A five-judge Constitution bench headed by the Chief Justice of India (CJI) DY Chandrachud, on Thursday, February 15, struck down the electoral bonds scheme calling it  ‘unconstitutional’. The bench, also comprising Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra, passed a unanimous verdict that electoral bonds are violative of the right to information and right to freedom of speech and expression under Article 19(1)(a).

In his lead judgement, CJI Chandrachud made four major counterpoints to refute the Union government’s arguments supporting electoral bonds. Before we delve into that, let's briefly look at what these bonds are.

Electoral bonds are similar to promissory notes, and were introduced in 2017 through the Finance Act passed as a Money Bill without the assent of the Rajya Sabha. The Finance Act amended the Reserve Bank of India Act, Companies Act, Income Tax Act, Representation of Peoples Act, and Foreign Contributions Regulation Act (FCRA) to introduce electoral bonds. By purchasing these bonds from the State Bank of India (SBI) – the only bank authorised to issue them – citizens and companies can donate anonymously to political parties. 

Electoral bonds will not have the donor’s name and neither are political parties required to disclose their source. The value of the bonds will be calculated as income by voluntary contributions for a political party for exemption from income tax. However, these details can be accessed by the law enforcement agencies.

Four major counterpoints of the court

Union government’s argument: The Union of India submitted that the court must exercise judicial restraint while passing a judgement on the electoral bond scheme and the amendments made to other Acts, because they relate to economic policy.

Court’s response: The court observed that though the amendment to Section 31 of the RBI Act can be classified as a financial provision because it seeks to introduce a new form of a bearer banking instrument, any resemblance to an economic policy ends there. It added that the amendments can be classified into provisions mandating non-disclosure of information on electoral financing, and provisions permitting unlimited corporate funding to political parties, both of which relate to the electoral process.

“The Union of India has itself classified the amendments as an ‘electoral reform’,” the CJI noted in the judgement and ruled that the argument of the Union government that the amendments deal with economic policy cannot be accepted.

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Union government’s argument: The Union government argued that the political party receiving a contribution in the form of electoral bonds would not be able to know of the contributor's identity because neither the bond would have their name nor could the bank disclose such details to the political party. This, the government argued, was to protect the donor’s ‘privacy to political affiliation’, and to avoid ‘adverse consequences’.

Court’s response: Disagreeing with the argument, the court said that though anonymity is placed as the central characteristic of electoral bonds, the scheme is “not fool-proof”.
“There are sufficient gaps in the scheme which enable political parties to know the particulars of the contributions made to them,” CJI Chandrachud said.

He added that there are multiple ways in which donor details can be known – physically handing over the bond to the political party concerned, sending it to the party office through post with the name of the donor, informing the party that a donor has made a contribution, disclosing the particulars of the contribution to cross-verify, etc.

Further, pointing out to data that 94% of the contributions made through electoral bonds were of the Rs 1 crore denomination, the CJI observed, “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.”

Union government’s argument: Then finance minister Arun Jaitley had said that the main purpose of electoral bonds is to curb black money in electoral financing, and that it can be achieved only if information about political donations is kept confidential. Citing this, the Union government argued that donor privacy is a means to incentivise electoral contributions through the banking channel.

Court’s response: The court refuted this claim and said that electoral bonds are not “the only means for curbing black money” in electoral financing. CJI Chandrachud pointed out that there are other alternative methods of political contributions such as electronic transfer and contribution to electoral trusts which substantially fulfill the purpose of curbing black money.

“Restricting contributions to political parties in cash to less than Rs two thousand and prescribing that contributions above the threshold amount must only be made through banking channels is itself intended to curb black money. Thus, the legal regime itself provides other alternatives to curb black money: contributions through cheques, bank draft, or electronic clearing system,” he said.

Union government’s argument: Another argument raised by the Union of India was that the information about financial contributions to political parties is not disclosed to protect the contributor’s privacy regarding political affiliation. Solicitor General Tushar Mehta had submitted during the hearing that maintaining the anonymity of donations to political parties is a part of the concept of the secret ballot because it enables a person to make political choices without any fear of victimisation or retaliation. The Union government also contended that the contributions must be protected both from the public and the political party itself because it is an extension of the principle of secret ballot and is a facet of free and fair elections.

Court’s response: Responding to this, the apex court observed that the disclosure of the particulars of donors may affect the freedom of individuals to the ‘limited extent’ that the political party with the information could coerce those who have not contributed to them. However, the court noted that parties could still do the same without this information.

”Thus, the argument of the Union of India that the Electoral Bond Scheme protects the confidentiality of the contributor akin to the system of secret ballot is erroneous,” the CJI said.

Read: Electoral Bonds: How much did political parties make? A break-up

The Supreme Court finally concluded that the electoral bonds scheme and the subsequent amendments made to the Information Technology Act, Companies Act, and Representation of People Act are unconstitutional and violative of Article 19(1)(a), adding that permitting unlimited corporate contributions to political parties is arbitrary and violative of Article 14 (Right to Equality).

The bench then proceeded to issue the following directions:

• SBI, the bank authorised to issue electoral bonds, should immediately stop issuing them, and the non-encashed bonds within the validity period of 15 days should be returned to donors via bank.

• SBI should submit the details of the electoral bonds that were purchased and the details of political parties that received such contributions since April 12, 2019 to date before the ECI latest by March 6. It is to be noted that in April 2019, the Supreme Court had passed an interim order directing all parties to submit the details of donations received through electoral bonds to the ECI in a sealed cover. The ECI has now been directed to publish all these details on its official website before March 13, 2024.

Read: Electoral bonds: SC asks ECI to publish donation details by March 13