Association for Democratic Reforms v. Union of India 

Case Name: Association for Democratic Reforms v. Union of India 

Citation: Association for Democratic Reforms v. Union of India, W.P. (C) No. 880 of 2017 (Sup. Ct. India Feb. 15, 2024). 

Court: Supreme Court of India 

Bench: Chief Justice D.Y. Chandrachud, Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra 

Date of Judgment: February 15, 2024 

Parties 

Petitioners: Association for Democratic Reforms (ADR), Common Cause, Communist Party of India (Marxist). 

Respondents: Union of India; Election Commission of India (ECI).1 

Facts 

The Electoral Bond Scheme (EBS) was introduced in 2018 under the Finance Act, 2017, with the stated purpose of promoting transparency in political funding and curbing the inflow of black money into elections.2 The scheme allowed individuals and corporations to purchase electoral bonds of varying denominations through designated State Bank of India (SBI) branches during specified periods. Purchasers were subject to Know Your Customer (KYC) requirements; however, the identity of the donor was not disclosed to the public or political parties. Political parties receiving these bonds were exempted from reporting them in their contribution disclosures.3 

The EBS was facilitated through statutory amendments to the Income Tax Act, Companies Act, and Representation of the People Act, which collectively removed or relaxed disclosure requirements and corporate donation limits.4 

The petitioners challenged the constitutional validity of the scheme, contending that it undermined transparency in political funding, violated the voters’ right to information under Article 19(1)(a), and permitted disproportionate corporate influence over the electoral process. The Election Commission of India also raised concerns regarding transparency and fairness in the electoral process, filing affidavits opposing the anonymity of donations.5 

Issues 

1. Whether the Electoral Bond Scheme (EBS) violated voters’ fundamental right to information under Article 19(1)(a) of the Constitution. This central issue required the Court to ascertain if the anonymity of donors deprived citizens of crucial information necessary for making informed electoral choices, thereby impinging on their freedom of speech and expression, which includes the right to know. The Court had to analyze whether the state’s interest in donor privacy or curbing black money could legitimately override this fundamental right. 
2. Whether the EBS allowed for disproportionate corporate influence on the electoral process, thereby contravening Article 14 of the Constitution (equality before the law) and undermining the principle of a level playing field. The removal of the cap on corporate donations and the anonymity afforded to such contributions raised concerns about potential quid pro quo arrangements, policy capture, and an unequal distribution of political power, which could be seen as discriminatory and violative of the equality principle. 
3. Whether the donor anonymity provisions embedded within the EBS were constitutionally justified. This issue delved into the balance between the state’s claimed objectives (e.g., curbing black money, protecting donor privacy from harassment) and the fundamental right to transparency. The Court had to apply a strict test to determine if the means employed (anonymity) were suitable, necessary, and the least restrictive to achieve the stated legitimate aims. 
4. Whether the legislative enactment of the EBS and its associated amendments via the Finance Act, 2017, and subsequent changes to various statutes (Income Tax Act, Companies Act, Representation of the People Act) were valid and proportionate to achieve their stated objectives. This question required the Court to examine the substance of the amendments and the scheme itself under the lens of constitutional principles, particularly focusing on whether the restrictions imposed on fundamental rights were justified and not arbitrary or excessive. 
5. Whether the use of the ‘Money Bill’ procedure for enacting the Finance Act, 2017, and thereby introducing the EBS and its amendments, raised separate constitutional concerns regarding legislative procedure and the bypassing of the Rajya Sabha. This procedural challenge questioned the very legitimacy of the legislative route taken, arguing that it circumvented parliamentary scrutiny and violated the spirit of bicameralism, especially for a measure with such significant implications for democracy. 

These issues demanded a comprehensive constitutional review, balancing legislative prerogative with fundamental rights and the broader principles of democratic governance. 

Arguments of the Parties

Petitioners: 

• Transparency and Democratic Participation as Fundamental Rights: The petitioners argued that informed electoral choices depend on voters knowing the sources of political funding. Anonymous donations undermine this right, preventing citizens from assessing conflicts of interest, identifying quid pro quo arrangements, or holding representatives accountable. Citing cases like PUCL v. Union of India, they emphasized that the right to know is intrinsic to Article 19(1)(a) and essential for meaningful exercise of the franchise. The EBS, they contended, directly impeded transparency and public scrutiny in democracy. 
• Risks of Corporate Influence and Article 14 Violation: The scheme, by removing corporate donation caps while maintaining anonymity, created avenues for undue corporate influence. Petitioners argued that unlimited, undisclosed corporate funding could distort policy in favor of donors, violating Article 14’s equality guarantee by giving powerful entities an unfair electoral advantage, thereby undermining the principle of “one person, one vote, one value.” 
• Questionable Legislative Procedure (Money Bill): Petitioners challenged the classification of the EBS amendments as a Money Bill under the Finance Act, 2017, which bypassed the Rajya Sabha. They argued that electoral finance reforms of such constitutional significance required full parliamentary scrutiny in both houses. Using the Money Bill route, they contended, circumvented democratic processes and diluted legislative accountability. 

