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

The Supreme Court's unanimous decision on February 15, 2024, to strike down the Union government's 2018 Electoral Bonds (EB) Scheme marked a significant milestone in Indian jurisprudence, as the decision brings in transparency in political funding by allowing the public to know who is funding political parties. The petitioners (Who were the petitioners other than Association for Democratic Reforms?) also challenged the provisions of the Finance Act 2017, provisions of Reserve bank of India Act 1934 and the Representation of the People Act 1951, the Income Tax Act 1961 and the Companies Act 2013. (Why did they challenge these provisions also? The Electoral Bonds Scheme decision represents a crucial victory for transparency and democratic principles, as the court unanimously held that the EB Scheme infringed upon the fundamental right to information guaranteed under Article 19(1)(a) of the Indian Constitution.

The EB Scheme, introduced by the government in 2018, allowed individuals and corporations to anonymously fund political parties by purchasing electoral bonds from designated nationalised banks, predominantly State Bank of India. These bonds could then be deposited into the accounts of political parties, providing a veil of secrecy over the identity of the donor. Proponents of the scheme argued that it aimed to cleanse political funding by promoting transparency (replacing cash donations with more traceable electoral bonds?) and preventing the flow of black money into elections. However, critics, including the petitioners, contended that the scheme lacked transparency and accountability, as it made the identity of the donor secret, making donations untraceable, which in turn undermined the integrity of the electoral process.

Back in 2017, the Reserve Bank of India (RBI) had opposed the scheme on several grounds when it was proposed wherein the issuance of bills of exchange and other negotiable instruments was in question and therefore the trust that the common man is having on the banks were extensively quoted.

The Supreme Court, in its judgment, reasoned that the Electoral Bonds Scheme violated, Article 19(1) (a) of the Constitution, which guarantees the right to freedom of speech and expression, including the right to seek, receive, and impart information by concealing crucial facts regarding political funding, from the public. Transparency in political funding is essential for ensuring accountability and fostering informed decision-making by voters. By allowing anonymous donations, the scheme obstructed the flow of vital information about the financial backing of political parties, thereby impairing the electorate's ability to make informed choices.

The major challenge before the Hon'ble Supreme Court while addressing the issues of judicial review while adjudicating the challenges of legislation and the executive action which relate to the economic policy as compared to laws relating to the civil rights such as the freedom of speech or the freedom of religion. The court heavily relied on Swiss Ribbons vs. Union of India wherein the provisions of Insolvency and Bankruptcy Code 2016 was challenged.

The court emphasised that transparency in political funding is a cornerstone of democracy, as it enables citizens to hold their elected representatives accountable and ensures the integrity of the electoral process. By shielding the identity of donors, the EB Scheme undermined the public's right to know, creating an opaque environment susceptible to abuse and corruption. Therefore, the court concluded that the scheme's infringement upon Article 19(1)(a) outweighed any purported benefits it may have offered in terms of cleansing political funding.

The Hon'ble Supreme Court while addressing the issue to curb the black money held that –

"130. Based on the above discussion, we conclude that Electoral Bond Scheme does not fulfill the least restrictive means test. The Electoral Bond Scheme is not the only means for curbing black money in Electoral Finance. There are other alternatives which substantially fulfill the purpose and impact the right to information minimally when compared to the impact of electoral bonds on the right to information."

While addressing the issue of privacy which was the backbone to the EB system the Hon'ble Supreme Court of India relied heavily on (Justice KS Puttusway (9J). The Puttusway judgement had thouroughly addressed the issues The later benches have also handled these issues adequately. of informational privacy have been adequately dealt by the successor benches. The Hon'ble Court held that –

"133. The content of privacy is not limited to "private" actions and decisions such as the choice of a life partner, procreation and sexuality. Neither is privacy merely defined from the point of direct State intrusion. Privacy is defined as essential protection for the exercise and development of other freedoms protected by the Constitution, and from direct or indirect influence by both State and non- State actors. Viewed in this manner, privacy takes within its fold, decisions which also have a 'public component'.

134. The expression of political beliefs is guaranteed under Article 19(1)(a). Forming political beliefs and opinion is the first stage of political expression. The freedom of political expression cannot be exercised freely in the absence of privacy of political affiliation. Information about a person's political beliefs can be used by the State at a political level, to suppress dissent, and at a personal level, to discriminate by denying employment or subjecting them to trolls. The lack of privacy of political affiliation would also disproportionately affect those whose political views do not match the views of the mainstream.

135. In the specific context of exercising electoral franchise, the lack of privacy of political affiliation would be catastrophic. It is crucial to electoral democracy that the exercise of the freedom to vote is not subject to undue influence. It is precisely for this reason that the law recognizes certain 'corrupt practices' by candidates. These 'corrupt practices' do not merely include 'financial' corrupt practices such as bribery. They also include undue influence of the voters by an attempt to interfere with the free exercise of electoral right, publication of false information about the personal character of any candidate and providing vehicles for the free conveyance of electors. The law penalizes practices which have the effect of dis-franchising the voter through illegitimate means."

The Supreme Court's decision to strike down the Electoral Bonds Scheme has significant implications for electoral transparency and accountability in India. It reaffirms the judiciary's commitment to upholding constitutional values and safeguarding democratic principles.

The Hon'ble Supreme Court while concluding held that –

"74. In consonance with the above reasoning and on application of the doctrine of proportionality, proviso to Section 29C(1) of the Representation of the People Act 1951, Section 182(3) of the Companies Act 2013 (as amended by the Finance Act 2017), Section 13A(b) of the Income Tax Act 1961 (as amended by the Finance Act 2017), are held to be unconstitutional. Similarly, Section 31(3) of the RBI Act 1934, along with the Explanation enacted by the Finance Act 2017, has to be struck down as unconstitutional, as it permits issuance of Bonds payable to a bearer on demand by such person."

The ruling not only addresses the specific concerns raised by the EB Scheme, but also underscores the broader significance of electoral transparency in safeguarding the integrity of the democratic process. The court's emphasis on the right to information as a cornerstone of democracy highlights the critical role that transparency plays in empowering citizens, fostering informed decision-making, and holding elected representatives accountable.

Moreover, the judgment serves as a reminder of the judiciary's role as a guardian of constitutional values and a check against potential encroachments on fundamental rights. By striking down provisions of various acts related to the EB Scheme, the court has reaffirmed its authority to scrutinise legislative and executive actions that undermine constitutional guarantees.

Looking ahead, the decision presents an opportunity for policymakers to reassess and reform electoral finance regulations in India. It calls for alternative mechanisms that prioritise transparency, accountability, and public scrutiny while curbing the influence of black money and vested interests in the electoral process. Reforms aimed at enhancing disclosure requirements, promoting grassroots donations, and limiting corporate influence are essential steps towards restoring trust in the electoral system.

Moving forward, it is imperative for the government to devise alternative mechanisms for political funding that prioritise transparency and public scrutiny. Reforms aimed at enhancing disclosure requirements, limiting corporate influence, and promoting grassroots donations are essential to restoring trust in the electoral process.

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