Electoral bonds case

Also called: Association for Democratic Reforms v. Union of India (2024) · Topic: Electoral Reforms: Money, Criminalisation and Simultaneous Elections · NCERT: Beyond NCERT

Meaning

The Electoral bonds case (Association for Democratic Reforms v. Union of India, 15 February 2024) is the judgment in which a unanimous five-judge Constitution Bench of the Supreme Court struck down the Electoral Bond Scheme 2018. It also struck down the Finance Act 2017 changes to the RPA, the Income-tax Act and the Companies Act. The Court held that hiding who funds parties broke voters' right to information under Article 19(1)(a), and that letting companies give unlimited money was manifestly arbitrary under Article 14 [1].

It matters because it is the Court's main ruling on money in Indian elections. It made SBI release the full bond data, and that data was published in March 2024. It also left key questions open, such as the money bill question and the FCRA question.

Explanation

What the scheme was and how it worked

• Electoral bond: an interest-free bearer instrument. A bearer instrument pays whoever holds it, and no owner's name is written on it.
• You bought a bond from a bank and gave it to a party. The party cashed it.

• The public never learned who gave the money. SBI knew each buyer through its customer checks.

• Legal start: the scheme was announced in the Union Budget 2017-18 and notified on 2 January 2018 [3].

• Key features [3]:
• Buyers: an Indian citizen, or a body incorporated or established in India.
• Denominations: ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore.
• Validity: 15 days. A bond deposited after that was not paid to any party.
• Seller and payer: only SBI.

• Who could cash bonds: only a party registered under RPA s.29A that won at least 1% of the votes in the last Lok Sabha or assembly election.

• Scale: about ₹16,518 crore was sold in about 30 phases (2018-2024). Petitioners said more than 94% by value was in ₹1 crore bonds, which showed that companies, not ordinary people, were the buyers [1].

The four laws changed by the Finance Act 2017

The changes were passed as a money bill. A money bill deals only with taxes, government borrowing or spending, and the Rajya Sabha can delay it for only 14 days.

Law	What the 2017 change did	After 15 Feb 2024
RBI Act, 1934, s.31	Let a notified bank issue bonds	Bond issue stopped [1]
RPA, 1951, s.29C	Parties no longer had to report bond donations in their contribution report (the yearly list of donations above ₹20,000 that goes to the ECI)	Struck down [1]
Income-tax Act, 1961, s.13A(b)	Parties did not have to keep a record of bond donors' names	Struck down [1]
Companies Act, 2013, s.182	Removed the 7.5% of average net profit cap. Companies no longer had to name the party they gave to	Struck down. The 7.5% cap is back [1]

Warnings given before the case

• RBI (14 September 2017):
• Bearer bonds issued by a commercial bank would hurt trust in the central bank.

• Shell companies (companies that exist only on paper) could use them for money laundering [1].

• ECI (26 May 2017):

• Removing bond donations from s.29C reporting was a "retrograde step" on transparency.

• Removing the 7.5% cap could lead to shell companies set up only to fund parties [1].

• Government's defence: in 2016-17, 81% of party income came as untraced "voluntary contributions". After the scheme, 47% came through bonds, which is banking money. The government argued that secrecy pushed donors away from cash [1].

The four holdings

• Holding 1: right to know (Article 19(1)(a))
• The Court has long read a right to information into free speech.
• Voters need to know who funds parties, because money can buy policy. This is quid pro quo ("something for something"): a donation in return for a contract, licence or policy change.

• So hiding bond donations broke the voter's right to information [1].

• Holding 2: the scheme failed the proportionality test

• The test asks four questions: is the aim legitimate, does the measure help reach it, is it the least restrictive means (the option that limits the right the least), and is it balanced? [1]
• The Court accepted that curbing black money was a legitimate aim. The scheme still failed the least-restrictive-means step [1]:
  • for donations below ₹20,000, ordinary bank transfers were enough;
  • for donations above ₹20,000, electoral trusts were enough. These are bodies under the Electoral Trust Scheme 2013 that pass 95% of what they collect to parties and report donors to the ECI [1].

• The scheme was not foolproof either. Clause 14 banned trading in bonds, but nothing stopped it [1].

• Holding 3: privacy protects small donors, not big deals

• Informational privacy is a person's right to control information about themselves, including their political views (K.S. Puttaswamy, 2017).

• Using double proportionality, which limits each of the two rights as little as possible, the Court protected small donors who give to show support. It did not protect large donations made to influence policy [1].

• Holding 4: unlimited company donations are manifestly arbitrary (Article 14)

• Manifestly arbitrary means clearly unreasonable, with no sound guiding principle (Shayara Bano, 2017).
• Removing the 7.5% cap failed this test [1]:
  • it let loss-making companies donate, and such companies are more likely to give for quid pro quo;
  • it treated companies like individuals, although company money harms free elections more;
  • it went against the purpose of s.182. Since 1985, only companies more than 3 years old could donate, to keep out shell companies.

