Krishn Kaushik, Arpan Chaturvedi and Kripa Jayaram
New Delhi

India's Supreme Court on Thursday scrapped a seven-year-old election funding system that allows inpiduals and companies to make unlimited and anonymous donations to political parties, calling it "unconstitutional".

The decision is seen as a setback for Prime Minister Narendra Modi's Bharatiya Janata Party, which has been the largest beneficiary of the system it introduced in 2017.

The system, called Electoral Bonds, was challenged by members of the opposition and a civil society group on the grounds that it hindered the public's right to know who had given money to political parties.

Under the system, a person or company could buy bonds from the state-run State Bank of India (SBI.NS), opens new tab and donate them to a political party.

Inpiduals and companies bought 165.18 billion rupees ($1.99 billion) of such bonds in total up to November 2023, according to the Association for Democratic Reforms (ADR), a non-government civil society group working on election funding in India. The group was a petitioner challenging the system.

A five-judge bench headed by Chief Justice D.Y. Chandrachud said: "Political contributions give a seat at the table to the contributor ... this access also translates into influence over policy making."

In making its ruling, it said: "The scheme has been declared unconstitutional, the issuance of fresh bonds is prohibited."

BJP spokesperson Gopal Krishna Agarwal said the party was "committed to continuous reforms on electoral funding" and would abide by the ruling.

Inpiduals could donate any amount of cash. Companies had been restricted based on their revenue and profits, but the bond system removed those limits.

The Supreme Court reinstated corporate donation limits.

"The ability of a company to influence the electoral process through political contributions is much higher when compared to that of an inpidual ... contributions made by companies are purely business transactions made with the intent of securing benefits in return," the court wrote.

The court directed SBI to not issue any more such bonds, to furnish identity details of those who had bought them, and to provide information about bonds redeemed by each political party.

Modi's government had defended the policy, saying it mitigated the use of cash in political funding by allowing donors a confidential channel to contribute to any party's funds.

Of the 120.1 billion rupees' worth of bonds sold up to the end of the fiscal year in March 2023 since they were introduced, BJP had received more than half, worth 65.66 billion rupees.

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