Association for Democratic Reforms & Anr. v. Union of India & Ors.

Full Title: Association for Democratic Reforms & Anr. v. Union of India & Ors.

Citation: (2024) SCC OnLine SC 135 

Commonly Known As: The Electoral Bonds Case (2024) 

COURT NAME & BENCH 

Court: Supreme Court of India 

Bench Composition: 

Hon’ble Chief Justice D.Y. Chandrachud 

Hon’ble Mr. Justice Sanjiv Khanna 

Hon’ble Mr. Justice B.R. Gavai 

Hon’ble Mr. Justice J.B. Pardiwala 

Hon’ble Mr. Justice Manoj Misra 

Bench Type: Constitutional Bench (Five Judges) 

The matter was placed before a Constitutional Bench considering the significant constitutional  questions involved, particularly regarding citizens’ right to information, transparency in electoral  processes, and the validity of legislative amendments relating to political funding. 

DATE OF JUDGMENT 

Judgment Delivered On: 15 February 2024 

PARTIES INVOLVED 

Petitioners: 

Association for Democratic Reforms (ADR) and Common Cause, both well-known civil society  organizations working towards electoral transparency and democratic reforms in India. ADR, in particular, has been active in filing public interest litigations (PILs) concerning electoral funding,  disclosure of candidate information, and voter rights. 

Respondents: 

The Union of India, through the Ministry of Finance, along with other government bodies, was the  main respondent. Several political parties were also indirectly affected by the outcome of the case  as beneficiaries of the Electoral Bonds Scheme. 

FACTS OF THE CASE 

In 2017, the Parliament passed the Finance Act, 2017, which introduced a set of crucial  amendments to several major statutes connected with electoral funding. Under the Representation  of the People Act, 1951 (RPA), political parties were exempted from disclosing the identity of  donors who contributed through Electoral Bonds. The Companies Act, 2013, was also amended  to remove the earlier limit of 7.5 per cent of a company’s average net profits that could be donated  to political parties. This change effectively permitted unlimited corporate donations and also  deleted the requirement that companies disclose the name of the political party to which they made  contributions. Likewise, the Income Tax Act, 1961, was modified to provide income-tax  exemption to political parties for contributions received via Electoral Bonds. 

Subsequently, on 2 January 2018, the Central Government formally notified the Electoral Bond  Scheme, 2018. The scheme allowed any individual or body incorporated in India to purchase  Electoral Bonds from specified branches of the State Bank of India (SBI) and donate them to a  registered political party. Importantly, both the purchaser and the recipient party enjoyed  anonymity, since the bonds did not carry the donor’s name. 

Soon after the notification, the Association for Democratic Reforms (ADR), a non-governmental  organization known for promoting transparency and accountability in political processes, along  with other petitioners, filed a writ petition before the Supreme Court. They challenged the  constitutionality of the Electoral Bond Scheme, 2018, as well as the legislative amendments  made through the Finance Act, 2017, arguing that these provisions undermined citizens’ right to  information and electoral transparency guaranteed under the Constitution.

ISSUES RAISED 

The key legal and constitutional questions before the Supreme Court were: 

• Whether the non-disclosure of donor information under the Electoral Bond Scheme  violates the fundamental Right to Information of the voter under Article 19(1)(a) of the Constitution. 
• Whether the amendment to Section 182 of the Companies Act, 2013, which removed  the cap on corporate political donations, violates the principle of free and fair elections and equality under Article 14 of the Constitution. 
• Whether the Electoral Bond Scheme and the related statutory amendments satisfy the  ‘proportionality test’ (i.e., whether complete anonymity is a suitable, necessary, and  proportionate means to achieve the stated objective of curbing black money) under Article  19(2). 
• (Secondary/Procedural Issue) Whether the use of the ‘Money Bill’ route (Article 110) to  enact the Finance Act, 2017 (which introduced the amendments), was constitutionally valid  or an abuse of the legislative process designed to bypass the Rajya Sabha. 

ARGUMENTS BY THE PETITIONERS  

1. The petitioners argued that the Electoral Bond Scheme violates the voter’s fundamental  Right to Information under Article 19(1)(a), as it conceals the sources of political  donations from the public. They relied on Union of India v. ADR (2002) and PUCL v. Union  of India (2003), where the Supreme Court held that the voter’s right to know forms an  essential part of freedom of speech and expression. 
2. They contended that the amendment to Section 182 of the Companies Act, 2013, which  removed the donation cap and disclosure requirements, permits unlimited and  anonymous corporate funding, thereby violating Article 14 and undermining free and  fair elections.
3. The petitioners further argued that the government’s justification of curbing black money  failed the test of proportionality under Article 19(2). Referring to Modern Dental  College v. State of M.P. (2016) and K.S. Puttaswamy v. Union of India (2017), they stated  that complete donor anonymity was not the least restrictive means to achieve the  intended goal. 
4. They also submitted that the Finance Act, 2017, was wrongly certified as a Money Bill  under Article 110, since the amendments dealt with electoral reforms and not matters  strictly related to taxation or expenditure. They relied on Rojer Mathew v. South Indian  Bank (2020), which cautioned against the misuse of the Money Bill route to bypass  parliamentary scrutiny. 

