Author: Aysha Hanan, Cochin University of Science and Technology
INTRODUCTION
The electoral bond scheme, introduced by the Indian government in 2018, has sparked a contentious debate on the intersection of political funding, transparency, and accountability. By allowing anonymous donations to political parties through bearer instruments, the scheme has raised critical questions about the integrity of India’s democratic process. As the country grapples with the challenges of corruption, black money, and undue influence in politics, the electoral bond scheme has emerged as a lightning rod for criticism. This article delves into the legal and constitutional implications of the electoral bond scheme, examining the tensions between political funding, transparency, and the right to information. It argues that the scheme’s anonymity provisions undermine the principles of accountability and transparency, and that the Indian Supreme Court’s scrutiny of the scheme is a pivotal moment in the country’s quest for democratic reform. This case has managed to unfold the shady business of Indian politicians, who amended the existing laws to keep their funding off the record.
WHAT IS AN ELECTORAL BOND?
Electoral bond is defined in various Acts. As in section 31 (3) of the Reserve Bank of India Act, 1934, electoral bond means a bond issued by any scheduled bank under the scheme as may be notified by the Central Government.
Electoral bond is defined as a bond issued in the nature of promissory note which shall be a bearer banking instrument, in the Electoral Bond Scheme, 2018.
Electoral bonds are bearer instruments that allow individuals and organizations to donate money to political parties anonymously. They can be purchased from designated banks and redeemed by political parties within a specified timeframe.
WHERE IT STARTED
The Finance Act 2016 u/s amended the Foreign Contribution (Regulation) Act, 2010, by inserting a proviso into Section 2(1)(j)(vi). This change allows foreign companies with a majority share in Indian companies to donate to political parties, despite having more than 50% foreign shareholding. Previously, such companies were barred from making political donations. Later, the Finance Act 2017 was also introduced which made several amendments to various acts, including:
Reserve Bank of India Act, 1934: Authorized scheduled banks to issue electoral bonds (Section 135).
Income-tax Act, 1961: Exempted political parties from keeping a detailed record of contributions received through electoral bonds (Section 11).
Representation of the People Act, 1951: Exempted political parties from publishing details of Electoral Bond contributions in “Contribution Reports” (Section 137).
Companies Act, 2013: Removed the upper limit of corporate donation to a political party (Section 154) and the obligation to disclose the breakup of contributions made to different parties (Section 154). This allowed companies to make contributions through electoral bonds (Section 154).
In 2017, Finance Minister Arun Jaitley introduced the Electoral Bond Scheme to facilitate anonymous donations to political parties, aiming to protect donors’ identities.
THE RESISTANCE
Reacting to this, the Association for Democratic Reforms (ADR) challenged this scheme in the Supreme Court, filing a Public Interest Litigation under Article 32 of the Constitution. ADR argued that the scheme legitimizes electoral corruption on a large scale, allows unlimited political donations, including from foreign companies and hinders transparency in political funding. ADR sought directions from the Supreme Court to strike down the amendments made through the Finance Act, 2017, and Finance Act, 2016, which were passed as money bills.
The Electoral Bond Scheme was then introduced in 2018 by the Government of India. The bond shall be purchased by Indian citizens and entities, encashed by registered political parties with at least 1% of votes in the last general election and unencashed amounts are deposited in the Prime Minister Relief Fund. Bonds are available in various denominations, valid for 15 days, and can be purchased through physical or online applications with required documents. The scheme ensures confidentiality of buyer information, except in cases of court demands or criminal investigations. The face value of bonds is counted as income for exemption from Income-tax, and no interest shall be payable.
Within 17 days of this notification the Communist Party of India (Marxist) filed a writ petition challenging it and the amendments to the Finance Acts of 2016 and 2017. CPI(M) is the only political party to challenge the scheme in its own name. They argued that the scheme violates the fundamental right to information, strengthens quid pro quo arrangements and the influence of “black money” in politics. The petition also stated that the scheme’s provisions are arbitrary, vague, and violate the right to information.
In 2019, the Supreme Court passed an order asking political parties who received Electoral Bonds donations to submit detailed particulars of the donors to the Election Commission of India in sealed covers. This should include donor details, amount, date and account details against each bond. Later, in 2019, the petitioner has filed an application bringing to light new documents obtained through RTI Act and media reports. These documents show that the RBI opposed the scheme, warning of increased black money circulation and money laundering, while the Election Commission objected to amendments impacting transparency in political finance. The PMO also ordered against illegal sales of Electoral Bonds, and the government lied about donors requesting secrecy. The ruling party, BJP, received 95% of total Electoral Bonds, earning over ₹1,000 crore.
In March 2021, the NGO again requested a stay on the Electoral Bond Scheme as state elections were approaching. But the Supreme Court denied the interim stay application.
AMENDMENT: THE TURNING POINT
In November 2022, the Finance Ministry amended the Electoral Bond Scheme to allow for an additional 15-day sale period during election years. ADR filed an additional affidavit and a supplementary affidavit in November and December 2022, arguing that the amendment aimed to increase donations around election season and was introduced during the Model Code of Conduct for the 2022 Assembly elections in Gujarat and Himachal Pradesh. Finally, on January 31, 2023, the Supreme Court considered the case under three issues which were, challenges to the Electoral Bond Scheme, bringing political parties under the RTI Act, and the constitutional validity of the 2016 and 2017 Amendments to the Foreign Contribution (Regulation) Act.
