Electoral Bonds and Political Funding in India

Author : P. Meenatchi, Government law college, Trichy


To the Point:

Political funding in India is a critical topic that has consistently raised concerns over transparency, accountability, and potential misuse by political parties. With so many political parties and elections happening frequently, there is a constant need for funds to run campaigns. But the big question is,where does this money come from, and how transparent is the process? In 2018, the government introduced something called the Electoral Bonds Scheme, saying it would bring a more clean and formal way of donating to political parties.
Initially, it was aimed at achieving transparency. People could buy these bonds from a bank and donate to a political party without using cash. But as time passed, many concerns came up. The biggest problem was that the identity of the donor remained anonymous to the public, even though the bank and the government could trace it. This raised serious questions about whether this system really helped clean up political funding or whether it made it more secretive.Recently, in 2024, the Supreme Court declared this scheme unconstitutional. The court held that it infringed upon citizens’ right to information under Article 19(1)(a) of the Constitution.” People have a right to know who is funding which political party because it directly affects how the country is governed. This judgment has reopened discussions about how political parties in India should be funded, and whether full transparency is even possible in a country where money and politics are so deeply connected.
This article aims to explore the Electoral Bonds Scheme, why it became controversial, what the Supreme Court said about it, and how it has affected the overall political funding system in India.


Abstract:

The connection between money and politics in India has always been a topic of debate. With elections requiring large amounts of funds, there’s a growing concern about how political parties collect money and whether these donations are made in a fair and transparent manner. To address the loopholes in traditional political funding, the Government of India introduced the Electoral Bonds Scheme in 2018, claiming it would curb black money in elections and ensure clean funding. While it allowed individuals and companies to donate through formal banking channels, the anonymity clause turned out to be a major issue. Since the identity of donors remained hidden from the public but could be accessed by the government, it was seen as a threat to democratic transparency and fairness in elections.
This article explores the impact of the Electoral Bonds Scheme, including its constitutional validity, the Supreme Court’s recent verdict striking it down, and the overall implications it has on electoral funding in India..
   

Use of Legal Jargon:

When it comes to the Electoral Bonds Scheme, there are several legal terms and concepts that are important to understand. First and foremost is “anonymity”, which means keeping the identity of the donor confidential. While anonymity is not illegal in itself, in the context of political donations, it becomes a concern for transparency and accountability.

Another key term is “electoral funding”, which refers to the financial contributions made to political parties. Under the Representation of the People Act, 1951, certain rules are laid down to regulate how parties should maintain and disclose their finances. However, the Electoral Bonds Scheme bypassed some of these rules by allowing donors to stay unnamed.

The scheme was primarily challenged as it violated Article 19(1)(a) of the Indian Constitution, which ensures the freedom of speech and expression. The voters have a right to know where the political parties are getting their funds from, it directly affected their choices during elections.

The scheme was also tested against Article 14, which ensures equality before law. Critics said that it unfairly benefited the ruling party, since the government-owned State Bank of India (SBI) had access to donor information, creating a possibility of biased treatment.

Lastly, the doctrine of proportionality was applied by the Supreme Court to weigh whether the secrecy and restrictions in the scheme were justified when compared to the harm it caused to democratic values like free and fair elections.


The Proof:

Firstly, data obtained through Right to Information (RTI) applications by activist Commodore Lokesh Batra and journalists like Nitin Sethi revealed how the State Bank of India (SBI), which was responsible for selling electoral bonds, kept a record of who bought bonds and when. This directly challenged the government’s claim that donor identity was anonymous , even to itself.

Secondly, an investigation by the Association for Democratic Reforms (ADR) highlighted that more than 50% of total bonds redeemed from 2018 to 2022 were encashed by just one political party, the Bharatiya Janata Party (BJP).  This led to concerns regarding the fairness of the scheme and whether it disproportionately benefited the ruling party.

In addition, media outlets like The Hindu and The Wire reported delays in bond sales that were strategically aligned with state and general elections. For example, in some cases, the government extended the bond sale window after elections were announced, which shows clear signs of political manipulation.

Another key proof came during the Supreme Court hearings, where the Election Commission of India (ECI) itself expressed concerns in a sealed affidavit. It stated that electoral bonds could have a serious impact on transparency in political funding and encouraged “opacity” rather than openness.

Finally, in February 2024, the Supreme Court struck down the Electoral Bonds Scheme, calling it unconstitutional, and ordered SBI to disclose the full donor-beneficiary data. This landmark ruling became the ultimate proof that the scheme was not in line with constitutional principles.




Case Laws:

1. Association for Democratic Reforms v. Union of India (2024)

This is the most important and recent case on electoral bonds. In this case, the Supreme Court of India declared the Electoral Bonds Scheme unconstitutional. The Court held that the scheme violated Article 19(1)(a) of the Constitution — the right to know, which is a part of the freedom of speech and expression.
The Court said that voters have the right to know how political parties are funded, and the scheme’s anonymity removed that transparency. It also added that such secrecy could lead to quid pro quo arrangements between donors and parties, which is harmful to democracy.
The Court directed the State Bank of India (SBI) to disclose all details about donors and beneficiaries, including bond numbers, amounts, and encashment dates. This case marks a turning point in how political funding is viewed in India.

2. People’s Union for Civil Liberties (PUCL) v. Union of India (2003)

Though not directly about electoral bonds, this case set a very strong base for the “right to know” of voters. The Supreme Court ruled that voters have the right to know about the background of electoral candidates, including their criminal records, assets, and liabilities.
This judgment helped expand the scope of Article 19(1)(a), and it was later used to argue that voters also have a right to know about how political parties are funded, which relates to the electoral bonds issue.


Conclusion

The concept of electoral bonds was introduced with the aim of bringing more transparency to political funding. But in reality, it ended up doing the opposite , it kept the public in the dark about who funds political parties. The secrecy of the scheme allowed for unchecked flow of big money into politics, which could influence policies and elections unfairly.
The Supreme Court’s 2024 judgment was a major turning point. It showed that transparency in political funding is not just important, it’s a constitutional right. Voters deserve to know who is financially backing the leaders and parties they vote for.


FAQS

1. What are electoral bonds?
  Electoral bonds are financial instruments introduced by the Government of India in 2018, which allow individuals and companies to donate money to political parties anonymously through authorized banks like the State Bank of India.

2. Why was the electoral bonds scheme controversial?
  Since the identity of donors was hidden from the public, it raised concerns about black money, corporate influence, and unequal political funding.

3. Which parties benefited the most from electoral bonds?
    Data revealed that a major share of the funds went to the ruling party. This raised questions about whether the scheme gave an unfair advantage to the party in power.


4. Is political funding through electoral bonds now banned?
   Yes, the Supreme Court has ordered an immediate stop to the issuance of electoral bonds and directed the disclosure of details related to past donations.