In the Constitution and practice

• Constitutional base: Article 19(1)(a) (voters' right to information), Article 14 (manifest arbitrariness), and the right to privacy (Puttaswamy, 2017). The case was heard by a Constitution Bench, a bench of at least five judges that decides major constitutional questions (Article 145(3)).
• Citation and bench: (2024) 2 SCR 420 : 2024 INSC 113 [2]. The bench was CJI D.Y. Chandrachud and Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala and Manoj Misra. There were two concurring opinions, one by the CJI for four judges and one by Justice Khanna. Both reached the same result.

• Orders of the Court [1][2]: 1. SBI must stop issuing bonds at once. 2. SBI must give the ECI details of every bond bought since the interim order of 12 April 2019 (date, buyer, amount), by 6 March 2024. 3. SBI must give details of every bond cashed by each party. 4. The ECI must publish the data by 13 March 2024. 5. Uncashed bonds still within their 15 days must be returned, and SBI must refund the buyers.

• Enforcement:

• On 11 March 2024 the Court refused SBI more time.
• On 18 March 2024 it ordered SBI to give the unique bond numbers, which let the public match each donor to a party [2].

• The ECI published the data in March 2024.

• Common Cause v. Union of India (2 August 2024): the Court dismissed petitions for a court-monitored Special Investigation Team (SIT) to probe quid pro quo deals [2].

• When the bonds were bought, a law of Parliament allowed them [2].

• Petitioners must first use normal criminal law or go to a High Court under Article 226. Coming straight to the Supreme Court under Article 32 was "premature" [2].

• Questions left open [1]:

• Whether the changes could be passed as a money bill (Article 110). This is before a seven-judge Bench.

• The FCRA, 2010 changes made by the Finance Acts of 2016 and 2018. These are pending as a separate case.

• Problems still unsolved:

• There is no limit on what a party spends. The RPA limits only a candidate's spending.
• Much party income still comes from "unknown sources" (donations under ₹20,000 that need not be reported).
• Cash is still used in elections.

Don't confuse with

• Electoral trust: the Court did not strike it down. It named it as the less restrictive option for donations above ₹20,000. Trusts must pass on 95% of what they collect and report donors to the ECI. Bonds hid the donors [1].
• Common Cause v. Union of India (2024): this was a separate, later case (2 August 2024) that refused an SIT probe. ADR (15 February 2024) is the case that struck down the scheme [2].
• Candidate expenditure limit vs party spending: the RPA caps only a candidate's spending. Party spending has no cap, and the bonds judgment did not create one.
• State funding of elections: this means the government pays for elections or parties (Indrajit Gupta Committee, 1998). Bonds were private donations sent through a bank, not public money [4].

Prelims Hooks

• ADR v. Union of India (15 February 2024) was decided by a unanimous five-judge Constitution Bench. It struck down the changes to RPA s.29C, IT Act s.13A(b) and Companies Act s.182(3), and the removal of the 7.5% company cap [1].
• Pair to remember: Article 19(1)(a) → voters' right to know about party funding. Article 14 (manifest arbitrariness) → unlimited company donations struck down [1].
• The scheme was notified on 2 January 2018. Bonds came in five denominations from ₹1,000 to ₹1 crore, were valid for 15 days, and were sold and cashed only by SBI [3].
• Only a party registered under RPA s.29A with at least 1% of the votes in the last Lok Sabha or assembly election could cash bonds [3].
• Trap: the 2024 judgment did not decide (a) the money bill (Article 110) question, which is with a seven-judge Bench, or (b) the FCRA amendments [1].
• Common Cause v. Union of India (2 August 2024): the SIT plea was dismissed. Petitioners were told to use normal criminal law or Article 226 first [2].

Mains Points

• Transparency vs privacy: the Court used double proportionality to weigh the voter's right to know against the donor's privacy. Small donors keep their privacy, and large corporate money must be disclosed. The Court balanced two fundamental rights instead of ranking one above the other.
• Reform gaps after the judgment: there is still no cap on party spending, the ₹20,000 "unknown sources" gap remains, and the SIT probe was refused in 2024 [2]. A full law on party finance is still needed, with audited accounts, stronger ECI powers and real-time disclosure.
• Process and parliamentary checks: passing the 2017 changes as a money bill avoided full Rajya Sabha scrutiny, even though both the RBI and the ECI had objected in writing [1]. The pending Article 110 question links electoral reform to the wider debate on how Parliament checks the executive.

Related concepts

• Electoral bonds
• Indrajit Gupta Committee (1998)
• State funding of elections

Read more

• Money power II: electoral bonds, the 2024 judgment and state funding