ARGUMENTS BY THE RESPONDENT  

1. The government defended the scheme as a legitimate reform to curb black money,  arguing that it encouraged political donations through formal banking channels instead  of untraceable cash, with the State Bank of India ensuring internal accountability. 
2. It was submitted that the Right to Information is not absolute, and maintaining donor  confidentiality is a reasonable restriction under Article 19(2), intended to prevent  political retaliation or harassment of contributors. 
3. The Union argued that corporate entities have a right to participate in the democratic  process just like individuals, and the removal of the cap on corporate donations under the  Companies Act simply simplified compliance without creating unfairness. 
4. On the procedural issue, the State maintained that the Finance Act, 2017, was validly  passed as a Money Bill, since it primarily dealt with fiscal and financial matters, thereby  falling within the scope of Article 110.

JUDGMENT 

The Supreme Court’s final decision was a landmark verdict delivered unanimously by a five judge Constitution Bench. 

The Court struck down the Electoral Bond Scheme, 2018, holding it unconstitutional. It ruled  that the scheme violated the voter’s fundamental Right to Information, which forms part of the  freedom of speech and expression under Article 19(1)(a) of the Constitution. 

The Bench observed that in a democracy, voters have the right to know who funds political  parties, as this information directly affects the exercise of their right to vote in an informed  manner. The anonymity of political donors, as allowed by the scheme, was found to undermine  transparency and distort the electoral process. 

The Court also invalidated the related amendments made through the Finance Act, 2017, to the  following laws: 

• Representation of the People Act, 1951, which had exempted political parties from  disclosing donor details; 
• Income Tax Act, 1961, which had granted tax exemptions on anonymous bond donations;  
• Section 182 of the Companies Act, 2013, which had removed the cap on corporate  donations and the requirement of disclosure. 

According to the Court, these changes failed the proportionality test, as complete secrecy in  political donations was not a necessary or reasonable means to curb black money, the stated  purpose of the scheme. 

Appeal Status 

The writ petitions challenging the constitutionality of the Electoral Bond Scheme were allowed.  As a result, the scheme and the enabling legislative amendments were struck down as  unconstitutional.

Important Directions Issued 

To ensure full transparency and public accountability, the Supreme Court issued several binding  directions: 

1. Immediate Halt of Bond Issuance: The State Bank of India (SBI) was directed to  immediately stop issuing Electoral Bonds. 
2. Disclosure of Donor and Recipient Details: SBI was ordered to submit complete  records of all Electoral Bonds purchased and redeemed, covering details such as the date  of purchase, name of purchaser, and denomination of each bond, to the Election  Commission of India (ECI). 
3. Political Party Information: The ECI was to be given corresponding details of when and  which political party encashed the bonds, along with their value. 
4. Public Disclosure: The Election Commission was instructed to publish all this  information on its official website within a specified timeline, making the data accessible  to every citizen. 
5. Refund of Unencashed Bonds: Any Electoral Bonds still within their 15-day validity  period but not yet encashed by political parties were to be returned to SBI, which would  then refund the amount to the original purchaser. 

This verdict marked a major step toward electoral transparency in India, reaffirming that clean elections and an informed electorate are at the heart of constitutional democracy. 

RATIO DECIDENDI 

In its landmark ruling, the Supreme Court explained why the Electoral Bond Scheme and the  related amendments were unconstitutional. The Bench based its reasoning on transparency,  equality, and the voter’s right to information, which it said are essential to uphold the idea of  free and fair elections.

1. Right to Information under Article 19(1)(a) 

The Court reaffirmed that the right to know forms an important part of the freedom of speech  and expression under Article 19(1)(a). Referring to earlier cases like Union of India v. ADR (2002) and PUCL v. Union of India (2003), the Court said that an informed electorate is the  foundation of democracy. 

Chief Justice D.Y. Chandrachud observed that: 

“Information about political funding is essential for a voter to exercise their freedom to vote in an  informed manner.” 

