Author: Shravani kale, ILS Law college Pune
Abstract
The Electoral Bond scam in India has emerged as a ground-breaking event in the country’s legal and political sphere, revealing significant loopholes in the electoral financing, institutional integrity, and democratic transparency and accountability. On 15th February 2024, after scrutiny by the judiciary, the Apex Court, in a landmark decision, held that the entire Electoral Bond Scheme was unconstitutional and null and void. The ruling was based on its infringement of voters’ right to information and its facilitation of opaque political funding, which fostered corruption and quid pro quo arrangements. It compelled the government to unveil the entire intricacies of the scheme, including the buyers of the bond and donations made to the parties.
To the point
Electoral Bonds (EBs), introduced in March 2018 through the Finance Act, were designed as bearer instruments available for purchase from authorised banks, intended to facilitate donations to political parties while maintaining anonymity. The government claimed that this initiative would “clean up” political funding by directing it through formal banking channels. Electoral Bonds operated similarly to promissory notes and were interest-free financial instruments. After fulfilling the KYC standards established by the Reserve Bank of India (RBI), any Indian individual or organisation that is registered in India could buy these bonds. Donors were required to buy the bonds exclusively using cheques or digital payments in various denominations, including one thousand, ten thousand, one lakh, ten lakh, and one crore from SBI. According to section 29A of the Representation of the People Act, 1951, these electoral bonds could be redeemed within 15 days after issuance in the designated accounts of legally recognised political parties that received at least 1% of the vote in the most recent election.
Bonds could be purchased during a 10-day period in January, April, July, and October, with an extended window of 30 days during the year of the general Lok Sabha elections. A key feature of electoral bonds was their anonymity, as they did not disclose the identity of the donor or the political party receiving them. If the 15-day redemption period was not adhered to, neither the donor nor the political party could get a refund for the bonds, and the bond’s value would instead be transferred to the Prime Minister’s National Relief Fund (PMNRF). However, in practice, the scheme allowed entities—both corporations and individuals—to make unlimited donations without any public disclosure, thereby institutionalising anonymity and compromising transparency in electoral financing in India.
Legal Jargon
There are two main grounds on which the electoral bonds scheme was challenged in a PIL in the Supreme Court. Firstly, there is an absolute anonymity and lack of opacity in political financing, which hinders the citizens and the Election Commission from accessing information about political donations and major sources of income of political parties. Secondly, the electoral bonds scheme was claimed and implemented as a Money Bill, thereby bypassing the Rajya Sabha, which is unconstitutional. Not only is this violative of the principle of separation of powers, but also an infringement of the right to information of the citizen.
The Supreme Court examined several petitions from NGOs such as the Association for Democratic Reforms and Common Cause (India), represented by Prashant Bhushan, along with submissions from the Communist Party of India (Marxist). These challenges dispute the legality of amendments made to various laws, including the Reserve Bank of India Act and the Representation of the People Act, through the Finance Acts of 2016 and 2017. They argued that the scheme violated the right to information under Article 19(1)(a), since the anonymity deprived voters of knowledge about parties’ funding sources. Moreover, it also encouraged a regime of political patronage, where the state machinery could be abused to extract donations in return for policy favours, contravening the principle of free and fair elections integral to the Constitution.
CPI(M) leader Sitaram Yechury has called for the elimination of the Electoral Bond Scheme, labelling the issuance of these bonds and the Finance Act of 2017 as “arbitrary” and “discriminatory.”In its defence, the government contended in the Supreme Court that the main purpose of the electoral bonds was to enhance accountability and promote electoral reforms to address the growing concerns of “black money” while supporting the transition to a cashless digital economy. The government contended that the limited duration and short maturity period for electoral bonds would reduce the risk of misuse. It also mentioned that donor purchases would be documented in their financial records, effectively tracking contributions. Furthermore, it stated that the electoral bonds would motivate donors to utilise banking methods for their contributions, thereby capturing their personal information via the authorised issuer. This strategy aims to enhance transparency and accountability, marking a notable advancement in electoral reform.
The government requested the dismissal of the left party’s petition, arguing that there was no proof of “invidious or arbitrary discrimination” or breach of any fundamental rights. The Election Commission of India raised concerns to the Supreme Court, indicating that the legislative changes permitting the use of electoral bonds—and lifting restrictions on donations, including those from foreign sources—might lead to a rise in illicit funding (black money) during elections. Such alterations could significantly compromise the clarity of financial contributions to political parties, potentially leading to manipulation of Indian policies.
The Proof
Each EB had a unique alphanumeric number, and the State Bank of India (SBI), the issuer of the electoral bonds, knew the identities of the purchasers of the bonds and to whom they were donated. Things became even murkier when the government issued a notification that while information about the buyer would be treated as confidential by the SBI, and would not be revealed to any authority for any purposes, it would have to reveal the information when demanded by a competent court or when it was required by law enforcement agencies. This only meant that if the CBI / ED wanted, they could access the details about which company had purchased how many EBs and donated them to which party. This demolishes all claims about transparency and a level playing field.
As per Supreme Court directions, the State Bank of India (SBI) released extensive data showing that between 2018 and 2024, over ₹16,500 crore worth of EBs were purchased, with more than half encashed by the ruling party, the BJP. The data unveiled that most donations closely followed critical government contract approvals, tax raids, or regulatory investigations involving the donating entities. Infrastructure firms such as Megha Engineering, after making significant donations through Electoral Bonds (EBs), secured major project contracts just weeks later. Companies under investigation by the Enforcement Directorate (ED), Central Bureau of Investigation (CBI), or Income Tax departments purchased these bonds, and their investigations subsequently came to a halt. Soon after its officials were named as state witnesses in a well-known fraud, Aurobindo Pharma gave ₹250 million through EBs.
The State Bank of India was directed by the Supreme Court on March 11, 2024, to provide the Election Commission of India (ECI) with information about electoral bonds by the end of business hours the following day. On March 15, 2024, the ECI subsequently made this data available on their website. It contains information on every bond that was cashed between April 12, 2019, and January 24, 2024. On 17 March 2024, the Election Commission unveiled data received directly from political parties, which is believed to be from the period before 12 April 2019.
The greatest donor, according to the ECI’s data, was Future Gaming and Hotels Pvt Ltd, owned by Mr. Santiago Martin. This lottery organisation purchased bonds totalling Rs 1,300 crore between 2019 and 2024. Seven days following a raid by India’s Enforcement Directorate on suspicion of money laundering, bonds totalling Rs 100 crore were bought. Qwik Supply Chain, the third-largest donor, was accused of being a Reliance Industries subsidiary, a claim that Reliance refuted. But the business’s registration information showed a link.
There are many types of identified scams that operate with the electoral bonds. It includes the prepaid bribe, ie, donations made before receiving beneficial contracts and postpaid bribe, ie, donations made following governmental advantages or regulatory favours. Moreover, it also involves extortion and other coercive measures using state agencies to secure donations. A number of shell companies or anonymous entities were established solely to discreetly channel funds.
Journalistic investigations and data-mapping revealed astonishing correlations between the timing of donations and subsequent regulatory or contractual largess, sometimes within weeks or months. The Congress party’s analysis cited at least 38 corporate groups securing contracts exceeding ₹3.8 lakh crore soon after donating ₹2,000 crore via bonds to the ruling government. These are not coincidental but reveal a systematic pattern of transactional political funding. The government’s claim that secrecy promoted cleaner funding was rejected by the Court, which argued that such secrecy facilitated corruption, money laundering, and extortion. The Financial Action Task Force (FATF) and investigative bodies identified the scheme as a potential vehicle for money laundering, with shell companies and those with minimal operational histories purchasing large quantities of EBs. Data revealed that the ruling party (BJP) received significantly more in donations (over ₹8,000 crore) compared to the main opposition party (Congress: ₹1,950 crore) and over 30 other parties combined, undermining political equality and disrupting the democratic principle of a “level playing field.”
Case laws
PUCL v Union of India (2003): The Supreme Court had earlier held that the “right to know” campaign and candidate finance information is essential for democratic participation. The EB verdict extended and solidified this lineage, applying the doctrine to political party finances.
Electoral bond scheme case 2019 Interim Observations: The Supreme Court, while not imposing a stay, required parties involved to submit EB donation information in a sealed cover, acknowledging the potential for serious “weighty issues” regarding the scheme’s implementation.
Association for Democratic Reforms v Union of India, 2024: The Electoral Bond Scheme was invalidated in this landmark case, highlighting the significance of political equality and electoral transparency. The judgment noted that the “right to know,” essential to Article 19(1)(a), includes access to information vital for making informed democratic decisions. On February 15, 2024, a unanimous five-judge Supreme Court bench ruled the scheme unconstitutional, stating that EBs infringe on voters’ right to information about political funding as per Article 19(1)(a). The court found the scheme to be “manifestly arbitrary,” favouring certain parties while hindering disclosure, thus affecting constituents’ right to an informed vote. The State Bank of India (SBI) was instructed to release all information about bonds, including buyer identities and amounts, for publication by the Election Commission for public access.
Conclusion
The Electoral Bond scandal represents one of the bleakest moments in India’s democratic journey, highlighting how legal mechanisms, when created or implemented without sufficient oversight, can undermine the core elements of constitutional democracy. The Supreme Court’s involvement, through strong judicial scrutiny and constitutional analysis, has reinstated the values of transparency and voter empowerment.
This incident is not just a warning about the design of statutory laws, but it also serves as a strong reminder for necessary legislative changes in political funding, such as requiring complete transparency, imposing limits on donations, and closely regulating the relationship between government authority and electoral financing. Neglecting these changes could lead to ongoing corruption and erode public trust in democracy.
FAQs
What are Electoral Bonds?
Electoral Bonds were bearer financial instruments introduced in 2018 to enable individuals and companies to donate to political parties anonymously through the State Bank of India.
On what legal grounds was the scheme challenged?
It was challenged for violating citizens’ right to information under Article 19(1)(a) and for being passed as a Money Bill, bypassing the Rajya Sabha, thus breaching constitutional procedure.
What was the Supreme Court’s verdict on the scheme?
In February 2024, the Supreme Court declared the scheme unconstitutional, holding that it infringed on the right to information, lacked transparency, and distorted electoral fairness. SBI was ordered to disclose all donation data.
