The recent judgment of the Supreme Court of India striking down the Electoral Bonds Scheme has emerged as one of the most consequential constitutional decisions in the domain of electoral reforms and political funding. In a landmark verdict, a Constitution Bench declared the scheme unconstitutional on the ground that it violated citizens’ right to information under Article 19(1)(a) of the Constitution. This judgment has triggered intense debate on transparency, corporate funding, democratic accountability, and the balance between donor privacy and public interest.
The Electoral Bonds Scheme was introduced in 2018 through amendments in the Finance Act, 2017—passed as a Money Bill. It allowed individuals and corporations to donate to political parties anonymously by purchasing bonds from designated branches of the State Bank of India (SBI). The scheme also amended key laws such as the Representation of the People Act, 1951; the Companies Act, 2013; and the Income Tax Act, 1961, to facilitate anonymous political donations.
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The Supreme Court’s decision is not merely about a financial instrument; it strikes at the core of democratic theory. Political finance determines the nature of electoral competition, influences policymaking, and shapes governance outcomes. Transparency in political funding is directly connected to the integrity of elections—an essential feature of the Constitution’s basic structure as held in the landmark judgment of Supreme Court of India in Kesavananda Bharati.
Thus, the issue is not a narrow technical matter; it reflects the larger constitutional debate on free and fair elections, citizens’ right to know, and the institutional design of accountability in a representative democracy.
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Background and Key Features of the Electoral Bonds Scheme
The Electoral Bonds Scheme was notified by the Government of India in 2018. Electoral bonds were bearer banking instruments, akin to promissory notes, which could be purchased by any citizen of India or body incorporated in India. These bonds were available in denominations ranging from ₹1,000 to ₹1 crore and were redeemable by eligible political parties within 15 days.
Five Important Key Points:
- Electoral bonds were bearer instruments with no donor name disclosed to the public.
- Amendments removed the 7.5% cap on corporate donations under the Companies Act, 2013.
- Companies were no longer required to disclose the names of political parties to which they donated.
- Bonds were sold exclusively by the State Bank of India in specified windows.
- Only political parties securing at least 1% of votes in the last general election could encash the bonds.
The scheme aimed, according to the government, to curb black money in political funding by channeling donations through formal banking routes. However, critics argued that it replaced opaque cash funding with opaque digital funding, without addressing the core problem of transparency.
Constitutional Questions Before the Supreme Court
The petitions challenging the scheme raised multiple constitutional issues:
First, whether the scheme violated Article 19(1)(a), which guarantees freedom of speech and expression, including the right to information as recognized in earlier judgments such as PUCL v. Union of India.
Second, whether the amendments through the Finance Act, 2017, passed as a Money Bill under Article 110, were constitutionally valid. The petitioners argued that the amendments went beyond the scope of a Money Bill and undermined bicameral scrutiny.
Third, whether unlimited corporate donations without disclosure violated the principle of political equality embedded in Articles 14 and 19.
The Supreme Court held that the right to know about political funding is an essential facet of Article 19(1)(a). In a democracy, informed voting is meaningful voting. If voters do not know who funds political parties, they cannot assess potential policy biases or quid pro quo arrangements.
The Court applied the proportionality test, a doctrine increasingly used in constitutional adjudication. It found that while donor privacy is a legitimate objective, complete anonymity without balancing mechanisms disproportionately restricts citizens’ right to information.
Impact on Corporate Funding and Governance
One of the most controversial aspects of the scheme was the amendment to the Companies Act, 2013. The earlier provision capped corporate donations at 7.5% of average net profits over three years and required disclosure of beneficiary political parties in the company’s profit and loss account.
The 2017 amendment removed both the cap and the disclosure requirement. As a result, even loss-making or shell companies could donate unlimited amounts to political parties without public scrutiny.
This had several governance implications. It increased the risk of money laundering through shell companies. It enabled the possibility of foreign-influenced entities channeling funds indirectly. It weakened shareholder democracy because shareholders could not track how corporate funds were being used for political purposes.
