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The Legal Architecture of Electoral Bonds in India: An Analysis of the Supreme Court’s Judgment on Transparency and Corporate Funding

By Anushrijoshii | Views 11836

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The Supreme Court of India's recent judgment in Association for Democratic Reforms & Anr. v. Union of India (2024 INSC 113) underscores the intricate relationship between political financing and democratic transparency. The Court tackled the constitutionality of the Electoral Bond Scheme, 2018, and amendments introduced through the Finance Act, 2017, which impact corporate contributions to political parties and the disclosure of such funding. This article explores the Court's reasoning, the key statutory provisions, and the jurisprudential underpinnings that guide the judgment, contextualizing its implications on electoral transparency, corporate influence, and democratic governance.

Background and Legal Framework
The Electoral Bond Scheme, introduced in 2018 by amending several laws through the Finance Act, 2017, allows individuals, companies, and associations to anonymously donate funds to political parties. The bonds are issued by scheduled banks, and political parties can encash them within a 15-day period. Sections of the Reserve Bank of India Act, Companies Act, Income Tax Act, and Representation of the People Act (RPA) were amended to facilitate this framework, granting companies unprecedented flexibility in contributing funds to political parties without mandatory disclosure.

• Key Amendments:

  • Section 29C of the RPA was modified, exempting political parties from disclosing the identity of donors who contribute through electoral bonds.
  • Section 182 of the Companies Act eliminated the cap on corporate contributions to political parties and removed disclosure requirements for corporate donors.
  • Section 13A of the Income Tax Act relieved political parties from maintaining records of contributions received through electoral bonds.

  The introduction of these amendments ostensibly aimed to curb the influence of black money by encouraging donations through formal banking channels. However, the modifications also raised concerns regarding the potential for opaque funding sources, especially from corporate entities, to unduly influence the democratic process.
   

• Constitutional Challenge and Key Issues:

  • Petitioners challenged these provisions on grounds of constitutionality, citing Article 14 (equality before law), Article 19(1)(a) (freedom of speech and expression, which includes the right to information), and Article 21 (right to life and personal liberty, encompassing the right to privacy and fair elections). They argued that the amendments subverted transparency and facilitated unchecked corporate influence over the political process.

  The Court outlined two primary issues:

  • Corporate Funding and Article 14: Does unlimited corporate funding, enabled by the Companies Act amendment, violate the principle of free and fair elections?
  • Right to Information under Article 19(1)(a): Does the non-disclosure of political contributions infringe on citizens' right to know, which is integral to the exercise of informed voting rights?
     
• Judicial Reasoning and Constitutional Interpretation:
  • The Court's judgment, authored by Chief Justice Dr. Dhananjaya Y. Chandrachud, underscores the fundamental role of transparency in sustaining democratic integrity. Key observations include:
     
  • Right to Information and Informed Electorate: The Court reiterated the principle from People's Union for Civil Liberties (PUCL) v. Union of India (2003) 4 SCC 399, asserting that the right to information about political candidates and funding sources is embedded in Article 19(1)(a). The Court noted that the right to information on political contributions enables voters to make informed choices, thus enhancing democratic accountability. By allowing anonymous donations, the Electoral Bond Scheme was found to compromise the electorate's ability to assess the influence wielded by wealthy corporate donors over political decisions.
     
  • Principle of Proportionality and Privacy Concerns: The government defended the scheme, claiming that anonymity protects donor privacy and guards against political retaliation. However, the Court found that this rationale fails to satisfy the proportionality test. The judgment underscored that any restriction on the right to information must be the least restrictive means available. Here, non-disclosure was deemed an excessive measure that disproportionately curtails the public's right to know, especially when less restrictive alternatives (such as confidential donor registers accessible to oversight bodies) could suffice.
     
  • Impact on Free and Fair Elections: The Court highlighted that unchecked corporate donations create an asymmetry in the political landscape, disproportionately benefitting well-funded parties and candidates, as observed in Kanwar Lal Gupta v. Amar Nath Chawla (1975) 3 SCC 646. The amendments to Section 182 of the Companies Act, which lifted the cap on corporate donations and allowed loss-making companies to contribute without disclosing the recipient parties, were deemed arbitrary and violative of Article 14. The Court emphasized that such provisions contravene the fundamental democratic ethos by enabling corporate entities to exert disproportionate influence, which marginalizes smaller parties and creates unequal opportunities in electoral contests.
     
  • Judicial Review and Economic Policy: While acknowledging the principle of judicial restraint in economic matters, the Court asserted that electoral integrity transcends conventional economic policy. The amendments at issue, which govern the electoral process, directly impact constitutional principles such as free and fair elections and thus warrant rigorous judicial scrutiny. Citing Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17, the judgment emphasized that laws affecting the electoral process demand a more exacting standard of review, given their foundational role in maintaining democratic legitimacy.
     
• Conclusion and Directions: In its conclusion, the Court underscored the need to balance privacy concerns with democratic transparency. Recognizing the serious impact of the current scheme on electoral integrity, the judgment directed the Union government to reconsider the provisions enabling anonymous donations and unrestricted corporate funding. The Court suggested legislative amendments that could institute caps on corporate donations and mandatory disclosures while exploring options to protect genuine donor privacy without compromising public accountability.
   
• Implications and Path Forward: This landmark judgment marks a critical juncture in India's electoral jurisprudence, emphasizing that the integrity of democratic processes must not be undermined by the unchecked flow of funds from private entities. By affirming the electorate's right to information, the Supreme Court reasserts that transparency is indispensable for free and fair elections, an essential feature of the basic structure of the Constitution. The judgment further prompts the legislature to establish a more equitable and transparent system of political financing, which is likely to shape future electoral reforms in India.

This decision not only reinforces the democratic values enshrined in the Constitution but also raises significant questions about the influence of wealth in politics, positioning India among global democracies seeking to fortify electoral integrity against corporate and opaque funding mechanisms.