Supreme Court Declares Electoral Bond Scheme Unconstitutional

In a historic and unanimous decision, the Supreme Court (SC) delivered a groundbreaking judgment, declaring the electoral bonds (EB) scheme ‘unconstitutional and manifestly arbitrary. ‘This scheme, which provided anonymity to political donors and was accompanied by critical legal amendments allowing corporations to make unlimited political contributions, was deemed a violation of voters’ right to information about political funding under Article 19(1)(a) of the Constitution. Led by Chief Justice of India D.Y. Chandrachud, a five-judge bench articulated that the scheme and its associated amendments facilitated an unchecked influx of corporate influence into the electoral process. The court highlighted the inherent dangers of absolute non-disclosure, asserting that it fosters corruption and quid pro quo dynamics between donors and political entities.

The judgment underscored the stark disparity created by the scheme, granting corporations undue advantage over ordinary citizens in political engagement. This, the chief justice emphasised, undermines the fundamental principle of free and fair elections and erodes political equality, encapsulated in the essence of ‘one person, one vote.’ Central to the ruling was the delineation between genuine expressions of support by individuals and contributions made by corporations for vested interests. The court rejected the notion that anonymity incentivises financial contributions, asserting that it, in fact, compromises the voters’ right to crucial information about political financing.

Moreover, the court dismissed the government’s argument regarding the scheme’s efficacy in curbing black money, highlighting its failure to address the fundamental right to information. By applying the ‘double proportionality standards,’ the court deemed Clause 7(4) of the scheme unconstitutional, as it failed to balance voters’ right to information with contributors’ right to privacy. The judgment further scrutinised the legislative amendments that facilitated anonymity, criticising their impact on transparency and accountability. Amendments to key legislative acts effectively removed restrictions on corporate donations, thereby undermining the integrity of the electoral process.

Ultimately, the ruling serves as a resounding affirmation of democratic principles, affirming the paramount importance of transparency, accountability, and the equitable distribution of political influence. The petitioners, represented by prominent advocates, challenged the government’s stance, leading to this landmark decision that reshapes the landscape of political financing in India.

Supreme Court’s Judgment

In the case of Association for Democratic Reforms & Anr. vs Union of India & Ors. (2024), the SC affirmed that the right to vote with full information is essential for political equality in a democracy. This ruling had significant implications for India’s democratic structure, as the court deemed several parliamentary laws unconstitutional, particularly by amendments to four acts via the Finance Act of 2016 and 2017. The amended acts are—the Representation of the People Act, 1951; the Foreign Contributions Regulation Act, 2010; the Income Tax Act, 1961; and the Companies Act, 2013.

The judgment of SC declaring the EB scheme violative of Article 19(1)(a) and unconstitutional is rooted in several key reasons outlined in the verdict. This scheme allowed donors to keep their identities and contribution details private; thus, it eroded transparency in the political funding. Moreover, the removal of crucial safeguards, such as limits on corporate donations, enabled potentially unlimited corporate funding and the creation of shell companies for political financing.

Application of the Proportionality Test

The SC applied the proportionality test to prioritise the voters’ right to information in the context of balancing conflicting fundamental rights. The court referenced various standards used in the past to balance fundamental rights, including the collective interest or public interest standard, the single proportionality standard, and the double proportionality standard.

The Doctrine of Proportionality served as a pivotal framework utilised by the SC in evaluating the constitutionality of the scheme.

The Court ruled that the EB scheme, by allowing anonymous political donations, infringed upon the fundamental right to information under Article 19(1)(a) of the Constitution. The court emphasised that this right is essential for participatory democracy, serving to hold the government accountable. The court highlighted the detrimental effect of economic inequality on political engagement and underscored the possibility of quid pro quo arrangements resulting from financial contributions to political parties.

The court rejected the government’s argument that the scheme curbed black money, stating that such justification does not justify encroaching on fundamental rights. It cited the proportionality test from the K.S. Puttaswamy case, emphasising that the government did not adopt the least restrictive method to achieve its objective. The court suggested alternatives such as capping anonymous donations and utilising electoral trusts.

The court further asserted that the right to donor privacy does not extend to contributions made as a quid pro quo measure. It differentiated between genuine political support and contributions made for self-interest, asserting that while genuine political support deserves privacy protection, contributions made with the intent to influence policies do not.

Chief Justice Chandrachud, in the EB scheme, highlighted the limitations of the single proportionality standard in balancing conflicts between fundamental rights, particularly when state interest aligns with another fundamental right. He emphasised that the proportionality standard is curated to give prominence to fundamental rights and minimise restrictions on them. Thus, he introduced the concept of the ‘double proportionality’ test, recognising the competing fundamental rights of privacy and information.

