What is electoral bond and why is it so important?

On 2 January 2018, the Department of Economic Affairs, Ministry of Finance notified the Electoral Bond Scheme 2018 under Section 31 [3] of the Reserve Bank of India Act, 1934.

Objectives of the Central Government through the Electoral Bond Scheme:

[a] To provide accurate data of donations received by the political parties of the country through electoral bonds, i.e. to check whether the donations being given to the parties are black money or not.

[b] Under this scheme, the old system of political funding of political parties of India was to bring transparency in that system.

What is an electoral bond and why is it so important?

[1] It is a promissory note or bond, which is also called a vachan patra in Hindi language.

[b] This promissory note can be purchased by any Indian who has a PAN.

[C] The name of the buyer and the receiver is not written on it.  Such as the name of the donor or any other personal information is not given.

[d] The electoral bonds purchased can be deposited in the specified account of any registered political party within 15 days.

[e] The political parties can encash the electoral bonds deposited in the bank in cash equivalent to their value amount.

[F] These bonds are valid for a period of 15 days from the date of issue. No payment is made to the concerned political party if the bonds are deposited after the expiry of 15 days.

[G] If the bonds are not encashed within 15 days, they are deposited in the Prime Minister's Relief Fund by the authorized bank.

Some important information related to Electoral Bonds:-

• Electoral bonds can be encashed only by eligible political parties. These bonds are non-refundable.

Important point:- Only parties registered under section 29A of The Representation of the people Act 1951 and securing at least 1 per cent of the total votes polled in the last general election to the Lok Sabha or State Legislative Assembly were eligible to receive electoral bonds. A political party can encash electoral bonds only through a bank account in an authorised bank. Under the Electoral Bond Scheme, State Bank of India was notified as the authorised bank to issue and encash bonds.

 How Electoral Bonds work:-

• Electoral bonds can be purchased from State Bank of India branches during the stipulated period in January, April, July and October in the denominations of ₹1000, ₹2000, ₹5000, ₹10,000, ₹50000 and ₹1000000.

• Any person who is a citizen of India and has a PAN card can purchase electoral bonds.

• The name of the donor or any other personal information is not disclosed while purchasing electoral bonds.

• Political parties can encash electoral bonds deposited in the bank in cash equivalent to their value amount.

Benefits of Electoral Bonds:-

• Transparency:- Electoral bonds bring transparency in political donations as the name of the donor or any other personal information is not made public.

• Accountability:- Electoral bonds make political parties accountable as they have to disclose how much donation they have received and from whom.

• Curb on anonymous money:- Electoral bonds reduce dependence on cash donations and help curb the flow of anonymous money in political financing.

 Challenge to Electoral Bond Scheme: NGOs like Association for Democratic Reforms and Common Cause and Communist Party of India (Marxist) etc. had filed a petition in the Supreme Court under Article 32 of the Constitution challenging the constitutional validity of the Electoral Bond Scheme. 

• The petitioners had also challenged the provisions of the Finance Act 2017 which amended the provisions of the RBI Act 1934, the Representation of the People Act 1951, the Income Tax Act 1961 and the Companies Act 2013.

Arguments of the Petitioners: - The petitioners have raised the following major arguments while objecting to the Electoral Bond Scheme:-

[a] The Central Government has ignored the objections raised by both RBI and ECI on the Electoral Bond Scheme.

 [b] The Electoral Bond Scheme with its provision for non-disclosure of information on election funding should be declared unconstitutional because -

[1] It violates Article 19(1) (a) of the Constitution of India which guarantees the voter the right to information regarding the affairs of the public and the government.

Note: It violates Article 21 of the Constitution of India as non-disclosure of information on political contributions encourages corruption and vindictiveness.

      The Scheme also violates the rights of shareholders of companies donating to political parties as it does not disclose the information to them.

[iii] The Electoral Bond Scheme and the statutory amendments made therein have put a question mark on free and fair elections by allowing limited contributions by corporate entities to political parties and by removing the requirement for disclosure of information on political funding.

       The Electoral Bond Scheme vitiates the principle of one man one vote as it enables corporate bodies to participate in political parties and to influence electoral results.  provides a great opportunity for.

        On 15 February 2024, a 5-member Constitution Bench of the Supreme Court declared the Electoral Bond Scheme unconstitutional. Along with this, the decision was given to cancel this scheme. 

Some criticisms related to electoral bonds:

Confidentiality: Some people argue that electoral bonds provide confidentiality to donors so that they can donate to political parties without any fear.

Advantage of big parties: Some people also believe that electoral bonds benefit big political parties because they have more resources and they can buy more electoral bonds.

Legal loopholes: Some people also pointed out that there are some legal loopholes in the electoral bond scheme which can be used for money laundering and other illegal activities.

Note' - On 15 February 2024, a 5-member Constitution Bench of the Supreme Court declared the Electoral Bond Scheme unconstitutional. Along with this, the decision was given to cancel this scheme.  The 5-member Constitution Bench of the Supreme Court which gave this decision included Chief Justice of India D.Y. Chandrachud, Justice Sanjiv Khanna, Justice Bhushan Ramakrishna Gavai, Justice J.V. Pardiwala and Justice Manoj Mishra.

Key highlights of the judgment: The Supreme Court in its judgment noted that the electoral bond scheme violates voters’ right to information under Article 19(1)(a) of the Constitution by keeping information related to funding of political parties confidential. 

Conclusion: Electoral bonds were a step towards reforming political funding but there were some criticisms attached to them. The scheme has been struck down by the Supreme Court of India. It remains to be seen what will be the future mechanism for funding political parties.