The Bench added that secrecy in political donations prevents voters from knowing who might  be influencing policies and undermines democratic accountability. It stated that opaque  funding weakens public trust and “tilts the process in favor of those with greater financial  power.” 

2. The Test of Proportionality 

The Court applied the doctrine of proportionality under Article 19(2) to examine whether  restricting the voter’s right to know was justified. While the government argued that the scheme  aimed to reduce black money, the Court said this objective could not justify total anonymity in  political funding. 

Chief Justice Chandrachud wrote: 

“The means adopted by the State must have a rational nexus with the object sought to be achieved,  and must not disproportionately infringe fundamental rights.” 

The Bench held that the complete anonymity of donors was neither necessary nor  proportionate, because there were less restrictive ways, like regulated disclosure or auditing, to  control black money without compromising transparency.

3. Article 14 and Corporate Donations 

The Court also found that the amendment to Section 182 of the Companies Act, 2013, which  removed the cap on corporate donations, was manifestly arbitrary and violated Article 14 (Right  to Equality). 

It noted that this change favored large corporations and allowed them to influence political  outcomes more than ordinary citizens could. The judgment clearly stated that: 

“Unlimited corporate contributions have the potential to drown out the voices of individual  citizens.” 

By removing both the cap and disclosure requirement, the amendment created an uneven political  field, which the Court said goes against the democratic spirit of equality. 

4. Money Bill Controversy 

The petitioners had also challenged the use of the Money Bill route to pass the Finance Act, 2017.  The Court did not give a final ruling on this issue but acknowledged that it raised serious  constitutional concerns. It noted that passing non-financial matters as a Money Bill could “reduce  the Rajya Sabha to a redundant institution.” 

However, since the larger question was pending before another Bench in Rojer Mathew v. South  Indian Bank (2020), the Court chose not to decide it in this case. 

5. Upholding the Principles of Democracy 

Finally, the Court reaffirmed that free and fair elections are part of the basic structure of the  Constitution, and that transparency in political funding is vital to protect democracy from  hidden influences. 

Chief Justice Chandrachud concluded with a strong message: 

“Democracy depends on an informed electorate. The voter’s right to know the source of political  funding is not a matter of charity by the State, but a constitutional guarantee.”

OBSERVATIONS 

The Electoral Bonds Case (2024) is one of the most important constitutional judgments in recent  times. Through this decision, the Supreme Court of India underlined that transparency and  accountability are basic values of a democratic system and cannot be compromised in the name  of reform. 

By striking down the Electoral Bond Scheme, 2018, and the related amendments, the Court made  it clear that citizens have the right to know who funds political parties. This right is part of the  freedom of speech and expression under Article 19(1)(a), as voters need this information to  make informed choices. The Court also reminded that free and fair elections are part of the basic  structure of the Constitution, and secrecy in donations goes against that principle. 

For me as a student, this case shows how the Court used ideas like the doctrine of proportionality and equality under Article 14 to balance both sides, the government’s aim to stop black money, and the public’s right to transparency. The judges clearly said that no government policy can limit  fundamental rights beyond what is reasonable. 

Overall, the case is a big step towards cleaner and more open electoral funding. It strengthens  people’s trust in democratic institutions and reminds us that true democracy needs openness,  honesty, and informed citizens.

REFERENCE(S): 

Cases: 

1. Ass’n for Democratic Reforms v. Union of India, (2024) SCC OnLine SC 135 (India). 2. Union of India v. Ass’n for Democratic Reforms, (2002) 5 SCC 294 (India). 3. People’s Union for Civil Liberties v. Union of India, (2003) 4 SCC 399 (India). 4. Modern Dental Coll. & Research Ctr. v. State of M.P., (2016) 7 SCC 353 (India). 5. K.S. Puttaswamy v. Union of India, (2017) 10 SCC 1 (India). 
2. Rojer Mathew v. S. Indian Bank Ltd., (2020) SCC OnLine SC 127 (India). 

Statutes 

1. The Finance Act, 2017, §135. 
2. The Representation of the People Act, 1951, §29C. 
3. The Companies Act, 2013, §182. 
4. The Income Tax Act, 1961, §13A. 
5. The Constitution of India, arts. 14, 19(1)(a), 19(2), 110. 

Notifications and Executive Orders 

1. Ministry of Finance, Electoral Bond Scheme, 2018, Notification No. G.S.R. 128(E) (Notified on January 2, 2018) (India). 
2. Election Commission of India, Disclosure of Electoral Bond Data — Pursuant to  Supreme Court Directions (Issued on March 21, 2024) (India). 
3. State Bank of India, Operational Guidelines for Sale and Redemption of Electoral Bonds (Issued on March 1, 2018) (India).