Know all about the electoral bonds that SC termed 'unconstitutional'

EC files plea for clarification of SC order

The Election Commission on March 15 released the electoral bonds data received from the State Bank of India.

The data, published by EC on its website in two parts, revealed that electoral bonds worth over Rs 12,000 crore were bought from SBI between April 2019 and January 2024. The first set of data disclosed the name of the companies/individuals and denomination of the bonds while the other revealed the political parties and denomination of the bonds encashed by them.

The data was disclosed on the directions of the Supreme Court, which on February 15 struck down the electoral bonds scheme as unconstitutional and instructed SBI to furnish purchaser details to the Election Commission (EC).

The apex court held that the scheme violates the Right to Information and Section 19(1)(a), a decision expected to have significant ramifications, particularly with the Lok Sabha elections scheduled for April-May.

What was the Electoral Bonds scheme?

The Electoral Bonds Scheme, introduced by government notification in 2018, involves the issuance of bearer instruments in the form of promissory notes. Eligible individuals, including Indian citizens and entities incorporated in the country, can procure these bonds from specified branches of the State Bank of India.

When was it introduced?

The electoral bonds were introduced with the Finance Bill (2017). On January 29, 2018 the National Democratic Alliance (NDA) government notified the Electoral Bond Scheme 2018.

Flexibility and Accessibility in Political Funding

These bonds were available for purchase in multiples of Rs 1,000 and can be obtained for any desired value. Sales of electoral bonds occur during specific periods designated by the Centre, spanning 10 days each in January, April, July, and October.

To purchase electoral bonds, payments had to be made from a bank account that satisfied all Know Your Customer (KYC) requirements. These bonds were devoid of any payee's name and had to be used for donations within 15 days of issuance.

Only political parties registered under the Representation of the People Act, 1951 (43 of 1951), and those securing a minimum of 1 percent of the votes cast in the preceding general election or state election are eligible to receive donations through bonds.

These parties can obtain a verified account from the EC, into which the bond amounts are deposited within 15 days of purchase.

Parties Mandated to Cash Donations via Bonds Within 15 Days

Upon receipt, the political party was required to encash the amount within the stipulated 15-day period, with the donation subsequently deposited into the Prime Minister's Relief Fund. Additionally, they are made available for a 30-day window during Lok Sabha election years.

Challenges to Electoral Bonds: Petitioners' Key Arguments Unveiled

Since the start of hearings by the five-judge constitutional bench on October 31, several arguments have been presented against the constitutionality and legality of the Electoral Bond Scheme, highlighting concerns regarding its potential threat to Indian democracy. These arguments have been articulated by petitioners' lawyers, including senior advocates Prashant Bhushan, Nizam Pasha, Kapil Sibal, Vijay Hansaria, Sanjay Hegde, and Advocate Shadan Farasat.

A Blow to Transparency in Political Funding

The issue of election funding has long been a subject of controversy. In a democracy, transparency is crucial to ensure the integrity of elections. However, the traditional practice of submitting expenditure accounts post-election often fails to reflect the actual expenses of candidates, not to mention the undisclosed financial dealings of political parties. The introduction of electoral bonds under the Finance Act of 2017 by the NDA government has been criticised for effectively eroding transparency in political funding.

Violates Right to Information

Opponents of the Electoral Bond Scheme argued that it violates citizens' fundamental right to information under Article 19(1)(a) of the Constitution, which guarantees the right to freedom of speech and expression. They say that if citizens have the right to know about political candidates, they should also have the right to know about the sources of funding for political parties.

Experts Warn of Backdoor Lobbying Risks

Legal experts argued that the Electoral Bond scheme facilitates backdoor lobbying and potential quid pro quo arrangements between corporations and political parties. They allege that there are circumstantial evidences suggesting that corporations have made donations via electoral bonds to political parties in power in exchange for favorable treatment or policies.

Limited Anonymity

It has been argued that Electoral Bonds, while touted as anonymous instruments, lack complete anonymity as only the government can access information about contributors and recipients. Since the SBI administering the bonds falls under government jurisdiction, donations to opposition parties could potentially be scrutinised by investigative agencies, resulting in selective anonymity.

Experts Challenge Misleading Nature of Bonds

Legal experts told the the court that the term "Electoral Bond" is misleading because the funds can be utilised for any purpose once withdrawn, as there are no regulations governing how political parties spend the money. He highlighted that there's no requirement for parties to utilize the donations specifically for participating in the electoral process.

Are Electoral Bonds Taxable?

In February 2017, the then Finance Minister, Arun Jaitley, announced that donations made through electoral bonds would be tax-deductible. This means that donors would receive a deduction for their contributions, and the recipient political party would be eligible for tax exemption, contingent upon the filing of returns by the political party.

Thinking Behind Introduction of Electoral Bonds

The electoral bonds were introduced in India by the NDA government with the aim of bringing transparency to political funding. The key reasons cited for introducing electoral bonds include:

Ensuring Transparency: The government aimed to ensure that all donations made to political parties would be accounted for in their balance sheets without exposing the details of individual donors to the public. This was intended to enhance transparency in political funding and bring greater accountability to the process.

Curbing Black Money: Electoral bonds were proposed as a measure to curb the use of black money for funding political parties and election campaigns. By channeling donations through transparent financial instruments like electoral bonds, the government aimed to reduce the dependence on cash donations, which could be used to conceal the source of funds and evade taxes.

Poll Panel Views on Electoral Bonds

The EC expressed its views on electoral bonds, stating that while it was not against the Electoral Bonds Scheme itself, it emphasised the importance of full disclosure and transparency in political funding. Senior Advocate Rakesh Dwivedi, representing the poll panel, conveyed to the Supreme Court of India that the Election Commission did not approve of anonymous donations made to political parties.

The EC's stance highlighted its concerns regarding the anonymity associated with electoral bonds, as it believed that transparency and accountability in political funding were essential for maintaining the integrity of the electoral process. This position was conveyed during a hearing on several petitions challenging the validity of electoral bonds in the apex court.

Electoral Bonds Provide BJP with Significant Funding Boost

In the 2023 financial year, electoral bonds provided the BJP with nearly Rs 1,300 crore in funding. As per the BJP's financial audit data for 2022-23, submitted to the EC, the party got a total of Rs 2,120 crore in donations during this period. Of this amount, 61 percent came from electoral bonds, according to several media reports.

On the other hand, the Congress received significantly less funding for the same period, totaling about Rs 171 crore. In the previous financial year, the Congress party had received Rs 236 crore in donations.