral bonds up to September 30.

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