Supreme Court Verdict on Electoral Bonds: Critical Analysis of ADR v/s Union of India

Abstract

In February 2024, the Supreme Court of India, in a unanimous Constitution Bench decision, declared the Electoral Bonds Scheme of 2018 unconstitutional. The verdict in Association for Democratic Reforms & Anr. V. Union of India & Ors. Marks a watershed in the jurisprudence of political finance and democratic accountability. Conceived as a reformative instrument to eradicate black money from electoral politics, the scheme in practice entrenched secrecy by concealing the identity of donors and recipients.

The Court found this opacity to be violative of the citizen’s fundamental right to information under Article 19(1)(a), which has long been recognised as integral to the freedom of speech and expression. It also held that the scheme distorted the level playing field between political parties, thereby infringing Article 14 and undermining the constitutional guarantee of free and fair elections—an element of the basic structure doctrine.

This article analyses the legislative scaffolding of the scheme, comprising amendments to the Representation of the People Act, 1951, the Income-tax Act, 1961, and the Companies Act, 2013, and critiques the use of the Money Bill procedure under Article 110 to bypass parliamentary scrutiny. It examines the Court’s reasoning in light of landmark precedents such as State of U.P. v. Raj Narain (1975), Union of India v. Association for Democratic Reforms (2002), People’s Union for Civil Liberties v. Union of India (2003), and Kesavananda Bharati v. State of Kerala (1973).

The judgement’s significance lies not only in dismantling a flawed legal mechanism but also in reasserting the constitutional ethos that electoral democracy rests on informed citizenry. At the same time, it raises pressing questions about designing a funding framework that reconciles transparency with donor protection.

Introduction

Political finance in India has historically been fraught with opacity. Despite legislative attempts to regulate contributions to political parties through disclosure norms, expenditure ceilings, and tax exemptions, the dominance of unaccounted cash persisted as an endemic feature of electoral competition. Governments have often justified reforms on the pretext of combating this menace, but the solutions have frequently oscillated between partial transparency and legalised secrecy.

In 2017, the Union Government introduced the Electoral Bonds Scheme (EBS) as part of a larger financial reform package. Touted as a transformative measure to cleanse the system of black money, the scheme allowed individuals, corporations, and entities to purchase interest-free bearer instruments—electoral bonds—from the State Bank of India and donate them to political parties. The bonds could only be encashed by parties meeting certain electoral performance thresholds under the Representation of the People Act, 1951 (RoPA).

The official narrative portrayed the scheme as a mechanism for introducing banking trails into political donations. However, by shielding the identity of donors from the public, exempting political parties from disclosure obligations, and permitting unlimited corporate donations without transparency, the scheme created a legal architecture of opacity.

Civil society organisations, including the Association for Democratic Reforms (ADR) and Common Cause, alongside the Communist Party of India (Marxist), challenged the scheme before the Supreme Court under Article 32, contending that it violated the fundamental right to information and compromised the constitutional guarantee of free and fair elections.

After years of interim hearings and deferments, the Supreme Court, in February 2024, delivered a unanimous verdict striking down the scheme. The judgement reaffirmed the principle that democracy demands transparency, and that the electorate must be empowered with knowledge of who finances political actors. To fully understand the Court’s decision, it is imperative to examine the legislative framework of the scheme and the constitutional infirmities it engendered.

Legislative Architecture of the Electoral Bonds Scheme

The Electoral Bonds Scheme was not a standalone innovation but the culmination of coordinated amendments to three major statutes—each of which diluted existing transparency safeguards. These amendments were enacted through the Finance Act, 2017, which controversially passed as a Money Bill under Article 110, thereby circumventing scrutiny by the Rajya Sabha.

Constitutional Challenge and Issues Before the Bench

The petitions challenging the scheme raised fundamental constitutional questions. The five-judge Constitution Bench, comprising Chief Justice D.Y. Chandrachud and Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra, was tasked with adjudicating on issues that touched the core of India’s democratic framework.

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

The primary contention was that the scheme violated the citizen’s right to know the financial sources of political parties, an essential aspect of freedom of speech and expression under Article 19(1)(a). The Court had earlier recognised this principle in:

• State of U.P. v. Raj Narain (1975), where it held that the right to know flows from freedom of speech.
• Union of India v. ADR (2002), where it ruled that voters have a right to information about candidates.
• PUCL v. Union of India (2003), which extended this right to disclosure of criminal antecedents and assets of candidates.

By insulating donations from public view, the scheme deprived citizens of information indispensable for informed electoral choices.

Equality and Article 14

The scheme allegedly created a structural inequality. While the ruling party could potentially access donor information through the State Bank of India and investigative agencies, opposition parties and voters were excluded. This informational asymmetry tilted the electoral field, violating Article 14’s guarantee of equality and fairness.

Free and Fair Elections and the Basic Structure Doctrine

The petitioners argued that free and fair elections are part of the basic structure of the Constitution, as recognised in Indira Nehru Gandhi v. Raj Narain (1975) and Kesavananda Bharati v. State of Kerala (1973). By enabling unlimited anonymous funding, especially from corporate entities, the scheme threatened to distort electoral competition and undermine democratic integrity.