Respondents:

• Anti-Corruption Rationale and Channeling Funds: The government argued that the EBS was designed to curb the use of “black money” in political funding. By routing donations through formal banking channels via electoral bonds, the scheme sought to bring transparency to funding processes, even if donor identities remained undisclosed. This, the government contended, would reduce unaccounted cash in the political system and promote cleaner electoral financing. 
• Donor Privacy and Protection from Retaliation: Anonymity, the government asserted, was necessary to protect donors from harassment, victimization, or political retaliation. Public disclosure of donor identities might deter contributions and drive funds back into opaque cash channels. Thus, donor privacy was presented as a legitimate state interest to be balanced against transparency. 
• Principle of Policy Deference: The Union of India maintained that the design and implementation of the EBS was a legislative policy matter. Courts, it argued, should defer to the legislature on policy decisions unless there is a clear constitutional violation. Since the EBS aimed to curb black money, the government contended it fell within legislative discretion. 
• Institutional Considerations (ECI’s Stance): While formally a respondent, the Election Commission of India raised concerns over the opacity created by the EBS. It argued that non-disclosure of donor identities could allow “black money” to enter politics via shell companies and deprive voters of crucial information, subtly undermining the Union’s defense and highlighting institutional apprehension about the scheme’s impact on fair elections. 

Supreme Court Judgment 

The five-judge Constitution Bench unanimously struck down the EBS. 

Key Findings:

1. Violation of Right to Information: The Court held that the Electoral Bond Scheme violated Article 19(1)(a) of the Constitution. Anonymous donations prevented voters from knowing the sources of political funding, assessing potential influence on parties, and making informed electoral choices, thereby undermining the integrity of the democratic process. 
2. Proportionality Test: While curbing black money in elections was recognized as a legitimate governmental objective, the anonymity feature of the scheme was neither suitable nor necessary. The Court emphasized that less restrictive measures, such as mandatory disclosure or stronger regulatory oversight, could achieve the same goal without infringing voters’ fundamental rights. 
3. Donor Privacy vs. Transparency: The Court distinguished between small individual donors and large corporate contributors. While privacy protections were justified for minor contributors, large donations, particularly from corporations, required disclosure due to the heightened risk of undue influence and potential quid pro quo arrangements that could compromise democratic accountability. 
4. Corporate Influence and Equality: Unlimited anonymous corporate contributions violated Article 14, as they distorted electoral equality and provided disproportionate advantage to financially powerful entities. The Court highlighted that such funding could lead to policy capture, undermining the level playing field essential to a fair electoral process. 
5. Remedial Measures and Directions: The Court prohibited further issuance of electoral bonds and directed SBI to provide complete records of all bonds purchased and redeemed from April 12, 2019, to the Election Commission. The Commission was required to publish the data online. The Court deferred ruling on the procedural validity of enacting the scheme via a Money Bill, as the scheme was already struck down on substantive constitutional grounds.

Ratio Decidendi 

1. Transparency as a Democratic Right: Voter information is essential; corporate donor anonymity cannot undermine transparency. 
2. Proportionality Principle: Legislative restrictions of fundamental rights must be suitable, necessary, and minimally restrictive. 
3. Corporate Accountability: Large anonymous corporate donations threaten electoral equality and fairness. 

Obiter Dicta 

Privacy protection for small donors is legitimate, but large corporate contributions must be disclosed. Future legislation should calibrate anonymity carefully. 

Conclusion 

The Supreme Court’s decision in Association for Democratic Reforms v. Union of India marks a landmark affirmation of electoral transparency and the voters’ fundamental right to information. By striking down the Electoral Bond Scheme, the Court curtailed anonymous corporate influence in elections, reinforced the application of structured proportionality in rights adjudication, and emphasized the primacy of public access to political-funding information over wholesale donor anonymity. While recognizing the importance of protecting genuine small donors, the Court highlighted that large corporate contributions cannot be shielded from disclosure without undermining democratic equality and fairness. The ADR v. Union of India judgment thus sets a robust and enduring precedent. It mandates a future where electoral processes remain accountable, equitable, and genuinely participatory. It serves as a potent reminder that the strength of a democracy lies not just in its institutions but in the informed engagement of its citizens, an engagement that can only flourish when the channels of political funding are bathed in the clear light of transparency. The legacy of this decision is profound, ensuring that India’s democratic journey continues to be guided by the principles of openness, fairness, and the unwavering right to know. 

Reference(S):

1. Association for Democratic Reforms v. Union of India, W.P. (C) No. 880 of 2017 (Sup. Ct. India Feb. 15, 2024). 
2. SCObserver, Constitutionality of the Electoral Bond Scheme, SCObserver (2024), https://www.scobserver.in/cases/association-for-democratic-reforms-electoral-bonds-case -background/.
3. Association for Democratic Reforms, The Supreme Court of India’s Landmark Verdict on Electoral Bonds, ADR India, Apr. 16, 2024,https://adrindia.org/content/democratizing-elections-supreme-court-india%E2%80%99s-l andmark-verdict-electoral-bonds. 
4. DhyeyaLaw, Association for Democratic Reforms v. Union of India, 2024, https://www.dhyeyalaw.in/association-for-democratics-reforms-vs-union-of-india.
5. S. Sridhar, Where Privacy Ends and Politics Begin, SCRIPTed: J. L., Tech. & Soc’y (2024), doi:10.2218/scrip.210024.86. 
6. A. Jain, On the Politics of Non-Transparent Electoral Funding in India (Feb. 21, 2024), doi:10.59704/49b9227a3b96a43e.