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In a significant judicial pronouncement, the Supreme Court, comprising a five-judge bench led by Chief Justice of India D Y Chandrachud, along with Justices Sanjeev Khanna, B R Gavai, J B Pardiwala, and Manoj Misra, recently delivered its verdict on the contentious electoral bond scheme.

The judgement, preceded by extensive deliberation since November 2 of the previous year, presents a comprehensive evaluation of the scheme's legality and its ramifications for India's democratic framework.

Key Observations by the Supreme Court

• Violation of Right to Information: The apex court unequivocally declared that the practice of utilising anonymous electoral bonds infringes upon the fundamental Right to Information enshrined in the Constitution, particularly under Section 19(1)(a).
• Risk of Quid Pro Quo Arrangements: Expressing grave concerns, the court underscored the inherent risk of fostering quid pro quo arrangements through financial contributions via electoral bonds to political entities, thereby potentially compromising the integrity and fairness of the electoral process.
• Exploring Alternative Mechanisms: In recognizing the imperative to combat the scourge of black money in politics, the court urged the government to explore alternative mechanisms beyond the electoral bond scheme, underscoring the necessity for holistic reforms in campaign financing.
• Unjustified Compromise on Transparency: Critiquing the notion of sacrificing transparency in pursuit of curbing black money, the court emphasised the non-negotiable importance of maintaining transparency and accountability in the electoral arena.
• Unconstitutionality of Companies Act Amendment: The court unequivocally condemned the amendment to the Companies Act, which permits blanket corporate political funding, deeming it unconstitutional and raising concerns about undue influence and accountability.
• Selective Anonymity and Confidentiality: Highlighting discrepancies within the scheme, the court expressed reservations about its provision for "selective anonymity" and "selective confidentiality," emphasising the need for equitable access to information for all stakeholders.
• Right to Disclosure of Funding Sources: Criticising the government's stance on denying voters the right to ascertain the funding sources of political parties, the court reiterated the fundamental principle of transparency in democratic governance.
• Call for a Balanced Framework: Emphasising the paramountcy of devising a balanced system that upholds proportionality and ensures a level playing field in political funding, the court called upon the Union government to formulate a new framework addressing these concerns.
• Directive on Data Disclosure: In a move toward enhancing transparency, the court directed the Election Commission of India (ECI) to disclose comprehensive data on electoral bonds' contributions until September 30, 2023, thereby fostering greater accountability in the electoral process.
• Mandate for Bond Encashment Disclosure: Furthering the transparency agenda, the court mandated that the State Bank of India (SBI) furnish detailed records of electoral bonds encashed by political parties to the Election Commission of India (ECI), enhancing transparency and accountability mechanisms.

What are Electoral Bonds?

The introduction of electoral bonds through the Finance Bill of 2017 marked a significant shift in India's political funding landscape. 

Creation and Implementation

• The Finance Bill of 2017 laid the groundwork for electoral bonds as interest-free bearer instruments.
• These bonds can be purchased from designated branches of the State Bank of India within a 10-day window in each quarter of the financial year.
• Implementation commenced on January 29, 2018, heralding a new era in political financing.

Bearer Instruments

• Electoral bonds function akin to promissory notes, designed as bearer instruments.
• Similar to banknotes, they do not accrue interest and are payable to the bearer on demand.

Denominations and Redemption

• Electoral bonds are issued in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore.
• These bonds must be redeemed within 15 days of issuance by submitting them to the political party of choice.

KYC Compliance

• Purchasers of electoral bonds are required to provide comprehensive Know Your Customer (KYC) details at the time of purchase.
• This ensures transparency and accountability in the process of political funding.

Anonymity of Donors

• While buyers must adhere to KYC norms, the identity of the entity purchasing the bond remains confidential.
• Political parties receiving the bonds are not obligated to disclose the identity of the donor(s), maintaining donor anonymity.

Key Features of Electoral Bonds

• Issuer and Accessibility: Designated banks are authorised to issue electoral bonds. Donors can approach these banks to purchase the bonds.
• Payment Methods: Donors have the option to purchase electoral bonds using a check or digital payment methods.
• Availability Period: Electoral bonds are available for purchase for a specified period at the beginning of each quarter: January, April, July, and October. During a Lok Sabha election year, an additional thirty-day period is designated for bond purchase.
• Anonymity of Donors: Electoral bonds do not contain the name of the donor to safeguard their privacy. This ensures that contributions made to political parties are reflected in balance sheets without revealing personal donor information.
• Depositing Funds: Political parties receiving electoral bond donations are required to deposit the funds into an account with the Election Commission of India.

Conditions for Electoral Bonds

• Eligibility Criteria for Parties

• Political parties eligible to acquire electoral bonds must be registered under Section 29A of the Representation of the Peoples Act, 1951.
• Additionally, the party must have received at least 1% of the votes cast in the most recent General or Assembly elections.

• Verified Account by ECI

• Upon meeting the eligibility criteria, the Election Commission of India (ECI) provides the party with a verified account.
• All transactions related to electoral bonds are conducted through this verified account.

• Donor Anonymity

• The names of donors do not appear on electoral bonds, ensuring that the identity of donors remains confidential.
• Political parties may not be aware of the donor's identity due to this anonymity feature.

Benefits of Electoral Bonds

• Transparency: Establishes a transparent bond-purchasing mechanism with verified KYC and an audit trail. Encourages donations through banking, enabling authorities to gather contributor information. Promotes clean political contributions, breaking the link between business interests and politics.
• Curbing Black Money: Limited window and short maturity period make it challenging to use electoral bonds for black money transactions. Political parties are required to disclose the funds acquired through electoral bonds.
• Secrecy: Provides confidentiality to contributors, protecting them from potential backlash or persecution by opposing parties.
• Combating Tax Evasion: Strict eligibility criteria deter attempts to form political entities solely to evade taxes.

Disadvantages of Electoral Bonds

• Anonymity: Lack of transparency regarding contributors affects the public's understanding of election funding, potentially undermining the fairness of elections.
• Non-disclosure of Donor Source: Neither the donor nor the political party is obligated to disclose the source of funds, infringing upon the public's right to information.
• Information Disparity: Government affiliation with State Bank of India (SBI) may lead to concerns about data privacy and potential bias towards ruling parties.
• Potential for Crony Capitalism: Removal of the cap on corporate donations in the 2017 Finance Bill may facilitate the formation of shell companies to support political parties, fostering crony capitalism.

Way Forward

• Transition to Digital Transactions: Embracing digital transactions can enhance transparency while safeguarding donor privacy. This shift ensures a balance between confidentiality and accountability.
• Implementation of Recommendations: Recommendations from authoritative bodies like the 2nd Administrative Reforms Commission (ARC) and the Dinesh Goswami committee should be seriously considered to improve election spending regulations.
• Incorporating Political Parties under RTI Act: Bringing political parties under the purview of the Right to Information (RTI) Act can significantly enhance transparency in their funding and functioning.
• Public Advocacy for Reform: Public pressure and advocacy are crucial to drive reforms in the electoral funding system. It is essential to engage citizens in demanding accountability from the political class.

National Electoral Fund: Establishing a National Electoral Fund, as proposed by former Chief Election Commissioner S.Y. Quraishi, offers a promising solution. This fund would aggregate contributions from all donors and distribute them to political parties based on their electoral performance. Such a system ensures donor anonymity and eliminates the influence of dark money in political donations.