Supreme Court strikes down electoral bonds scheme as 'unconstitutional'

A five-judge bench of the Supreme Court on February 15 unanimously struck down the electoral bond scheme as 'unconstitutional'. The SC held that the scheme violates Article 19 of the Constitution by not disclosing the funding to political parties.

The SC has consequently struck down provisions in the Companies Act, Income Tax Act and Representation of the People Act relating to electoral bonds.

As a consequence of striking down the electoral bonds scheme, the State Bank of India (SBI), which is mandated to issue such bonds, has been asked to stop issuing them with immediate effect. The SBI has also been directed to submit the details of the purchase of electoral bonds along with the details regarding their encashment by political parties to the Election Commission (EC) by March 6. The EC has been directed to publish all the details on its website one week after it has received such information.

"Voters have a right to information to cast votes. Right to information is not restricted to info about state affairs," said the apex court.

The SC had reserved the case for judgement—taken time to weigh the facts of the case after hearing arguments by both sides—in November 2023. The Supreme Court had also directed the EC to furnish all data on donations that political parties had received through the scheme until September 30, 2023.

The scheme was challenged by the Association for Democratic Reforms (ADR), the Communist Party of India (Marxist), Congress leader Jaya Thakur, and Spandan Biswal. They were represented by senior advocates Kapil Sibal, Vijay Hansaria, and Prashant Bhushan. The government was represented by Attorney General (AG) Venkatramani and Solicitor General (SG) Tushar Mehta.

What are electoral bonds?

An electoral bond is an instrument through which anyone can donate money to political parties. Such bonds are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore and can be bought from authorised branches of the State Bank of India, providing anonymity to the donors. These bonds were introduced in 2017 to bring transparency in electoral funding and were formally launched in 2018.

Political parties can encash these bonds within 15 days of receipt to fund their electoral expenses. One can buy these electoral bonds during the first 10 days of January, April, July and October, as specified by the government. An additional 30-day period will be set by the Centre in a general election year.
The bonds can be availed of only by political parties registered under the Representation of the People Act, 1951. The parties should have secured not less than 1 percent of the votes polled in the last General Election to the Lok Sabha or Legislative Assembly of a State. The electoral bonds can be encashed by an eligible political party only through an account in an authorised bank.

What was argued?

Those challenging the scheme argued that electoral bonds are eroding the institution of democracy since they lack transparency. It was contended that the scheme itself ensures that there is no level playing field between the ruling party and the opposition parties.

The government argued that before the introduction of electoral bonds, political parties did not disclose the source of their donations. The parties had to declare all donations over Rs 20,000. According to the government, ADR's own report suggested that 69 percent of political donations were from “unknown sources”. The government contended that anonymity in electoral bonds was introduced to ensure that a person's political alignment is protected and the political parties could raise money through a recognised source.

The SC's judgment was delivered seven years after the scheme was first challenged by ADR in 2017.