The case was referred to a five-judge Bench, as per Article 145(3) of the Constitution, due to the importance and substantial questions of law involved. The bench consists of D.Y. Chandrachud CJI, Sanjiv Khanna J, B.R. Gavai J, J.B. Pardiwala J and Manoj Misra J. Advocate Prashant Bhushan represented for ADR, Kapil Sibal for Dr. Jaya Thakur, Shadan Farasat for the Communist Party of India (Marxist) (CPI(M)). In opposition, the Union government was represented by Attorney General R. Venkataramani and Solicitor General Tushar Mehta.
PETITIONERS’ ARGUMENTS
The petitioners argued that the Electoral Bond Scheme lacks a rational basis, fails to enhance transparency in electoral funding, and ignores objections from the RBI and ECI. They contended that the scheme is unconstitutional as it defeats the purpose of disclosure provisions in the RPA and Companies Act (ADR v. Union of India, 2002), violates Article 19(1)(a) by denying voters the right to information about political funding, and promotes corruption and quid pro quo arrangements, thus violating Article 21 (Kanwar Lal Gupta v. Amar Nath Chawla, 1975). Moreover, the scheme benefits corporates, not individuals, prevents investigating agencies from identifying corruption, and violates shareholders’ rights by preventing disclosure of donations. The scheme subverts democracy and interferes with free and fair elections by creating an uneven playing field between parties and candidates.
RESPONDENTS ARGUMENTS
The respondents argued that the Electoral Bond Scheme is an improvement over the prior cash-based system, reducing black money in politics, and incentivizes clean money donations by maintaining donor confidentiality, protecting them from retribution. The scheme balances clean money with citizens’ right to information, requiring disclosure of amounts but not donor names, and safeguards citizens’ privacy and political affiliation rights. It serves legitimate state interests, including curbing black money, protecting donor privacy, and regulating political donations, through provisions like KYC compliance, limited bond validity, confidentiality, and banking channel payments. The scheme also protects the right to privacy and political self-expression, maintains the concept of secret ballot, and removes contribution limits, with the legislature having wide latitude in economic policy matters, and potential abuse not being a ground for challenging the provision, and unequal donation distribution among parties not being a legal ground to challenge the scheme’s validity.
JUDGEMENT
The court has struck down the Electoral Bond Scheme as unconstitutional and ordered the following: the Scheme is cancelled, and all related amendments to various Acts are also struck down; the Election Commission of India (ECI) will collect and disclose details of bond donors and amounts donated; no new bonds can be issued; existing bonds can be returned for refunds; and the State Bank of India (SBI) must submit details of bond purchases and encashments to the ECI within three weeks, which will then be published on the ECI website within a week. The court has effectively dismantled the Electoral Bond Scheme, citing unconstitutionality, and has ordered transparency measures to reveal past bond transactions.
Just two days before the submission date, the State Bank of India requested a three-month extension, citing difficulties in matching donor and redeemer data. The Court refused and ordered submission of all data by the next day. Although the SBI complied, the data was initially incomplete, lacking the alphanumeric entries on each bond. After further orders, the complete data was released by March 21. Subsequent analysis of this data by journalists revealed concerns about quid pro quo, with donors including companies that won large infrastructure contracts, faced scrutiny from ED and CAG or were accused of environmental violations, highlighting serious concerns about the scheme’s transparency and integrity.
PUBLISHED DETAILS OF ELECTORAL BONDS
According to the data published by the State Bank of India on the Election Commission of India’s website, the Bharatiya Janata Party (BJP) received the largest share of electoral bond funding, encashing ₹6060.5 crore (47.5% of the total) between April 2019 and January 2024. The All India Trinamool Congress and Indian National Congress followed, receiving ₹1,609.50 crore (12.6%) and ₹1,421.9 crore (11.1%), respectively. Interestingly, the Communist Party of India (Marxist) demonstrated its commitment to ethucal politics by being the sole national party to decline donations through electoral bonds. This principled stance of CPIM has been widely praised by the journalistic community, civil society, and other political observers,
CONCLUSION
The electoral bond case has exposed the dark undercurrents of Indian politics, revealing a complex web of unknown donations, foreign funding, and undue influence. The Supreme Court’s decision to strike down the Electoral Bond Scheme as unconstitutional marks a significant victory for transparency and accountability in political funding. The court’s orders for disclosure of donor details and amounts donated will enable citizens to make informed decisions. As India continues to grapple with corruption, black money, and political opportunism, this verdict serves as a beacon of hope for a more responsible and accountable democratic process. This landmark case again proved the importance of judicial scrutiny, citizen activism, political morality and robust institutions in safeguarding India’s democratic integrity.
REFERENCE
https://t.co/VTYdeSKJmI
https://www.scobserver.in/wp-content/uploads/2021/10/ElectoralBonds-CPI_M_Writ_Petition.pdf
https://drive.google.com/file/d/1FuTp6XfZIj-3hFuoIlcOZXb33OmZoxyt/view
https://www.scobserver.in/wp-content/uploads/2021/10/Electoral-Bonds-judgement.pdf
https://www.thehindu.com/data/55-firms-electoral-bond-purchases-topped-the-original-75-cap-in-2022-24-69-of-their-total-donations-went-to-bjp-data/article68031081.ece/amp/
https://adrindia.org/
FAQs
Q. 1. Who issued electoral bonds during its existence?
Ans.: The State Bank of India was responsible for issuing and encashing electoral bonds.
Q. 2. What is the Electoral Bond Scheme, and why is it controversial?
Ans.: The Electoral Bond Scheme is a financing mechanism introduced by the Indian government in 2018, allowing individuals and organizations to donate money to political parties anonymously through bearer instruments. The scheme is controversial because it lacks transparency, allows unlimited political donations, and has been criticized for facilitating corruption, black money, and undue influence in politics.
