Electoral Bonds Constitution Bench | Judgement Summary

Can the Court hear this case?

The Union government had argued that the amendments introduced through the 2016 and 2017 Finance Acts and the subsequent Scheme were economic policies. They contended that the Court must exercise restraint in deciding the case, due to the “pre-eminence and primary role of the Legislature and the Executive in matters concerning economic policy.” 

The Court held that “the true nature of the law” did not indicate that this Scheme was an economic policy. Though the amendment to Section 31 of the Reserve Bank of India Act, 1934 could be considered a financial provision, “any resemblance to an economic policy ends there,” it said. The key features of the Scheme—anonymity and unlimited corporate funding—are related to the electoral process. The Court therefore enjoyed the power to adjudicate this case. 

Voters’ right to information extends to political parties

Amendments introduced through the Finance Act, 2017 made three key changes that ensured that no information would have to be disclosed in the transaction of Electoral Bonds. First, an amendment to the Representation of the People Act, 1951 (RoPA), exempted political parties from publishing the details of contributions received through electoral bonds in “Contribution Reports”. Second, changes to the Income Tax Act, 1961 exempted political parties from keeping a detailed record of contributions received through Electoral Bonds. Lastly, amendments to the Companies Act, 2013 removed any obligation on companies to maintain details of donations made to political parties—a simple total figure was deemed sufficient. 

The Bench observed that in Union of India v Association for Democratic Reforms (2002) and PUCL v Union of India (2003), the Court had held that voters have a right to information about candidates as it empowers them to “cast their vote in an effective manner.” CJI Chandrachud wrote that this right extends to political parties as well, as they are a “relevant political unit in the democratic electoral process.” In India, he noted, voters associate candidates with the ideologies of the party they are from. 

Further, the Chief also held that in the Westminster system of government, the legislature and executive are formed by the winning political party. Additionally, the Tenth Schedule, which disqualifies members for defecting from a political party, further solidified the role of a political party as a unit. 

Despite constitutional measures, the judgement noted that there is great political inequality in India. This inequality is driven by money. As a result, people with deep pockets influenced political decisions. “Economic inequality”, the Chief wrote, “leads to differing levels of political engagement because of the deep association between money and politics.” It gives large donors a “seat at the table” and allows them to influence policy. The voter, therefore, must have access to information to assess whether “a correlation between policy making and financial contributions” exists. 

The Judgement strongly set aside the Union’s submission that the mechanism of confidentiality is “foolproof” and “unbreachable”. “We do not agree with this submission,” the Court said, pointing out that anonymity ascribed by law does not mean that anonymity is practised in reality. “The Scheme is not fool-proof. There are sufficient gaps in the Scheme which enable political parties to know the particulars of the contributions made to them.” 

Justifications for infringing voters’ right to know | Goal 1: Curbing black money

The Bench relied on the proportionality test laid down in Modern Dental College & Research Centre v State of Madhya Pradesh (2016). In that case, a five-judge Constitution Bench of the Court had held that a measure restricting a fundamental right must have a “legitimate goal”, it must be a “suitable means” of reaching that goal, it must create the least amount of restriction as possible, and must be balanced and not have “a disproportionate impact” on the right holder. 

The Scheme was proposed as a tool to curb black money. The Court held that “the purpose of curbing black money is not traceable to any of the grounds in Article 19(2),” which lists reasonable restrictions to Article 19. 

Even if it were to accept that curbing black money was a legitimate goal, the Court said, the Scheme would have to pass the second test of being a “suitable means” to achieve that goal. The Scheme would pass the test even if it was “one of the many methods” to achieve the goal or “only partially gives effect to the purpose.” The Union had submitted that since the implementation of the scheme, 47 percent of political contributions had come through legal channels. However, the Court noted that this submission wrongly relied on the idea that non-disclosure of information has a rational nexus with curbing black money. 

Next, the judgement shifted focus to the requirement that the Scheme must offer the least amount of resistance. The Bench noted that in theory, among other alternatives such as electronic transfers, Electoral Trusts, and Electoral Bonds, the bonds offer the “most effective means in curbing black money.” However, there are no real regulatory checks to prevent the trading of bonds even though the scheme prohibits trading. Instead, Electoral Trusts offer the same confidentiality and curbing of black money while also not violating voters’ right to information. 

Seeing as the Scheme did not survive three of four tests, the Court did not feel the “necessity of applying the balancing prong of the proportionality standard.”

Justifications for infringing voters’ right to know | Goal 2: Donors’ right to privacy

During the hearings, Solicitor General Tushar Mehta insisted that confidentiality and privacy of the donor were at the heart of the scheme. The Court saw that under Article 19(1)(a), “the freedom of political expression cannot be exercised freely in the absence of privacy of political affiliation.” The court warned that the lack of privacy in electoral affiliations would be “catastrophic”. 

Thinking of the average citizen, “a student, a daily wage worker, an artist, or a teacher,” the Court stated that “not all political contributions are made with the intent of attempting to alter public policy.” They are also “made purely with the intent of expressing support.” Though quid pro quo and transactions are possible, the “Constitution does not turn a blind eye merely because of the possibilities of misuse.” However “the scheme only grants de jure and not de facto confidentiality vis-à-vis the political party.” The argument that the Scheme protects the confidentiality of the donor “akin to the system of a secret ballot is erroneous.”

Next, the court recognised that there is “no constitutional hierarchy between the right to information and the right to informational privacy of political affiliation.” The proportionality test (discussed above), therefore, must be applied to both those rights.

First, The Chief wrote that if the goal of the Scheme was the privacy of political affiliation, it passes the test for a legitimate goal. “Undoubtedly, the measure by prescribing non-disclosure of information about political funding” achieves the goal of allowing a donor to privately support a party. 

