Demystifying Electoral Bonds

Some Frequently Asked Questions

Mohd Aasif*

Money in politics has always been a point of discussion. Electoral Bonds were introduced in 2017 as one of the instruments for electoral funding. The then finance minister Arun Jaitley hailed it as an efficient way of bringing ‘transparency’ in the political funding coupled with the provision of secrecy of donors and donees. Common Cause and ADR filed a petition against the electoral irregularities that emerged due to the introduction of Electoral Bonds. The Supreme Court of India, just before the 18th Lok Sabha Election, struck down and declared the scheme unconstitutional. It made Electoral Bonds one of the biggest talking points of the year.

But what exactly is the debate around the Electoral Bonds Scheme? We have answered some frequently asked questions (FAQs) to understand the issue.

What was an Electoral Bond?

Electoral Bonds were introduced as interest-free, non-refundable promissory note for anonymous political funding. These were available to an Indian donor (an individual or an organisation registered in India) in multiples of denominations of `1,000, `10,000, `100,000, `1,000,000, and `10,000,000. A donor -- either as a single entity or jointly with others -- had to fulfil RBI’s KYC norms to buy them at the State Bank of India (SBI). The life of the bond was only 15 days. It could only be encashed at a pre-declared bank account of the political party.1 There was no limit on the number of bonds a donor could buy and a political party could encash them.

What was the eligibility criteria to receive donations?

Only those political parties which were registered under Section 29A of the Representation of the Peoples Act, 1951, and had secured not less than 1 per cent of the votes polled in the last general election or the legislative assembly of the state, were eligible to receive the Electoral Bonds.

Why did the Supreme Court strike down the scheme?

On February 15, 2024, a five-judge constitutional bench of the Supreme Court of India declared the Electoral Bonds Scheme unconstitutional and violative of Article 19(1)(a). The bench ruled that the scheme violated the fundamental right to information of voters, who are the biggest stakeholders in democracy. The court ruled that the information about funding to a political party is essential for voters to exercise their freedom to vote effectively. Concealing information in the name of ‘transparency’ aids the government to escape accountability.

The Court further ruled that the amendments brought to the Company Act to build a structure for the Electoral Bond Scheme violated the right of shareholders to know which political party the company is donating money to. The court also ordered the deletion of the provisions of the Company Act permitting unlimited corporate contributions to political parties.

Rejecting the argument by the central government, the Supreme Court did not find the scheme foolproof and stated that there were sufficient gaps in the scheme which enabled political parties to know the particulars of the contributions made to them.

What were the issues raised against Electoral Bonds?

Critics of the Electoral Bond Scheme raised serious concerns over scheme’s violation of Article 21 and about potential corruption under the garb of anonymity. The provision of allowing electoral donations by loss-making companies raised apprehensions of quid pro quo arrangements whereby the donor could extract an undue favour in lieu of contributing to the political parties in power. The limited disclosure clause in the scheme prevented investigating agencies from identifying corruption.

Concerns were also raised over the possibility of public representatives putting the wishes of the donors above that of voters thereby threatening representative democracy through lobbying. Statutory amendments and the Electoral Bond Scheme thus interfered with free and fair elections because of the huge difference in the funds received by ruling parties in states and the Centre and opposition parties and independent candidates, thereby making the political level-playing field uneven.

What were the Court’s directions?

The Court directed the disclosure of information on contributions received by political parties under the Electoral Bond Scheme. It also told the SBI, the issuing bank, to herewith stop the issuance of Electoral Bonds.

The Court directed the SBI to submit details of the Electoral Bonds purchased after the interim order of the Supreme Court dated April 12, 2019, till February 15, 2024, to the Election Commission of India (ECI). The disclosure included the name of the purchaser and the denomination of the purchased Electoral Bonds. SBI was also ordered to disclose details of each Electoral Bond encashed by political parties, including the date of encashment and the denomination of the Electoral Bond. Further, the ECI was ordered to publish the information shared by the SBI on its official website within one week of receiving the information.

What happened to the Electoral Bonds yet to be encashed?

Electoral Bonds within the validity period of 15 days but yet to be encashed had to be returned to SBI by the party in possession. As an exception to the non-refundable clause of Electoral Bonds, the court ordered a refund to the purchaser’s account once declared unconstitutional.

Why was the Electoral Bond Scheme introduced?

The Electoral Bonds Scheme was aimed at curbing the influence of black money in elections, as claimed by the then Finance Minister Arun Jaitely. He said, “Donations made online or through cheques remain an ideal method of donating to political parties. However, these have not become very popular in India since they involve disclosure of donor’s identity.” The Electoral Bond Scheme was accompanied by provisions which the government claimed would bring transparency while masking the link between the donor and the political party.

A donor could purchase Electoral Bonds for 10 days each in January, April, July and October as specified by the Central Government. The scheme was also open for 30 days in years when Lok Sabha election were to be held.

What were the enabling amendments?

In May 2016, Finance Act 2016 was introduced construing the amendments to the definition of “foreign source” under the Foreign Contribution Regulation Act 2010. It allowed foreign companies to donate to political parties provided they had a majority share in Indian companies.

The Central Government introduced amendments to four laws. It amended the Reserve Bank of India Act 1934 to allow the Central Government to “authorise any scheduled bank to issue Electoral Bond(s).”

Amendments were brought to the Income Tax Act 1961, to exempt the I-T department from keeping a detailed record of contributions received through Electoral Bonds.

The Representation of the Peoples Act 1951 was amended to exempt political parties from publishing details of Electoral Bond contributions in ‘Contribution Reports’ to the ECI.

The Companies Act 2013 was amended to remove the upper limit of corporate donations to a political party and their obligation to disclose the breakup of contributions made to different parties.2

Were the Electoral Bonds completely anonymous?

At a first glance, the scheme suggested that donations made through Electoral Bonds were anonymous as these did not display the name of the buyer and the authorised banks were prohibited from disclosing the information unless required by a competent court or during the registration of a criminal case by a law enforcement agency. However, a forensic lab investigation by journalist Poonam Aggarwal of The Quint revealed a secret number embedded in the bonds. It enabled the authorised banks to keep a track of the donor and the donee. Further, the central government could access this data and trace the donation back to the donors and link it with the donees.

How did it change the nature of corporate donations to parties?

Corporate houses earlier were allowed to contribute only 7.5 per cent of their average net profit in the past three financial years. After the introduction of the Electoral Bonds Scheme, even the loss-making companies could contribute to political parties. The corporate bodies were also exempted from giving specific details of the donations.

What were the tax implications?

Under the provisions before the Scheme, contributions made to political parties and electoral trusts were claimed as deductions under Sections 80GGB and 80GGC of the Income Tax Act.

However, after 2018, all the contributions made through the Electoral Bond Scheme were fully exempted under Section 13A of the Income Tax Act, 1961, provided the political party filed its income tax returns and other specified details with the ECI.

Endnotes

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