Electoral Bond Scheme

The Electoral Bond (EB) Scheme, introduced in 2018, was a mechanism for funding political parties in India. It was struck down as unconstitutional by a 5-judge Supreme Court bench in Association for Democratic Reforms v. Union of India (2024), citing violations of the right to information (Article 19(1)(a)) and equality (Article 14).

Key Features of the Electoral Bond Scheme

1. Bearer Instrument:
   • EBs were anonymous, non-interest-bearing “promissory notes” purchasable from State Bank of India (SBI).
   • No disclosure of donor or recipient party identities.
2. Eligibility:
   • Donors: Indian citizens/entities incorporated in India (including foreign-owned shell companies).
   • Recipients: Only political parties that secured ≥1% votes in the last Lok Sabha/state election.
3. Anonymity & Transparency Claims:
   • Transactions routed through banking channels (to curb black money).
   • Bonds carried a unique alphanumeric code traceable under UV light (for auditing by authorities, not public).
4. Donation Limits:
   • Bonds available in denominations from ₹1,000 to ₹1 crore.
   • No cap on total donations.

Why Did the Supreme Court Strike Down the Scheme?

The Court ruled the scheme violated constitutional principles for the following reasons:

1. Right to Information (RTI):
   • Voters have a right to know the funding sources of political parties to assess potential conflicts of interest.
   • Anonymity undermined electoral transparency and enabled unchecked corporate influence.
2. Arbitrary and Discriminative:
   • The 1% vote-share threshold excluded smaller/regional parties, violating Article 14 (equality before law).
   • Unlimited corporate donations created a risk of quid pro quo between donors and ruling parties.
3. Shell Companies & Foreign Influence:
   • Permitted donations via Indian subsidiaries of foreign companies, raising concerns about foreign interference.
   • Anonymity allowed shell companies to funnel illicit funds.
4. Opacity Over Transparency:
   • While donations were via banks, the public and Election Commission had no access to donor details, defeating the scheme’s stated purpose.
5. Unlimited Funding:
   • Lack of donation caps enabled disproportionate corporate influence over policymaking.

Global Context & Precedents

• The Court referenced global practices (e.g., Germany and South Africa) where anonymous political funding is restricted to protect democracy.
• Relied on precedents like PUCL v. Union of India (2003), which upheld voters’ right to candidate criminal/financial records.

Implications of the Judgment

1. Disclosure Mandate:
   • SBI must disclose all EB transaction details (purchasers, recipients, dates) to the Election Commission of India (ECI).
   • ECI to publish this data publicly.
2. Corporate Donation Cap Restored:
   • Companies can no longer donate unlimited amounts; pre-2017 cap (7.5% of net profits) reinstated.
3. Transparency Reforms:
   • Renewed focus on alternatives like National Electoral Fund or state-funded elections.
4. Impact on Political Funding:
   • Major parties (BJP, Congress) received ~90% of EB funds (₹16,000+ crore since 2018). Disclosure may expose donor-politician ties.

Criticisms and Challenges Ahead

• Retrospective Disclosure: May deter future donations due to fear of backlash.
• Alternative Black Money Routes: Cash donations (via amended Electoral Trusts) could resurge.
• Need for Comprehensive Reform: Balancing transparency, privacy, and practical fundraising remains unresolved.

Conclusion

The Supreme Court’s verdict reaffirms transparency as a cornerstone of free and fair elections. While the EB scheme aimed to formalize political funding, its anonymity provisions conflicted with democratic accountability. The ruling underscores the need for legislative reforms that prioritize public scrutiny over opaque financial influence in politics.