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Apex Court on The Electoral Bond Scheme: Setting Up Walls of Opaqueness or Mirrors of Transparency

Updated: Jul 10, 2023

Supreme Court on The Electoral Bond Scheme: Setting Up Walls of Opaqueness or Mirrors of Transparency?

An Overview of The Scheme

Electoral bonds are financial instruments (similar to promissory notes) that political parties can use to gather funding, with their buyer remaining anonymous and transactions allowed only through the State Bank of India. They were introduced by the Narendra Modi government in the Finance Bill-2017 as an alternative to cash donations made to political parties. The bonds could be purchased from select branches of the SBI (the number of which currently stands at 29, spread across different cities in India). Any party that is registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and has secured at least one per cent of the votes polled in the most recent General elections or Assembly elections is eligible to receive electoral bonds. The party will be allotted a verified account by the Election Commission of India (ECI) and the electoral bond transactions can be made only through this account. The bonds are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, and the State Bank of India (SBI) is the only bank authorised to sell them. Donors can purchase and subsequently donate the bonds to their party of choice, which the party can then cash through its verified account within 15 days. The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor's identity. There is no limit on the number of bonds an individual or company can purchase. SBI deposits bonds that a political party hasn’t enchased within 15 days into the Prime Minister’s Relief Fund. You can read the scheme here.

This scheme also has an incentive for the donor. The donations are tax deductible. Hence, a donor will get a deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party.

Petition Filed Against the Use of Electoral Bond

The Association for Democratic Reforms (ADR), a non-governmental organisation working in the area of electoral and political reforms, had moved the court seeking an interim stay on them between April 1 and April 10, alleging that front companies could use them to bribe parties.

The CJI S.A. Bobde had raised numerous concerns over the electoral bond scheme by citing the possible misuse of funds. He also acknowledged the petitioner’s claim that the role of money in electoral democracy calls for transparency. The petitioner had also cited the RBI’s concerns that shell companies might be funded by these bonds. ADR, represented by Adv. Prashant Bhushan went as far as calling the electoral bond scheme a way of ‘political bribery’.

Decision of the Supreme Court

However, the court dismissed the petition. Several observations were made during the hearing. The court observed that even though the scheme allows for anonymity, everything in this scheme happens through banking channels (hence the SBI can ascertain the identity of the donor). Clause 7 of the scheme also provides for the buyers to fulfil all documentation requirements either in-person or online. The fear of corporate houses using such bonds for the purposes of money laundering was assuaged by the fact that fulfilling KYC norms was a must for buying the bonds and the money spent on these bonds would appear on the company’s expense sheets. Since the bonds could be purchased only by a citizen of India or someone who is incorporated or established in India, the bonds would not be used by foreign corporations to influence electoral democracy in India. The court also debunked the claim of the petitioners that the bonds bought with white money could be re-purchased with black money, since the bonds are non-tradeable (as given in clause 14 of the scheme). Further, the court held that this interim arrangement will now remain and no applications for stay will be entertained every time the window for sale of electoral bonds is opened (The electoral bonds are available for purchase 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).

The case can be read here.

Written by Shivang Mishra



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