In a landmark judgment that has come as a jolt to Modi government, the Supreme Court on Thursday struck down the Electoral Bond scheme – for the funding of the political parties – and ruled the scheme and the amendments to the Representation of People Act, the Income Tax Act, the Companies Act and 2017 Finance Act to facilitate the scheme were “unconstitutional and arbitrary”.

Striking down the Electoral bond(EB) which gave anonymity to corporate buying EB’s and the political parties receiving them, and holding that it was violative of Article 19(1)(a) of the Constitution, a five-judge constitution bench in two concurrent judgments authored by the Chief Justice D.Y. Chandrachud and Justice Sanjiv Khanna, ruled “The Electoral Bond Scheme, the provision to Section 29C (1) of the Representation of the People Act 1951 (as amended by Section 137 of Finance Act 2017), Section 182(3) of the Companies Act (as amended by Section 154 of the Finance Act 2017), and Section 13A(b) (as amended by Section 11 of Finance Act 2017) are violative of Article 19(1)(a) and unconstitutional.”

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Chief Justice Chandrachud also spoke for Justice B. R. Gavai, Justice J.B Pardiwala and Justice Manoj Misra. Justice Sanjiv Khanna in his judgment has concurred with the judgment authored by Chief Justice D.Y. Chandrachud but with “slight variance” in his reasoning to arrive at the same conclusion.

The constitution bench further held that the “deletion of the provision to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties is arbitrary and violative of Article 14.”

Having declared that the Electoral Bond Scheme “violative of Article 19(1)(a) and unconstitutional” and directing that the State Bank of India “shall herewith stop the issuance of Electoral Bonds”, the constitution bench directed the State Bank of India to submit to the Election Commission of India the details of the Electoral Bonds purchased since April 12, 2019, when it had passed the interim order which would include “the date of purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased.”

The information to be furnished by the SBI to ECI will also include the details of political parties which have received contributions through Electoral Bonds since April 12, 2019 till date. The court further directed that “SBI must disclose details of each Electoral Bond encashed by political parties which shall include the date of encashment and the denomination of the Electoral Bond.”

Having directed the SBI to furnish to the ECI the details of the Electoral bonds as directed, the constitution bench said that directed information must reach poll panel within three weeks – by 06 March 2024 and the ECI shall publish the information on its official website within one week of the receipt of the information by March 13, 2024.

Declaring that the Electoral Bond scheme is unconstitutional, the court further directed that the “Electoral Bonds which are within the validity period of fifteen days but that which have not been encashed by the political party yet shall be returned by the political party or the purchaser depending on who is in possession of the bond to the issuing bank. The issuing bank, upon the return of the valid bond, shall refund the amount to the purchaser’s account.”

The constitution bench struck down the controversial Election Bond scheme and issued directions to the State Bank of India and the Election Commission to make public the details of the binds that were issued and encashed by the various political parties since its interim order passed on April 12, 2019, while addressing four questions that it had framed for the adjudication of the challenge to the scheme on the grounds of its being opaque and violated the citizens right to information under Article 19(1)(a).

Adverting to the Centre’s argument that the Electoral Bond Scheme is the least restrictive means to curb black money in electoral funding, the court said, “…, we conclude that the Electoral Bond Scheme does not fulfill the least restrictive means test. The Electoral Bond Scheme is not the only means for curbing black money in Electoral Finance. There are other alternatives which substantially fulfill the purpose and impact the right to information minimally when compared to the impact of electoral bonds on the right to information.”

On the Centre’s argument that information about financial contributions to political parties is not disclosed to protect the contributor’s informational privacy to political affiliation, the judgment said that the Constitution guarantees a right to informational privacy of political affiliation and asks if this right can be extended to the contributions to political parties.

Addressing the question, the judgment says, “We are unable to see how the disclosure of information about contributors to the political party to which the contribution is made would infringe political expression. The disclosure of the particulars of the contributions 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, it further states that the electoral bond scheme (EBS) “only grants de jure and not de facto confidentiality vis-à-vis the political party” and under the EBS, it is still open to the political party to coerce persons to contribute.

“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,” says the judgment.

Noting that the financial contributions to political parties are usually made for two reasons – constitute an expression of support to the political party and the contribution by corporates may be based on a quid pro quo, the judgment says “The huge political contributions made by corporations and companies should not be allowed to conceal the reason for financial contributions made by another section of the population: a student, a daily wage worker, an artist, or a teacher.”

Holding that the companies and individuals cannot be equated for the purpose of political contributions, the judgement said, “The amendment to Section 182 is manifestly arbitrary for (a) treating political contributions by companies and individuals alike; (b) permitting the unregulated influence of companies in the governance and political process violating the principle of free and fair elections; and (c) treating contributions made by profit-making and loss-making companies to political parties alike.”

Stating that law permits political contributions and the same should be treated as an expression of political support/affiliation and it is the duty of the Constitution to protect them, the constitution bench said, “Not all political contributions are made with the intent of attempting to alter public policy.”

However, the constitution bench said, “The observations made above must not be construed to mean that the Legislature cannot place a cap on the contributions made by individuals. The exposition is that the law must not treat companies and individual contributors alike because of the variance in the degree of harm on free and fair elections.”

Noting that the majority of contributions through electoral bonds went to parties which are ruling parties in the Centre and the States, Justice Sanjiv Khanna in his separate but concurring judgment said that the data showed about 94 per cent of the contributions came from Electoral Bonds of Rs one crore denomination, indicating the quantum of corporate donations.

Justice Khanna said, “The claim of privacy by a corporate or a company, especially a public limited company would be on very limited grounds, restricted possibly to protect the privacy of the individuals and persons responsible for conducting the business and commerce of the company.”

Justice Khanna further said, “Based on the analysis of the data currently available to us, along with our previous observation asserting that voters’ right to know supersedes anonymity in political party funding, I arrive at the conclusion that the scheme fails to meet the balancing prong of the proportionality test.”

The top court judgment came on a batch of petitions including by the NGO Association for Democratic Reforms, challenging the electoral bond scheme, which they contended allows anonymous funding to political parties, which was brought as a money bill – part of the Finance Acts of 2016 – 2017.

The Centre had taken a position that the citizens have no right to know the source of the funds of the electoral bonds. Asserting that citizens don’t have a right to know the source of the funds of the electoral bonds, the Centre had opposed the petitioner’s seeking declaration that citizens have a right to know the contributions being made to political party through electoral bonds as a facet of the right to freedom of expression and clothing the scheme with confidentiality is impermissible.