Second, on whether it is a suitable means to achieve that goal, the Court saw no connection between a donor’s right to non-disclosure and the goal to ensure an informed electorate. The Scheme ensured that the details of the contributions were “never” disclosed to the voter. 

Third, on whether this is the least restrictive method that can be used, the Court noted that a framework already exists to protect both donor privacy and voter’s right to know. Under the RoPA, and the IT Act, donations above ₹20,000 must be recorded and disclosed. This satisfies the voters’ right to know. The Court noted that the non-requirement of disclosure for donations below ₹20,000 protected donor privacy of individuals. Parliament in its wisdom set ₹20,000 as the threshold for where the right to privacy ended and the right to information began, the Court said. 

Again, seeing that the Scheme did not survive three of four tests, the Court did not see the “necessity of applying the balancing prong of the proportionality standard.”

Due to the lack of sufficient justification for using the electoral bonds scheme to restrict voters’ rights under Article 19(1)(a), the Court declared the amendments to IT Act and RoPA as unconstitutional. With anonymity as established by these amendments being central to the Electoral Bonds Scheme, it was also struck down as unconstitutional. 

The Court noted that the Companies Act was amended to allow non-disclosure of details of donations, “to bring the provision in tune” with the amendments to RoPA. As the amendments to RoPA were unconstitutional, the Companies Act amendment became “otiose”.

Constitutionality of Unlimited Corporate Funding

The Court began by asking whether “the elected would truly be responsive to the electorate if companies which bring with them huge finances and engage in quid pro quo arrangements with parties are permitted to contribute unlimited amounts.”

The Union had argued that companies were caught creating shell companies to circumvent the limitations imposed on donations before the 2018 Scheme. He suggested that the limit of 7.5 percent of average net profits in the preceding three financial years was removed to discourage shell companies.

The Court noted that in the past, restrictions were imposed to ensure that loss-making companies were not donating to political parties. If the Union’s goal was in fact to discourage the creation of shell companies, “there is no justification for removing the cap on contributions which was included for the very same purpose: to deter shell companies from making political contributions.”

The Chief further held that the “unlimited contribution by companies to political parties is antithetical to free and fair elections because it allows certain persons/companies to wield their clout and resources to influence policy making.” Giving companies this “unrestrained influence” violates the value of “one person, one vote”. 

Finally, the Court held that the unlimited corporate funding is manifestly arbitrary for three reasons. First, it considered donations by individuals and corporations alike. Second, it allowed unregulated corporate interference in free and fair elections. Third, it considered donations from profit-making and loss-making companies alike.

Justice Khanna’s concurring opinion

Justice Khanna began by explaining that he was writing a concurring opinion, as he used a different reasoning “to arrive at the same conclusion.” Most distinctively, he held that the unconstitutionality of the amendments to Section 182 of the Companies Act, which allowed unlimited donations, came more from the test of proportionality than the test of manifest arbitrariness. 

He wrote that the third and fourth prongs in the proportionality test—the minimal restriction and balance test—must be read strictly. Relying on Anuradha Bhasin v Union of India (2020), he stated that a moderate interpretation can be adopted to test the minimal restriction or necessity test. The Court would have to “undertake an overall comparison between the measure and its feasible alternatives.” 

For the balance test, he held it must “be rooted in empirical data and evidence.” “This is essential because the proportionality enquiry necessitates objective evaluation of conflicting values rather than relying on perceptions and biases.” Justice Khanna held that data would create a “more solid foundation” for normative reasoning, and understanding the means adopted to the end envisaged. 

He assessed data on the number of bonds sold, the distribution of funds between parties, and the quantum of total donations that came solely from companies. He wrote that though he has not applied the proportionality test strictly due to incomplete data, he concluded that the Scheme fails to meet the balance test. The data is annexed to his Judgement. 

Next, he held that “retribution, victimisation or retaliation cannot by any stretch be treated as a legitimate aim.” He held that it also failed the suitability test, the necessity test and the balance test. Retribution and victimisation are an abuse of the law and are wrong, but cannot be considered as a justification. “Transparency and not secrecy is the cure and antidote” he wrote.

Justice Khanna then plotted the many ways in which the goals of the scheme fall short. He noted that political parties “retain the ability to use their power and authority of investigation to compel the revelation of Bond-related information. Thus, the entire objective of the Scheme is contradictory and inconsistent.” Further, the concealment of donor identity and curbing of black money, he said, had no rational connection. 

On privacy, he held that “the claim of privacy by a corporate or a company, especially a public limited company would be on very limited grounds” as its activities and affairs are open to shareholders. At most, individuals within the company could claim the right to privacy, not the company itself. 

Passionately, he wrote, “The voters’ right to know and access to information is far too important in a democratic set-up so as to curtail and deny ‘essential’ information on the pretext of privacy and the desire to check the flow of unaccounted for money to the political parties.”

The directions of the Court

1. The State Bank of India (SBI) shall stop issuing electoral bonds
2. SBI shall submit details of the Electoral Bonds purchased from 12 April 2019 till date, to the Election Commission of India (ECI). The details shall include the date of purchase of each Bond, the name of the purchaser and the denomination of the Bond purchased.
3. SBI shall submit the details of political parties which have received contributions through Electoral Bonds since 12 April 2019 to date to the ECI. This must include  details of each Electoral Bond encashed by political parties, the date of encashment and the denomination of the Electoral Bond.
4. SBI shall submit the above information to the ECI within three weeks from the date of this judgement (by 6 March 2024). 
5. The ECI shall publish the information shared by SBI on its official website within one week from the receipt of the information (by 13 March 2024).
6. Electoral bonds which are within the validity period of 15 days but have not yet been encashed by political parties shall be returned by the party and refunded to the purchaser’s account.