The Doctrine of Proportionality originates from the European administrative law, and prescribes that administrative decisions and orders should only restrict individual rights to the extent that is necessary to achieve a legitimate public purpose. By requiring decision-makers to consider the proportionality of their actions, the doctrine safeguards the rights of individuals and ensures that government actions are aligned with democratic principles and constitutional norms.

In other words, the Doctrine of Proportionality tries to achieve a reasonable nexus between the objective sought and the means employed to achieve it. It is like a balancing test to weigh differing objectives or interests, and ensure that the measure taken is not more restrictive than necessary. The proportionality review may vary in intensity depending on the subject matter and the nature of the rights involved, expanding the scope of judicial review to evaluate both the correctness of the decision and the method used to reach it.

There are two main models of proportionality—the British model and the European model. The British model emphasises the necessity of legislative objectives and limits administrative actions to those deemed essential for achieving those objectives. It emphasises judicial deference and restraint, particularly in matters where fundamental rights are at stake. On the other hand, the European model, originating from Prussia, adopts a four-stage test to assess the legitimacy, suitability, necessity, and proportionality of administrative measures. It seeks to optimise the balance between limiting rights and achieving legislative goals while also recognising the importance of judicial deference and restraint.

Criteria for Application of the Test

Hierarchy of rights The court first assessed whether there existed a hierarchy between conflicting rights. If one right was granted a higher status by the Constitution, it would prevail over the other. However, if no hierarchy existed, the court proceeded to the next steps of the proportionality test.
Suitability of the measure The court evaluated whether the measure in question was suitable for furthering both conflicting rights. It was not necessary for the measure to be the only means capable of realising the rights; partial fulfilment of the rights sufficed. In the case of the EB scheme, the measure aimed to protect both the right to privacy of contributors and the right to information of voters.
Least restrictive and equally effective measure The court determined whether the measure was the least restrictive and equally effective means to realise both conflicting rights. It assessed if alternative measures existed that could fulfil the rights in a real and substantial manner while impacting them differently. In the case of electoral funding, the court considered whether there were alternative mechanisms that could provide transparency while still protecting donor privacy.
Disproportionate impact The court analysed whether the measure had a disproportionate impact on both conflicting rights. It assessed whether the cost of interference with one right was proportional to the extent of fulfilment of the other. In this step, the court considered the comparative importance of the considerations involved and the justifications for the infringement of rights. It also evaluated if the effect of infringement of one right, such as the right to information, was proportional to achieving the goal, such as the right to privacy.
In the evaluation of the EB scheme, the SC applied the single proportionality standard to both conflicting rights, ensuring a balanced approach, and aimed to assess whether the scheme adequately balanced the conflicting rights of contributors’ informational privacy and voters’ right to information. Ultimately, by employing this comprehensive proportionality test, the court upheld the voters’ right to information as paramount in the context of the EB scheme, thereby giving primacy to transparency in the electoral process.
No constitutional hierarchy The court established that there was no inherent hierarchy between the two rights at stake—the right to informational privacy of contributors and the right to information of voters. Both rights were considered fundamental and derived from Article 19(1)(a) of the Constitution. It was noted that while the right to anonymity of political contributions facilitated other fundamental rights such as political speech and protest, the right to information about political funding was equally vital for an informed electorate.
Suitability prong analysis The court found that Clause 7(4) of the EB scheme, which mandated confidentiality of information provided by EB buyers, failed to satisfy the suitability prong concerning the voter’s right to information. While the clause aimed to protect the anonymity of contributors, it lacked a rational nexus when considering the purpose of disclosure of political contributions to voters. The non-disclosure of information to voters contradicted the fundamental purpose of securing information about political funding, rendering the clause unsuitable in achieving the objective of transparency.
Existence of alternative measures The court highlighted the existence of alternative measures, such as Section 29C of the Representation of the People Act, 1951, as a means to protect both rights in a real and substantive manner. Section 29C mandated political parties to disclose contributions exceeding Rs 20,000, thus ensuring transparency in political funding while imposing lesser restrictions on fundamental rights. The court reasoned that contributions beyond the threshold limit had the potential to influence governmental decisions, warranting the prioritisation of the right to information over informational privacy in such cases.
Balancing prong unnecessary As Clause 7(4) of the EB scheme was deemed insufficient to balance the conflicting rights, the court concluded that the balancing prong of the proportionality test was unnecessary. The clause did not represent the least restrictive means to achieve the dual objectives of protecting contributors’ privacy and ensuring voters’ access to information about political funding.
Thus, the court, through its application of the proportionality test, prioritised the voters’ right to information over the scheme’s emphasis on donor anonymity. The court found that Clause 7(4) of the EB scheme excessively favoured informational privacy at the expense of public informational interests, thus disrupting the balance between the conflicting rights.
Instead of merely striking down Clause 7(4) for failing to meet the double proportionality standard, the court deemed the entire EB scheme unconstitutional. This decision stemmed from the understanding that anonymity of contributors was fundamental to the scheme’s design. The Court reasoned that if the anonymity component were removed, the scheme would be indistinguishable from other modes of contributions through banking channels, such as cheque transfers or electronic clearing systems.