Validity of the Money Bill Route under Article 110

A key procedural challenge concerned the use of Article 110 to enact amendments relating to electoral finance. The petitioners contended that amendments to the Companies Act and RoPA bore no relation to the core subject matter of a Money Bill—namely taxation, appropriation, and expenditure—and hence the enactment was constitutionally invalid.

Proportionality of Restrictions

The Union justified the scheme on grounds of protecting donor privacy and preventing political victimisation. The Court was called upon to examine whether such restrictions on the right to information satisfied the proportionality test articulated in Modern Dental College v. State of Madhya Pradesh (2016):

• Legitimate aim;
• Suitability of means;
• Necessity (least restrictive alternative);
• Balance between competing rights.

The petitioners argued that less restrictive alternatives—such as the pre-existing ₹20,000 disclosure threshold—already protected small donors, rendering blanket anonymity disproportionate.

Judicial Reasoning

The Supreme Court’s judgement, delivered on 15 February 2024, represents one of the most significant pronouncements on political finance in Indian constitutional history. The reasoning of the Constitution Bench traversed the doctrinal terrain of Article 19(1)(a), Article 14, the basic structure doctrine, and the proportionality test.

Article 19(1)(a) and the Right to Information

The Court reaffirmed that the freedom of speech and expression under Article 19(1)(a) encompasses the right to information. This understanding had been steadily cultivated through earlier decisions:

• In State of U.P. v. Raj Narain (1975), Justice Mathew famously held that “the people of this country have a right to know every public act, everything that is done in a public way, by their public functionaries.”
• In Union of India v. Association for Democratic Reforms (2002), the Court held that the right to information includes knowing the background of candidates contesting elections.
• In PUCL v. Union of India (2003), the Court expanded this to include information on candidates’ criminal antecedents, educational qualifications, and assets.

Building on these precedents, the Bench reasoned that citizens’ ability to make an informed choice in elections is contingent upon knowing the financial backers of political parties. Political contributions are not mere private transactions but matters of profound public significance, for they may determine policy outcomes, legislative priorities, and the responsiveness of governance.

The Court therefore held that by shrouding political donations in secrecy, the Electoral Bonds Scheme impermissibly abridged the right to information of citizens, striking at the core of Article 19(1)(a).

Article 14 and Informational Asymmetry

The Court also scrutinised the scheme under the equality clause. While all citizens are entitled to a level playing field in democratic processes, the scheme created an asymmetry of knowledge:

• Donor identities remained hidden from the public and from opposition parties.
• However, the State Bank of India, a government-controlled entity, retained records of all purchases.

Consequently, the ruling party in power could potentially access donor information through executive agencies, giving it an undue electoral advantage.

This informational imbalance, the Court observed, vitiated the principle of equality under Article 14 and distorted the fairness of the electoral contest. Democracy, it emphasised, is not merely about the mechanical exercise of voting but about ensuring equality of opportunity for all political actors and equal informational access for all citizens.

Free and Fair Elections as Part of the Basic Structure

The Bench reiterated that free and fair elections are an essential feature of the Constitution’s basic structure, drawing on Kesavananda Bharati v. State of Kerala (1973) and Indira Nehru Gandhi v. Raj Narain (1975). Electoral democracy, it emphasised, cannot survive if voters are deprived of essential information about the funding of political parties.

Unlimited and anonymous corporate donations posed a particular threat. By removing the cap under Section 182 of the Companies Act and eliminating disclosure obligations, the scheme allowed entities—even shell companies—to funnel vast sums into political parties without public accountability. The Court warned that this created a risk of policy capture, where governance could be distorted by private interests wielding disproportionate financial influence.

Thus, the scheme was found to undermine free and fair elections, thereby violating the basic structure of the Constitution.

The Proportionality Test

The Union defended the scheme on the ground that anonymity protected donors from political retribution and victimisation. The Court subjected this justification to the four-pronged proportionality test set out in Modern Dental College v. State of Madhya Pradesh (2016):

• Legitimate Aim: The government’s objective of preventing retribution against donors was accepted as legitimate.
• Suitability of Means: The scheme did ensure anonymity, but at the cost of depriving citizens of information vital to electoral choice.
• Necessity (Least Restrictive Means): The Court held that less restrictive alternatives existed—such as the pre-existing disclosure threshold of ₹20,000—which protected small donors while ensuring transparency in large contributions.
• Balancing (Proportionality Stricto Sensu): The blanket secrecy imposed by the scheme disproportionately restricted the right to information compared to the marginal benefit of donor privacy.

Consequently, the scheme failed the proportionality test and could not be sustained under Article 19(2).

Money Bill Controversy

While the Court invalidated the amendments to RoPA, the Companies Act, and the Income-tax Act for being unconstitutional, it did not deliver a conclusive ruling on the validity of their enactment as part of a Money Bill under Article 110. Instead, it left the question open, noting the pending reference to a larger bench in Rojer Mathew v. South Indian Bank (2019) concerning the scope of the Money Bill procedure.

Nevertheless, the Court observed that the use of the Money Bill route to pass the Finance Act, 2017, which contained provisions far beyond the ambit of Article 110, raised serious constitutional concerns about parliamentary procedure and bicameralism.

Lessons for India

A comparative overview underscores two lessons: