STORY HIGHLIGHTS

The Indian government introduced Electoral Bonds in 2018 as part of electoral reforms aimed at bringing greater transparency to the process of political funding

Indian Supreme Court on Thursday (Feb 15) struck down as unconstitutional the controversial electoral bonds. In a landmark verdict, the five-judge bench of the Supreme Court headed by Chief Justice DY Chandrachud ruled that there's a danger that the financial instruments, which allow for those investing in them to stay anonymous, could lead to 'quid pro quo'.

Thursday's ruling by the apex court comes just ahead of the 2024 general elections.

In April 2019, the Supreme Court declined to stay the electoral bonds scheme, stressing the need to reduce the cash component in the electoral process. Last November, the court had reserved its verdict on a batch of petitions challenging the constitutional validity of the bonds.

But what are electoral bonds and how did they become a point of contention in the Indian electoral system and politics?

What are electoral bonds? Why were they introduced?

Indian elections are one of the largest and most complex in the world, with millions of voters and multiple political parties competing in elections at various levels of government.

However, a longstanding challenge in Indian politics has been the issue of transparency and accountability in political funding. To address this challenge, the Indian government introduced electoral Bonds in 2018 as part of electoral reforms aimed at bringing greater transparency to the process of political funding.

Electoral Bond is a type of financial instrument that functions like a Promissory Note and an interest-free banking tool.

Any Indian citizen or organisation registered in India can buy these bonds after fulfilling the Know Your Customer (KYC) norms laid down by the Reserve Bank of India (RBI), the country's central bank.

Before the introduction of Electoral Bonds, political parties in India relied heavily on donations from individuals and corporate entities to fund their election campaigns and day-to-day activities.

The need for electoral reforms to address these concerns was highlighted by various stakeholders, including civil society organisations, electoral watchdogs, and the judiciary. In response, the government initiated efforts to reform the electoral system and enhance transparency in political funding.

Electoral Bonds were introduced in India through the Finance Act, of 2017, as a means of reforming political funding and promoting transparency.

Key Features of Electoral Bonds

Anonymity: One of the key features of Electoral Bonds is the anonymity of the donor. Unlike traditional forms of political donations, where the identity of the donor is disclosed to the public and the receiving political party, Electoral Bonds allow donors to remain anonymous. This was intended to protect the privacy and security of donors and shield them from potential retribution or harassment.

Denominations: Electoral Bonds are available in various denominations ranging from ₹1,000 to ₹1 crore (10 million). Donors can purchase these bonds from notified banks in India, with the State Bank of India (SBI), the largest public sector lender in the country, being the only authorised institution to issue Electoral Bonds.

Validity: Electoral Bonds have a validity period within which they must be redeemed. As per the existing regulations, the bonds have a validity of 15 days from the date of issuance. This timeframe is designed to ensure that the bonds are promptly encashed by the receiving political parties.

Transparency: While the identity of the donor remains anonymous, the sale and redemption of Electoral Bonds are recorded electronically by the issuing bank. This electronic tracking system is intended to enhance transparency in the overall process of political funding and enable regulatory authorities to monitor the flow of funds.

Why did petitioners challenge Electoral bonds scheme in Supreme Court?

The electoral bonds scheme was first announced by former finance minister Arun Jaitley during the 2017 Budget Session. Later, it was notified in January 2018 as a source of political funding by way of money bills introducing amendments to the Finance Act and the Representation of the People Act.

Since their introduction, Electoral Bonds have been a subject of debate and controversy in India.

Proponents argue that they provide a legitimate channel for political funding while protecting the privacy and security of donors. 

However, critics raised concerns about the lack of transparency and accountability in the Electoral Bonds scheme.

They argued that the anonymity of donors undermines transparency in political funding, and raises questions about the influence of undisclosed donations on political decisions.

Several petitions were filed in the Supreme Court, including by the political parties like Congress, CPI (M), besides some NGOs, against the constitutional validity of the electoral bonds scheme.

The hearing into this matter began on October 31 last year.

According to the petitioners, the scheme violated the right to information, opened doors to shell companies, and promoted corruption.

Rajya Sabha MP and senior advocate Kapil Sibal had said in the past that a political party could use the donations for any purposes other than elections.

Supreme Court’s verdict: Key points from ruling on electoral bonds

The Supreme Court on Thursday morning, while striking down the electoral bonds scheme calling it “unconstitutional”, also asked SBI to immediately stop issuing them.

The five-judge bench of Chief Justice DY Chandrachud, and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra arrived at the decision unanimously.

Below are the salient points from the judgement:

• "Information about funding of political parties is essential for the effective exercise of the choice of voting," Chief Justice Chandrachud stressed on the importance of open governance.
• Violation Of Article 19(1)(a): Authoring an opinion on behalf of himself and Justices Gavai, Pardiwala, and Misra, the chief justice held that the electoral bonds scheme violated Article 19(1)(a) of the Constitution.
• Other purposes: The court held that the restrictive means test of the doctrine of proportionality is not satisfied and that there are means other than electoral bonds to achieve the purpose of curbing black money, even assuming it to be a legitimate objective.