Introduction

The government introduced electoral bonds as a substitute for cash donations to political parties. This mechanism has consistently sparked controversy amid claims that it not only favours the ruling party but also undermines the principles of free and transparent elections.

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What are Electoral Bonds?

Electoral Bonds function as Promissory Notes available for purchase by Indian citizens or domestic corporate entities. The purchaser, whether an individual or a body corporate established in India, has the liberty to donate the Electoral Bond to a chosen eligible political party. The introduction of the electoral bond concept occurred through the Finance Bill, 2017. Subsequently, on January 29, 2018, the NDA government led by Narendra Modi officially implemented the Electoral Bond Scheme, 2018. The scheme aimed to replace cash donations and enhance transparency in political funding.

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The introduction of electoral bonds aimed to ensure transparent recording of all political party donations in their balance sheets while maintaining donor confidentiality. The intention was to curtail the use of black money in funding elections. The scheme outlines a straightforward process for utilizing electoral bonds. Only parties meeting specific criteria, including registration under Section 29A of the Representation of People’s Act, 1951, and securing at least one percent of votes in the previous Lok Sabha elections, are eligible to receive electoral bonds.

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Individual donors or corporate entities can acquire these bonds digitally or through cheque. To redeem the donated funds, eligible political parties are assigned verified accounts authorized by the Election Commission. Solely these designated accounts can be utilised for all transactions involving electoral bonds.

Controversy on Electoral Bonds

Even prior to the implementation of Electoral Bonds through the Finance Act, the Reserve Bank of India expressed opposition, citing concerns about the potential promotion of money laundering. Despite these reservations, the Electoral Bond system was launched. RTI records reveal that the Finance Ministry dismissed the RBI’s concerns, asserting that the central bank misunderstood the proposed process. The Finance Ministry justified overriding the RBI’s views by stating that the Finance Bill had already been published.

Despite concerns raised by analysts who argued that the scheme could disproportionately benefit the ruling party, proponents of the Electoral Bond system have a different perspective. They highlight the importance of donor anonymity, noting that complete transparency could deter fundraising due to potential backlash from powerful political entities. According to these observers, Electoral Bonds strike a balance by addressing these challenges and providing an avenue for new entrants in the political landscape.Top of Form

Supreme Court strikes down Electoral Bonds

On February 15, 2024, the Supreme Court of India in Association for Democratic Reforms & Anr Vs. Union of India & Ors. issued a landmark verdict, deeming the electoral bonds scheme, introduced in 2018, unconstitutional. The scheme, which facilitated anonymous donations to political parties through interest-free bonds issued by the State Bank of India, was found to violate citizens’ right to access government-held information, thereby compromising transparency in political funding.

Opposition parties and activists, challenging the scheme, argued that it promoted corruption and obstructed transparency. In response, the court instructed the State Bank of India to discontinue the issuance of such bonds, reveal the identity details of purchasers, and provide information about redeemed bonds to the Election Commission within a week.

Section 182 of the Companies Act, 2013

Section 182 of the Companies Act outlines prohibitions and restrictions concerning political contributions by companies. In accordance with this provision, non-governmental companies with at least three years of financial history may contribute by passing a board resolution, with limitations, to political parties. Contributions are capped at 7.5% of the average net profits over the past three years. All companies must disclose political party contributions in their profit and loss accounts, specifying the total amount and the recipient party. Violations of contribution limits may result in penalties, with fines up to five times the contributed amount for the company, and an imprisonment term up to six months for officers in default.

As per the Apex Court, Sections 182(3) of the Companies Act and 29C of the Representation of the People Act (RP Act), amended by the Finance Act 2017, should be considered together. Section 29C exempts political parties from disclosing contributions received via electoral bonds. However, Section 182(3) extends its scope beyond electoral bonds, covering contributions made through all transfer methods. While the RP Act mandates disclosure for contributions via cheques or electronic clearing systems, the amendment to Section 182(3) aligns it with the 2017 RP Act amendment, exempting electoral bond contributions from disclosure. Arguing that the electoral bonds scheme, with relevant RP Act and Income Tax Act amendments allowing non-disclosure, is unconstitutional makes the Section 182(3) amendment unnecessary.

Conclusion

The court emphasized the amendment’s approval of unbridled corporate influence in elections, a position conflicting with the ideals of fair elections and political equality. Expressing concern, the court opined that the purpose behind Section 182 is to tackle corruption and regulate electoral financing. For instance, the restriction on government companies making contributions aims to prevent their involvement in the political sphere through financial support to political parties. However, the amendment to Section 182, allowing unrestricted corporate contributions, provides companies unchecked sway in the electoral process. This contradicts the principles of fair elections and political equality embodied in the value of ‘One Person, One Vote.’

The court faced a challenge to the electoral bond scheme from the Association for Democratic Reforms (ADR). Their argument centred on the claim that the anonymity associated with electoral bonds undermines transparency in political funding and infringes upon voters’ right to information. Additionally, they raised concerns about the scheme enabling contributions through shell companies, posing potential threats to accountability and integrity in electoral finance. The court’s rationale was rooted in Article 19(1)(a) of the Constitution, asserting that the anonymity provided by electoral bonds violated the right to information. Moreover, the court made significant observations on Section 182 of the Companies Act, allowing financial contributions by companies to political parties. The court deemed the amendment allowing unlimited contributions by companies as manifestly arbitrary, citing the disproportionate influence companies wield in the electoral process compared to individuals. This landmark decision not only dismantled the electoral bonds scheme but also questioned the validity of Section 182 of the Companies Act. The ruling is set to reshape political funding in India by restricting anonymous donations and advocating for transparency. The court’s decision has implications for the disclosure of political contributions, underscoring the necessity for accountability in the electoral process. The judgment, arriving at a crucial juncture after the issuance of the last tranche of bonds in January, effectively halted the controversial electoral financing method. It highlights the potential return to more transparent and accountable mechanisms in political funding, dismantling a system that had facilitated dubious practices.