Introduction
A healthy democracy depends not only on free and fair elections but also on transparency in the way political parties receive financial support. Political funding directly affects governance, public policy, and electoral competition.
When the sources of political finance remain hidden, citizens are unable to assess whether public decisions are influenced by private interests. The debate surrounding India’s Electoral Bonds Scheme therefore raised a fundamental constitutional question: Can political funding remain anonymous while preserving the principles of transparency, equality, and informed democratic participation?
Understanding the Electoral Bonds Scheme
The Electoral Bonds Scheme was introduced by the Central Government in 2018 through the Electoral Bond Scheme, 2018, framed under the Reserve Bank of India Act, 1934, following amendments made by the Finance Act, 2017.
Eligible individuals, companies, firms, and associations could purchase electoral bonds from the State Bank of India (SBI) and donate them to registered political parties. These bonds could be redeemed only through designated bank accounts of political parties, but the identity of the donor was not disclosed to the public.
The Government defended the scheme by stating that it aimed to reduce cash-based political funding and encourage donations through the formal banking system. It argued that donor anonymity protected contributors from political retaliation and promoted clean electoral financing. According to the Government, replacing cash donations with banking transactions would help curb the use of black money in elections.
Scale of Electoral Bond Funding
Electoral bonds soon became one of the largest sources of political funding in the country. According to the data published by the Election Commission of India following the Supreme Court’s directions, electoral bonds worth approximately ₹16,518 crore were purchased between March 2018 and January 2024.
The disclosures showed the following breakdown among top recipients:
- Bharatiya Janata Party (BJP) — approximately ₹6,060 crore
- All India Trinamool Congress (AITC) — about ₹1,610 crore
- Indian National Congress (INC) — ₹1,422 crore
- Bharat Rashtra Samithi (BRS) — approximately ₹1,215 crore
- Biju Janata Dal (BJD) — around ₹776 crore
- Dravida Munnetra Kazhagam (DMK) — nearly ₹639 crore
These figures demonstrate that electoral bonds became a significant source of funding for both national and regional political parties, making transparency in political finance an issue of immense public importance.
Constitutional and Legal Concerns
Despite its stated objectives, the scheme attracted serious constitutional criticism. While donations were routed through banks, the public had no access to information about who funded political parties. Moreover, amendments made through the Finance Act, 2017 significantly altered the legal framework governing political donations.
The cap under Section 182 of the Companies Act, 2013, which earlier limited corporate political contributions to 7.5% of a company’s average net profits, was removed. Companies were also no longer required to disclose the names of political parties receiving their contributions in their financial statements. Consequently, even newly incorporated or loss-making companies could make unlimited political donations without public disclosure.
These changes raised concerns about the possibility of shell companies being used as vehicles for political funding and the growing influence of corporate money over democratic processes. Critics also argued that while the public remained unaware of donors, the Government could potentially identify contributors through banking records, thereby creating an unequal political environment.
The Supreme Court’s Verdict
The constitutional validity of the scheme was challenged before the Supreme Court in Association for Democratic Reforms & Anr. v. Union of India & Ors.
On 15 February 2024, a Constitution Bench comprising Chief Justice D.Y. Chandrachud, Justice Sanjiv Khanna, Justice B.R. Gavai, Justice J.B. Pardiwala, and Justice Manoj Misra unanimously declared the Electoral Bonds Scheme unconstitutional.
The Court held that anonymous political funding violated the fundamental right to information under Article 19(1)(a) of the Constitution. It observed that informed voting is an essential feature of democracy and that voters have a constitutional right to know the financial sources of political parties. Political donations are not ordinary financial transactions; they have the potential to influence public policy, legislation, regulatory decisions, and government action. Therefore, information about political funding enables citizens to assess whether elected representatives are acting in the public interest or under the influence of financial contributors.
The Court relied upon its earlier decisions in Union of India v. Association for Democratic Reforms (2002) and People’s Union for Civil Liberties (PUCL) v. Union of India (2003), which recognised that the right to know is an integral part of the freedom of speech and expression. Extending this principle, the Bench held that voters are equally entitled to know who finances political parties because such information directly affects their ability to make informed electoral choices.
The Government argued that donor anonymity was necessary to protect contributors from political victimisation and to encourage legitimate donations through banking channels. The Court accepted that protecting donor privacy was a legitimate objective but held that complete anonymity disproportionately restricted the voters’ right to information.
Applying the doctrine of proportionality, the Bench concluded that the Government had failed to show why less restrictive alternatives could not achieve the same objective. Measures such as disclosure above a prescribed threshold or other carefully designed safeguards could have balanced donor privacy with public transparency.
The Court also examined the amendments made to the Companies Act, 2013. It observed that removing the cap on corporate donations and eliminating disclosure requirements allowed even shell companies or recently incorporated companies to make unlimited political contributions without public scrutiny. This created a serious risk of quid pro quo arrangements and enabled economically powerful entities to exercise disproportionate influence over electoral politics.
Doctrine of Proportionality and Political Equality
The Court further held that the Electoral Bonds Scheme undermined the constitutional principle of political equality. Unlimited and anonymous corporate donations could distort the democratic process by allowing wealthy individuals and corporations to exert greater influence over political parties than ordinary citizens.
The Bench emphasised that free and fair elections form part of the basic structure of the Constitution. Transparency in political funding is therefore not merely a matter of good governance but a constitutional requirement that protects electoral integrity and democratic accountability.
Significance of the Judgment
The Supreme Court directed the State Bank of India to furnish complete details of electoral bond purchases and to the Election Commission of India, which was instructed to publish the information on its official website. This marked one of the most significant judicial interventions in ensuring transparency in political finance.
The judgment reaffirmed that transparency strengthens democracy by enabling citizens to hold political parties accountable. It also reinforced the principle that electoral laws must conform to constitutional guarantees of equality, free speech, and informed participation in the democratic process.
Way Forward
The judgment presents an opportunity to reform India’s political funding framework. Future legislation should:
- Ensure timely disclosure of substantial political donations
- Strengthen the auditing of political parties
- Empower the Election Commission with greater oversight
- Regulate corporate contributions through transparent mechanisms
At the same time, reforms should also address legitimate concerns regarding donor privacy. A balanced framework that protects genuine donors from unnecessary harassment while ensuring adequate public disclosure would strengthen both democratic participation and public confidence in the electoral process.
Conclusion
The Supreme Court’s decision striking down the Electoral Bonds Scheme is a landmark affirmation of constitutional democracy. It reinforces the principle that transparency in political funding is essential for free and fair elections and that citizens have a fundamental right to know who finances political parties. While protecting donor privacy is a legitimate objective, it cannot come at the cost of democratic accountability.
The judgment also serves as a reminder that electoral reforms must uphold the constitutional values of openness, equality, and fairness. Going forward, the responsibility lies with Parliament to create a transparent, accountable, and balanced political funding framework that curbs the influence of undisclosed money while safeguarding legitimate political participation. Only such a system can strengthen public trust in democratic institutions and preserve the integrity of India’s electoral process.
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Editorial Note: This article has been reviewed by the LegalRath Editorial Team to ensure legal accuracy, editorial quality, and clarity before publication.
Disclaimer: This editorial is for educational purposes only and does not endorse or oppose any political party.