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Towards Transparency: Supreme Court's Verdict on Section 182 and Electoral Bonds

In a landmark decision on February 15, 2024, the Supreme Court of India made waves by striking down the controversial electoral bonds scheme. This ruling, reached in the case of Association for Democratic Reforms & Anr vs. Union of India & Ors., sends ripples through the political landscape, reshaping the rules of engagement for political funding in the country.


What Were Electoral Bonds?


Imagine a system where political parties could receive donations from anonymous sources through interest-free bonds issued by the State Bank of India. These bonds, known as electoral bonds, became a contentious issue since their introduction in 2018. While supporters argued they provided a secure and discreet way for individuals and companies to contribute to political parties, opponents raised concerns about transparency and the potential for corruption.


  • Anonymous Donations: Critics feared the anonymity of donors would conceal vested interests, allowing corporations to influence politics without accountability.

  • Accountability Gap: Without donor disclosure, parties lacked accountability to the public, raising worries about potential undue influence and compromised integrity.

  • Quid Pro Quo Risks: The lack of transparency heightened the risk of quid pro quo arrangements, where parties might feel obliged to favor wealthy donors in return for contributions.

  • Undermining Democracy: By obscuring funding sources, the scheme undermined democratic principles of transparency, fairness, and equal participation, eroding public trust in the political process.


The Supreme Court's Verdict:

The Supreme Court's verdict was clear and decisive. It declared the electoral bonds scheme unconstitutional, citing violations of citizens' right to access government-held information and a lack of transparency in political funding. The court directed the State Bank of India to cease issuing such bonds and mandated the disclosure of purchaser identities and bond redemption details to the Election Commission within a week.


 Understanding Section 182:

To grasp the implications of the ruling, we need to dissect Section 182 of the Companies Act, which governs political contributions by companies. This section outlines restrictions and disclosure requirements for such contributions. Notably, it caps the amount a company can contribute to a political party and mandates disclosure of these contributions in their financial statements.


Scope and Applicability: Section 182 applies to all companies registered under the Companies Act, with certain exceptions such as government companies and those in existence for less than three financial years. It governs both direct and indirect contributions to political parties.

Limitations on Contributions: The section imposes limitations on the amount a company can contribute to a political party. Specifically, it states that the total contributions made by a company in any financial year, either individually or cumulatively, cannot exceed seven and a half per cent of its average net profits over the three immediately preceding financial years. This restriction aims to prevent companies from exerting undue influence through excessive financial contributions.

Board Authorization: Before making any political contribution, a company must pass a resolution at a Board of Directors meeting authorizing the contribution. This resolution serves as legal justification for the company's involvement in political funding.

Mandatory Disclosure: Section 182 mandates that every company disclose in its profit and loss account any amounts contributed to a political party during the relevant financial year. This disclosure should include details such as the total amount contributed and the name of the political party receiving the contribution. This requirement enhances transparency by making information about political contributions publicly accessible.

Penalties for Violations: If a company contravenes the provisions of Section 182 by making contributions in excess of the prescribed limits or without proper authorization, it is liable for penalties. The company may face a fine of up to five times the contributed amount, and any officers of the company involved in the contravention may be subject to imprisonment for a term extending up to six months, along with fines.

Definition of "Political Party": For the purpose of Section 182, the term "political party" refers to a party registered under Section 29A of the Representation of the People Act, 1951. This definition clarifies the entities eligible to receive contributions from companies under the Companies Act.


The Court's Critique:

The Supreme Court criticized the amendment to Section 182 of the Companies Act, which permitted unrestricted political contributions by companies. It deemed this amendment arbitrary due to concerns about the disproportionate influence of companies in the electoral process compared to individuals. The court highlighted the failure to differentiate between profit-making and loss-making companies, overlooking the higher risk of quid pro quo transactions by the latter. Moreover, the court expressed apprehension about the endorsement of unchecked corporate influence in elections, emphasizing the need for reforms to uphold the integrity of the electoral process.


The Implications:

The Supreme Court's ruling has far-reaching implications. By dismantling the electoral bonds scheme and questioning the validity of Section 182, it advocates for transparency and accountability in political funding. The judgment emphasizes the importance of upholding the right to information and combating corruption in the electoral process.


Looking Ahead:

As India navigates its democratic journey, this ruling marks a significant milestone. It signals a return to more transparent and accountable mechanisms in political funding, challenging the status quo and paving the way for a more equitable and democratic electoral system.


In conclusion, the Supreme Court's verdict in the case of Association for Democratic Reforms & Anr vs. Union of India & Ors. heralds a new era in Indian politics—one defined by transparency, accountability, and the relentless pursuit of democratic ideals.

Download the original Judgement

electrical bond judgement
Download PDF • 1.46MB

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