Electoral Bonds Scheme: Background, Features, and Recent Supreme Court Verdict

Context:

This editorial is based on the news “Supreme Court strikes down electoral bonds scheme: ‘unconstitutional’, ‘arbitrary and violative of Article 14” which was published in the Indian Express. The Supreme Court struck down the electoral bonds scheme asserting that the scheme violates the right to information under Article 19(1)(a) of the Constitution. 

Electoral Bonds Scheme: Background

• Announcement: In the 2017 budget speech and notified by the government in 2018.
• Provision: It is an interest-free bearer instrument that would be used to donate money anonymously to political parties.
• Questions Raised: Electoral Bonds scheme was challenged shortly after it was notified in January 2018. In the past six years since the first petition was filed, six Chief Justices of India took office and twice- in 2019 and in 2021- the Supreme Court refused to stay the legislation.

About Electoral Bonds Scheme 

• An electoral bond is an instrument in the nature of a promissory note or bearer bond which can be purchased by any individual, company, firm or association of persons provided the person or body is a citizen of India or incorporated or established in India.
• Introduction: It was introduced through the Finance Act, 2017, which in turn amended three other statutes – the RBI Act, the Income Tax Act and the Representation of People Act – to enable the introduction of such bonds.

• Key Features & Benefits Of Electoral Bonds Scheme

  • Denominations: The bonds are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, and State Bank of India is the only bank authorized to sell them.
  • Donor Anonymity: Donors remain anonymous, known only to the bank.
  • Donation Process: Donors can buy and subsequently donate bonds to a political party, which can encash the bonds through its verified account within 15 days.
  • Purchased Limits: There is no limit on the number of bonds.
  • Unused Funds: If a party hasn’t cashed any bonds within 15 days, SBI deposits these into the Prime Minister’s Relief Fund.

Recent Supreme Court’s Decision on Electoral Bonds Scheme

• Unconstitutionality of Electoral Bonds Scheme: In the case, Association for Democratic Reforms and Anr vs Union of India Cabinet Secretary and ors, SC held an unanimous view that the electoral bonds are “unconstitutional”.
• Violation of Right to Information: The electoral bonds are violative of right to information and thus hits free speech and expression under Article 19(1)(a) of the Constitution.
• Quashing of Amendments: The court also quashed the scheme as well as amendments made to the Income Tax Act and the Representation of People Act, made the donations anonymous.
• Direction to the Electoral bond issuing body, ie. State Bank of India (SBI): 
  • The SBI is directed to halt the issuance of electoral bonds with immediate effect.
  • SBI is required to submit a report to the Election Commission of India (ECI) on political parties funded through electoral bonds from April 12, 2019.
  • The ECI must publish the received information from SBI on its website by March 13.
  • Political parties holding electoral bonds that are still within the 15-day validity period but have not been cashed are required to return these bonds to the purchaser or SBI. 

Rationale Behind the Judgement

• Access and Influence: Political contributions enhance access to legislators which translates to influence over policy making.
• Quid Pro Quo Risks: There is also a legitimate possibility that financial contributions to a political party would lead to quid pro quo arrangement due to the nexus between money and politics. 
• Violation of Right to Information and Article 19 (i)(a): The anonymity imparted by electoral bonds are violative of the right to information and Article 19(1)(a) of the Constitution.
• Corporate Funding and Political Influence: Amendments allowing unlimited corporate funding is deemed unconstitutional due to the disproportionate influence of businesses over politics. 
• Doctrine of Proportionality: The scheme fails the restrictive means test, indicating that alternative methods could achieve the stated objective of curbing black money without infringing on informational rights.

Conclusion

There is a need to strike a balance between transparency and anonymity. Many jurisdictions achieve this by allowing anonymity for small donors while mandating disclosures for larger contributions.

• For instance, in the UK, political parties must report donations exceeding £7,500 in a calendar year from a single source. Similar limits in the US and Germany are $200 and €10,000, respectively. 
  • This approach aims to protect small donors from potential victimization and address concerns about quid pro quo arrangements with larger contributors.

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