From a UPSC perspective, this intersects with corporate governance reforms, regulatory oversight, and the broader issue of crony capitalism. Transparent political funding is essential to prevent regulatory capture, where policymaking favors influential donors at the expense of public interest.
Basic Structure Doctrine and Free and Fair Elections
The Court reiterated that free and fair elections are part of the Constitution’s basic structure. Although the term “free and fair elections” does not explicitly appear in the text of the Constitution, it flows from Articles 324 to 329 and the democratic spirit of the Preamble.
Article 324 vests the superintendence, direction, and control of elections in the Election Commission of India. However, the Election Commission had earlier expressed concerns about the opacity of electoral bonds.
By prioritizing transparency, the Supreme Court reinforced the principle that electoral integrity cannot be compromised for administrative convenience. The judgment strengthens institutional checks and balances by ensuring that financial opacity does not distort electoral competition.
The decision also reflects judicial engagement with democratic deepening. Rather than deferring entirely to legislative wisdom, the Court exercised constitutional review to protect participatory democracy.
Economic Implications and Political Competition
Political funding influences economic policymaking. Large corporate donations may create expectations of favorable policies, regulatory relaxations, or government contracts.
An opaque system undermines competitive neutrality. Smaller parties and independent candidates may be disadvantaged if large donors prefer established parties with higher chances of forming governments.
Moreover, unlimited corporate funding risks transforming elections into capital-intensive exercises, marginalizing grassroots politics. This is particularly relevant for India, where socio-economic inequality is significant.
The judgment, therefore, has broader economic implications. It encourages a level playing field and discourages the monetization of electoral politics.
From the SSC perspective, questions may focus on the constitutional provisions involved, the concept of Money Bill, the role of the Supreme Court, and the Election Commission.
Challenges and Criticisms of the Judgment
While widely welcomed by civil society, the judgment has also faced certain criticisms.
Some argue that donor anonymity protects individuals and corporations from political retribution. In a polarized environment, public disclosure of donations could expose donors to harassment or coercion.
Others contend that eliminating electoral bonds without a robust alternative may revive cash-based funding, which is harder to track.
These concerns highlight the need for comprehensive electoral reforms rather than piecemeal changes. Transparency must be accompanied by institutional safeguards and robust auditing mechanisms.
Way Forward: Reforming Political Funding in India
The Supreme Court’s judgment opens the door for a reimagined political funding framework.
First, Parliament may consider introducing partial state funding of elections. This can reduce dependence on private donations and promote equity among parties.
Second, stricter disclosure norms should be mandated for both political parties and donors. Real-time disclosure through digital platforms can enhance transparency.
Third, corporate governance norms should require board and shareholder approval for political donations, along with detailed reporting.
Fourth, the Election Commission should be empowered with auditing powers to ensure compliance.
Fifth, a cap on corporate donations could be reinstated to prevent undue influence.
Ultimately, reform must balance three principles: transparency, donor privacy, and prevention of black money.
Relevance for UPSC and SSC Examinations
For UPSC Prelims, aspirants should focus on constitutional provisions such as Articles 19(1)(a), 110 (Money Bill), 324 (Election Commission), and key features of the Companies Act amendments.
For UPSC Mains (GS Paper II), the topic is directly relevant under “Separation of Powers,” “Judiciary,” “Representation of People’s Act,” and “Issues related to Elections.” It can also be linked to the basic structure doctrine, transparency, and governance reforms.
For GS Paper IV (Ethics), it raises questions about integrity in public life, conflict of interest, and ethical governance.
For SSC examinations, factual understanding of constitutional bodies, recent Supreme Court judgments, and electoral reforms is important.
In conclusion, the Supreme Court’s decision on electoral bonds marks a critical moment in India’s democratic evolution. By upholding citizens’ right to know, the Court reaffirmed that democracy thrives not in secrecy but in informed participation. Political funding reform remains a work in progress, but the judgment has laid a strong constitutional foundation for a more transparent and accountable electoral system.