Supreme Court of India by a constitution bench of five honorable judges headed by the Chief Justice of India on Thursday unanimously struck down the Centre’s electoral bond scheme which facilitates anonymous political donations for being unconstitutional. It underscored that the scheme violates the right to information under Article 19(1)(a) of the Constitution.

The Supreme Court has scrapped a seven-year-old election funding system, called “electoral bonds”, that allows individuals and companies to donate money to political parties anonymously and without any limits. Coming nearly two months before the general election, Thursday’s decision is being seen as a setback for the parties which have been receiving huge funding from corporate houses, individuals of the industry and diaspora. The secretive election funding system was challenged by the opposition parties and a civil society group on the grounds that it hindered the public’s right to know who had given money to political parties.

A five-judge top court bench headed by Chief Justice DY Chandrachud on Thursday said the system is “unconstitutional” and directed the state-run State Bank of India (SBI) to not issue any more of these bonds, to furnish identity details of those who bought them, and to provide information about bonds redeemed by each political party. “Political contributions give a seat at the table to the contributor … this access also translates into influence over policy-making,” Chief Justice Chandrachud said.

‘Extra layer of opacity’

For years, critics condemned India’s election campaign financing method as an opaque way to funnel “black money” to parties. But Modi’s government defended the policy, saying it mitigates the use of cash or “black money” in political funding, allowing donors a confidential channel to contribute to any party’s funds.

Undeclared individuals and companies bought such bonds worth 165.18 billion rupees ($1.99bn) up to November 2023, according to the Association for Democratic Reforms (ADR), a non-government transparency watchdog working on election funding in India. ADR calculates that more than half of all donations received by political parties used the scheme. It said between 2018 and March 2022, nearly 57 percent of these donations went to the BJP. In comparison, the opposition Indian National Congress party received only 10 percent.

Kashmir Policy and Strategy Group welcomed the Supreme Court judgment that is timely significant for democracy and for promoting purity of the elections. The Judgment would help end political “mischief”.

The ruling has brought a big relief for all those advocating the transparency in the election funding process. The initial reaction of all the citizenry: It is of a big relief – and some hope, the bond system “had added an extra layer of opacity”. “It addresses squarely the issue of people’s right to know who is funding political parties;” KPSG says it also “recognizes the fact that the stranglehold on policy and governance is achieved by big money through an opaque funding system of political parties”. “Big corporations were funding the parties and then negotiating what is in their favor through a quid pro quo. That was a blow to democracy.”

The electoral bonds worked?

Under the system, a person or company could buy these bonds from SBI in denominations ranging from 1,000 rupees ($12) to 10 million rupees ($120,000) and donate them to a political party of their choice. The bonds – first sold in early 2018 – were then delivered to the party which can exchange them for cash. The bonds, which were exempt from tax, did not carry the name of the donor. Cash donations are still allowed for elections, but carry no tax exemption.

Since their introduction, electoral bonds had become a key method of political funding. While the donors were technically anonymous, citizens feared the government could access data through the state-owned SBI. Because of the close nexus between money and politics, it is possible that financial contributions “would lead to quid pro quo arrangements”, the court said as it reinstated corporate donation limits, saying that treating companies and individuals alike for this was “manifestly arbitrary.

The ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual contributions made by companies are purely business transactions made with the intent of securing benefits in return,” said the top court’s order.

Calling the court’s ruling landmark, elections analysts say -it will impact the general election, due by May 2024. The political parties must have already made huge money ahead of the election, but they would have made 10 times more money in the coming days. So that sale has stopped.

The information about funding to a political party is essential for a voter to exercise their freedom to vote in an effective manner. “The Electoral Bond Scheme and the impugned provisions to the extent that they infringe upon the right to information of the voter by anonymizing contributions through electoral bonds are violative of Article 19(1)(a).,” the Court added. The bench of Chief Justice DY Chandrachud and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra delivered this verdict.

The challenge to this highly debatable scheme was brought to the court by the Association for Democratic Reforms (ADR), the Communist Party of India (Marxist), Congress leader Jaya Thakur, and others. The petitioners essentially argued that:

• The anonymity associated with electoral bonds undermines transparency in political funding and encroaches upon voters' right to information. Imperatively,
• One of the defence taken by the Union before the Supreme Court was that the citizens do not have the right regarding the funding of political parties. Right to know is not a general right available to citizens," The Centre argued before the Supreme Court.

Imperatively, one of the defense taken by the Union government before the Supreme Court was that the citizens do not have the right to information under Article 19(1)(a) of the Constitution regarding the funding of a political party. In the note submitted by Attorney General for India, R Venkataramani, he asserted that the judgments upholding the citizens' right to know of the criminal antecedents of candidates cannot be extrapolated to mean that they have the right to information regarding the funding of parties.

However, this view of the Centre has been firmly rejected by the Supreme Court in its judgment. Reliance was placed on landmark precedents like ADR v. Union of India, (2002) 5 SCC 294 and PUCL v. Union of India, (2003) 4 SCC 399. In these cases, the Apex Court observed that voters have a right to information that is essential for them to exercise their freedom to vote.

To support its findings in this regard, the Court also demonstrated a close association of money with politics. Taking a cue from this, the Court voiced its concerns over the electoral bonds' potential to facilitate quid pro quo arrangements. It explained that this Quid pro quo arrangement could also be in the form of introducing a policy change. On this aforestated background, the Court opined that such information would help the voters determine if there is any link between policy making and financial contributions, the Court held.

Notably, the Court also mentioned that the voters need not task themselves with perusing the list of contributors. Electronic and print media would present the information on contributions received by political parties and the probable link between the contribution and the licenses that were given to the company in an accessible format, the Court said. The Court added that response to such information by the Government will 'go a long way in informing the voter.'

The union's submission that the political party that receives the contribution does not know the identity of the contributor did not find favor with the court. Without mincing its words, the Court stated that the scheme is not fool-proof and has sufficient gaps. This, in turn, enables the political parties to know the particulars of the contributions made to them.

Electoral bonds provide economically resourced contributors who already have a seat at the table selective anonymity vis-à-vis the public and not the political party,” the Court firmly added. "At a primary level, political contributions give a seat at the table to contributors, i.e., it enhances access to legislators. This access also translates to influence over policymaking. There is also a legitimate possibility that financial contributions to a political party would lead to quid pro quo arrangement because of the close nexus between money and politics. The electoral bond scheme and the impugned provisions to the extent that they infringe upon the right to information of the voter by anonymising contributions through electoral bonds are violative of Article 19(1)(a)," the judgment stated.

(The Author is Senior Advocate, Supreme Court of India and Chairman, Kashmir Policy and Strategy Group)