I. Introduction & Context

In a key verdict, the Supreme Court (SC) of India issued a unanimous ruling invalidating the Electoral Bond Scheme (EBS) and corresponding amendments. The Constitution Bench, composed of five judges, deemed these legislations unconstitutional. The verdict casts consequential implications on the landscape of political financing in India. The judges asserted that the EBS violated the fundamental right to information provided under Article 19(1)(a) of the Indian Constitution.

II. Explanation of the SC Verdict

The SC proclaimed the EBS and the amendments in various legislative acts such as the Finance Act, 2017, Representation of the People Act (RPA), 1951, Income Tax Act, 1961, and the Companies Act, 2013, as unconstitutional. Prior to these amendments, political parties had to adhere to strict requirements that included the declaration of contributions exceeding Rs 20,000 and establishing a cap on corporate donations.

III. Reinstating the Previous Legal Framework

The judgement of the SC restored the legal norms that were in place before the amendments introduced by the Finance Act, 2017. Critical aspects of the verdict include:

  • Reiteration of Section 29C of the Representation of the People Act, 1951, which mandates political parties to disclose donations above Rs 20,000.
  • Revocation of the Finance Act, 2017 amendment to the Companies Act, 2013, that removed the cap on corporate donations and the need for disclosure. The SC highlighted its concern over unchecked corporate influence on elections.
  • An element of focus was the Income-tax Act, 1961, which requires record maintenance for contributions more than Rs 20,000. The SC ruled against the amendment introducing exemptions from record-keeping requirements for Electoral Bond contributions.

IV. The Proportionality Test & Constitutional Validity

The court used the proportionality test to scrutinise whether the EBS violated voters' right to information and the transparency of election procedures. The proportionality test stands as a crucial judicial norm to balance state action with individual rights. Any interference with these rights must comply with "reasonable restrictions" specified under Article 19(2) assessed through this test.

V. Government's Arguments and Stand of SC

The government argued the necessity of donor anonymity for upholding privacy rights and curbing black money circulation as state interests. SC, in turn, dismissed anonymity as a legitimate state interest. It emphasised the importance of the right to information for fostering democratic participation and for holding the government accountable.

VI. Directions by the Supreme Court

The SC ordered the State Bank of India (SBI) to cease issuance of electoral bonds. It also mandated the SBI to provide details of the bonds purchased by political parties since April 2019 to the Election Commission of India (ECI), including the dates of purchase, name of the purchaser, and denomination of the purchased bonds.

VII. About Electoral Bonds

Introduced in 2018, the electoral bonds scheme allowed anonymous funding to political parties. Donations through electoral bonds were issued by the SBI and sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore.

VIII. Diverse Recommendations on Funding of Political Parties

Various recommendations have come from the Indrajit Gupta Committee on State Funding of Elections, 1998, the Election Commission's report in 2004, and the Law Commission, 1999. They focused on publishing party accounts, public funding, state funding, and several restrictions and provisions.

IX. How does Global Political Funding Differ from India?

Globally, political funding often centres around individual candidates. However, in India, political parties are the main focus. Across the world, funding frameworks typically comprise bans or limits on certain donors, expenditure caps, and public funding. Contrarily, in India, there is a lack of donation limits on individuals and legal expenditure caps on parties, stirring concerns about potential influence and transparency.