What Are India’s Electoral Bonds That Were Banned By Court?

The government introduced the Electoral Bond Scheme in the Finance Bill 2017 and implemented this scheme in 2018. Under this scheme, Electoral Bonds are issued, which are instruments or securities used to donate funds to political parties. These bonds are similar to bearer bonds or promissory notes, where the issuer (bank) is the custodian and pays the bondholder (political party). 

Since Electoral Bonds are bearer instruments, no ownership information is recorded, and the holder of the document is assumed to be its owner. The name and other details or information of the donor are not entered on the instrument, and thus, Electoral Bonds are anonymous.

An Electoral Bond is a financial tool used to make donations to political parties. The general public can also issue Electoral Bonds to fund eligible political parties. However, a political party eligible to run campaigns must register under Section 29A of the Representation of the People Act, 1951, to receive Electoral Bonds. 

Electoral Bonds play a similar role as banknotes, payable to the bearer free of interest and demand. Any individual party can purchase these bonds digitally or through a DD or cheque. 

Why Were Electoral Bonds Introduced?

Electoral Bonds were introduced to bring transparency to political funding in India. They promote transparency since political parties receive donations through formal banking channels that are audited by government authorities. The identity of the donors is anonymous and remains confidential, thus reducing the risk of intimidation or retaliation for their political affiliations.

The concept behind the introduction of Electoral Bonds was to reduce black money in politics and to provide a transparent and legal mechanism for individuals and entities to contribute to political parties. They serve as a means for donors of the bond (individuals and entities) to make donations to registered political parties while maintaining anonymity.

Why was it challenged? 

The Communist Party of India (Marxist), and NGOs Common Cause & ADR filed the petitions. Arguments were raised about citizens’ right to information before voting, how the scheme would distinctly favour that time’s ruling government as the guarantee of anonymity would allow providing concessions and that companies can use this to “fuel money” to political parties without informing shareholders

The Impending Verdict Arrived

On 15 February 2024, a five-judge constitution bench headed by Chief Justice DY Chandrachud delivered two separate but unanimous verdicts on pleas challenging the scheme. The apex court struck down the Electoral Bonds scheme, calling it “unconstitutional”. It raised several issues in the verdict. 

What were these issues?

1. It violates the right to information of citizens, about possible quid pro quo. The court held that the information on political parties’ funding is essential for voting as money enhances access to legislators and raises the possibility of mutually beneficial arrangements. Therefore It’s a violation of Article 19(1)(a) that ensures freedom of speech and expression.

2. The Electoral Bonds scheme is not the only scheme to curb black money. There are other alternatives. RTI can only be restricted based on Article 19(2), which includes curbing black money in electoral financing

3. Financial contributions to political parties are made for two parties- for support to a political party, or contribution may be the way of quid pro quo. The court extended the right to privacy of political affiliation to the contribution made a genuine form of political support. It does not extend to those contributions, which may be made to influence policies.

4. A company has a graver influence on the political process than contributions by individuals. Contributions by companies are purely business transactions. It also noted that amendment to Section 182 Companies Act is manifestly Arbitrary as it does not recognise the harm of allowing loss-making companies to contribute due to quid pro quo.

State Bank of India (SBI) shall forthwith stop the issue of Electoral Bonds. The SBI shall furnish the details of donations and the details of the political parties which receive the contributions. However, the information of only corporate contributions is to be made public. SBI shall provide all the information to the Election Commission by 6 March, which will be made public by 13 March, the top court ordered.