Supreme Court delivers verdict on electoral bonds: Why are they contentious?

Today (15 February) is an important day in India’s politics. The Supreme Court in a very significant verdict struck down the Centre’s electoral bond scheme.

A five-judge Constitution bench of Chief Justice of India (CJI) DY Chandrachud and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra in an unanimous decision held that electoral bonds scheme is in violation to citizens’ right to information. Additionally, Chief Justice of India DY Chandrachud said it was unconstitutional and arbitrary and may lead to a quid pro quo arrangement between political parties and donors.

The matter in the apex court stems from a plea filed by the Association for Democratic Reforms (ADR), the Communist Party of India (Marxist), and Dr Jaya Thakur, who challenged the amendments introduced by the Finance Act 2017 which paved the way for the electoral bonds scheme.

But for those who are confused about what electoral bonds are and why they are being questioned, we have you covered.

What are electoral bonds?

Similar to a promissory note, electoral bonds are an instrument through which donors can fund political parties anonymously. They were introduced by the National Democratic Alliance (NDA) in 2017 with the Finance Bill (2017). On 29 January, 2018 the Narendra Modi-led NDA government notified the Electoral Bond Scheme 2018.

Electoral bonds, sold in denominations ranging from Rs 1,000 to Rs 1 crore, can be bought from authorised State Bank of India branches through accounts complying with KYC norms. Political parties are entitled to encash these bonds within 15 days of receiving them to fund their electoral expenses.

It is important to note here that electoral bonds are not available through the year and only for 10 days in the beginning of every quarter. The first 10 days of January, April, July and October has been specified by the government for purchase of electoral bonds. An additional period of 30 days shall be specified by the government in the year of Lok Sabha elections.

There is no limit on the number of bonds an individual or company can purchase.

Only political parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than one per cent of votes polled in the last general election to the House of the People or the Legislative Assembly of the State, are eligible to receive electoral bonds.

When introduced, the government had defended electoral bonds, saying that electoral bonds would keep a tab on the use of black money for funding elections. In the absence of electoral bonds, donors would have no option but to donate by cash after siphoning off money from their businesses, the government said.

How much have parties received through electoral bonds?

According to an ADR report, between the years of 2016 and 2022 a whopping Rs 16,437.635 crore was donated to 31 recognised political parties. Out of this, 55.9 per cent or Rs. 9,188 crore were received through Electoral Bonds, while the remaining amount of Rs 4,614.53 crore (28.07 per cent) came from the corporate sector and Rs 2,634.74 crore (16.03 per cent) from other sources.

The report further revealed that during this six-year period, more than 52 per cent of BJP’s total donations came from electoral bonds worth Rs 5,271.97 crore. The Congress had the second-highest donations from bonds – Rs 952.29 crore – accounting for 60 per cent of its total donations.

A BJP audit report revealed that in the year 2022-2023, the ruling party received nearly Rs 1,300 crore through electoral bonds, seven times more than what the Congress has received. The BJP’s total funds in the year were Rs 2,120 crore of which 61 per cent came through the electoral bond route.

Electoral bonds sound good, so what’s the problem?

After its introduction, there were some civil groups who opposed them, arguing that since neither the purchaser of the bond nor the political party receiving the donation is required to disclose the donor’s identity, the shareholders of a corporation will remain unaware of the company’s contribution. Voters, too, will have no idea of how, and through whom, a political party has been funded.

Moreover, since the identity of the donor is kept unknown, it could lead to an influx of black money. Some activists and politicians also argue that the scheme has been introduced to enable big corporate houses to donate money without their identity being revealed.

They further stated that the concept of donor ‘anonymity’ threatens the very spirit of democracy.

In an earlier hearing, advocate Prashant Bhushan, appearing for petitioner NGO ADR, said that amendments made via the Finance Acts of 2016 and 2017, both passed as Money Bills, have “opened the floodgates to unlimited political donations” through electoral bonds scheme.

“The amendments have removed the caps on campaign donations by companies and have legalised anonymous donations. The Finance Act of 2017 has introduced the use of electoral bonds which are exempt from disclosure under the Representation of the People Act, 1951, opening doors to unchecked, unknown funding to political parties,” The Hindu quoted him as saying.

And it’s not only civil activists who have opposed the electoral bond scheme. The Congress has protested against electoral bonds, stating that they were an exercise in “perpetuating opacity and electoral malpractice”.

The Communist Party of India (Marxist) also has voiced opposition to the scheme and even approached the apex court on the same in 2018. According to the CPI(M), electoral bonds “undermine democracy” and will “lead to greater political corruption”.

On its introduction, the Election Commission of India had said they would “compromise” electoral transparency. However, a year later, they did a U-turn and supported the bonds.

Milan Vaishnav of Carnegie Endowment for International Peace, a Washington-based think tank even went as far as saying, “With electoral bonds, the government has essentially legislated opacity.”

A BBC report quoted him as saying, “Donors can make gifts of any size to recipients and neither side must publicly disclose the details of the transactions. If this is being advertised as ‘transparency’, it is truly a novel definition of the word.”

Also read: Why electoral bond scheme needs a Supreme Court verdict before 2024 polls

How has the government defended electoral bonds?

The government has been firm in its stance that the electoral bond scheme does, in fact, help in electoral transparency.

Baijayant Jay Panda, a national vice-president of the BJP, has opined that electoral bonds represent a “solid progress” towards cleaner political funding. The bonds, he told BBC, were “legitimate and achieve many of the objectives for transparency”.

“While an argument can be made there should be further reforms and even more transparency, it is simply ludicrous to claim that the bonds don’t represent progress and are somehow worse than what existed earlier,” he added.

In an affidavit to the Supreme Court, the Centre has also argued that citizens have no general right to know about the source of electoral bonds. Attorney General R Venkataramani told the top court, that citizens have no general right to know anything and everything without being subjected to reasonable restrictions as the “right to know” can be for specific ends or purposes and not otherwise.

“There cannot be a general right to know anything and everything for undefined ends… Right to know for the general health of democracy will be too over-broad,” the Centre said in the affidavit. It is axiomatic that political parties receive support including financial support and contributions, the AG said.

With inputs from agencies