Quashing the EB Scheme

The court issued directions for the immediate cessation of electoral bond issuance and instructed the SBI to provide details of bonds purchased by political parties. It also mandated the Election Commission of India (ECI) to publish this information on its website. Additionally, electoral bonds within the validity period but not yet encashed by political parties must be returned, with refunds issued to purchasers.

The court also criticised the amendment to Section 182 of the Companies Act, 2013, allowing unlimited political contributions by companies, as manifestly arbitrary. It highlighted the disproportionate influence of companies in the political process compared to individuals and emphasised the need to maintain free and fair elections.

The court struck down the amendment exempting donations through electoral bonds from disclosure requirements under Section 29C of Representation of People Act, 1951. It reinstated the original disclosure requirement for contributions exceeding Rs 20,000.

By invalidating the entire EB scheme, the court upheld the voters’ right to information as paramount, ensuring that state actions remain proportionate to their objectives while respecting fundamental rights. This decision underscores the court’s commitment to safeguard transparency and accountability in political financing, thereby reinforcing the democratic principles enshrined in the Constitution.

In conclusion, the Supreme Court’s verdict stands as a resolute affirmation of democratic values, emphasising the imperative of transparency, accountability, and fairness in electoral processes. It sets a precedent for upholding the integrity of democratic institutions and protecting citizens’ rights from under influence and corruption.

Some important decisions in India where the Doctrine of Proportionality has been applied include:

The Chintaman Rao v. The State of Madhya Pradesh, Ram Krishna v. The State of Madhya Pradesh (1950) case emphasised on balancing fundamental rights against the legislative or administrative restrictions and laid the groundwork for applying for the doctrine of proportionality in Indian law.
The Hind Construction and Engineering Company Limited vs Their Workmen (1964) case ruled against the dismissal of workers for a minor offence and highlighted the principle of proportionality in employment matters.
The Bhagat Ram vs State of Himachal Pradesh And Ors. (1983) case held that disproportionate punishment violates Article 14 of the Constitution and emphasised relevance of proportionality in disciplinary actions.
The Ranjit Thakur vs Union of India And Ors. (1987) case found dismissal of Ranjit Kumar from service disproportionate to the offence of refusing food while serving a sentence. It reaffirmed application of proportionality in disciplinary matters.
The Om Kumar And Ors vs Union of India (2000) case recognised the Doctrine of Proportionality in reviewing administrative actions and applied the doctrine to cases infringing Articles 14, 19, and 21 of the Constitution.
The Sandeep Subhash Parate vs State of Maharashtra & Ors. (2006) case directed a university to grant degree to the appellant student with invalidated caste certificate and ordered compensation as a proportionate remedy for injustice done.
In Sahara India Real Estate Corp. Ltd. & Ors. vs Securities and Exchange Board of India & Anr. (2012), the court evolved a two-prong standard akin to the structured proportionality standard. The public interest standard involved weighing constitutional values of competing rights and giving more weight to the one that furthers a higher degree of public interest. These prongs focused on the necessity of the measure and whether its salutary effects outweighed its deleterious effects on fundamental rights.
In Mazdoor Kisan Shakti Sangathan vs Union of India & Anr. (2018), the court shifted from the pre-proportionality stage to the proportionality stage, considering the least restrictive means prong.
The structured proportionality standard was employed in Justice K.S. Puttaswamy (Retd.) and Another vs Union of India (2019), where the court balanced the right to informational privacy with the right to food, finding that the provisions furthering the latter satisfied a larger public interest with minimal invasion of privacy rights.
In Central Public Information Officer, Supreme Court of India vs Subash Chandra Agarwal (2019), the chief justice emphasised the need for courts to identify precise interests favouring both disclosure and privacy when balancing two fundamental rights. The court must not merely undertake a doctrinal analysis but consider the practical implications of each right.
Demonetisation The doctrine of proportionality also played a significant role in the SC’ decision regarding the demonetisation of Rs 500 and Rs 1000 currency notes in 2016. Upholding the decision of the central government, the court concluded that demonetisation was not disproportionate to the stated objectives of curbing black money and counterfeit currency. The consultation between the Centre and the Reserve Bank of India (RBI) before demonetisation was deemed sufficient, and the notification announcing the demonetisation was considered reasonable.