As the country geared up for the State Assembly Elections in West Bengal, Tamil Nadu, Kerala, Assam, and Puducherry recently, a new wave of political rebuttal surfaced after the Supreme Court reserved its order on a plea that demanded a stay on the sale of electoral bonds. An electoral bond is a promissory note that can be anonymously bought by any Indian citizen or company incorporated in India from select branches of the State Bank of India to be donated to any eligible political party of their choice. Since its inception in 2018, the electoral bonds scheme has stirred a debate among the transparency activists who fear the scheme to turn into a scam; only this time it would be completely legitimized.

The Electoral Bonds Scheme was first announced in the 2017 budget by Finance Minister Arun Jaitley to clean the political funding system and encourage a cashless economy in India. A year later, on 29th January 2018, the scheme was notified by the Government of India under the Gazette Notification No. 20. Under this scheme, electoral bonds worth ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore will be issued by specific branches of the State Bank of India for 10 days of every quarter of the year and an additional period of 30 days during the Lok Sabha elections as specified by the Central Government. These bonds which are free of interest can be purchased either digitally or through cheque by an individual or a company based in India that holds a KYC-compliant account.

The amount can be donated to the party of the donor’s choice as long as it is registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951). This Act provides for the conduct of elections of the Houses of Parliament and to the House or Houses of the Legislature of each State, the qualifications and disqualifications for membership of those Houses, the corrupt practices and other offenses at or in connection with such elections and the decision of doubts and disputes arising out of or in connection with such elections. In addition, the party should have secured at least one percent of the votes polled in the most recent General Elections or Assembly Elections. The electoral bond can be encashed by the party within 15 days only through a verified account allotted by the Election Commission of India. While the scheme appears transparent on the surface, a key feature that led to the controversy around its roll-out is that the electoral bonds will not bear the name of the donor, i.e., the political party and the general public will not be aware of the donors’ details.

Being the most important point of contention, the anonymity provided to the donors has received vehement opposition for various reasons. While the Central Government emphasized that the purpose of the scheme was to drive away black money by accounting for the donations in the balance sheets, the fact that these donations would remain anonymous did not bode well with the proponents of transparency who believe that there is no reason to keep the donor details latent. Non-disclosure of a company’s contribution to political funding will keep the company’s shareholders as well as the voters of this country in the dark resulting in the violation of the spirit of democracy. The rationale behind this part of the scheme goes against its purpose to stop corruption because keeping the donor’s identity undisclosed can help big corporate firms to donate anonymously leading to an influx of black money and open doors to the possibility of crony capitalism. 

Holding a strong stand against electoral bonds, former Chief Election Commissioner of India, S.Y. Quraishi advocated a blanket ban on corporate donations as electoral bonds have legalized the “problem of cronies running the country.” Before the Electoral Bonds Scheme, all political parties were required to disclose the details of their donors who donated beyond ₹20,000. According to Section 182 of the Companies Act, a company could not donate more than 7.5 percent of its average three-year net profit as political contributions and was required to disclose the details of their donations in their annual statements of accounts. However, the current shift to non-disclosure has not just reduced the accountability of the political parties and the companies but also infringed the citizen’s Right to Information.  

While the Electoral Bonds Scheme keeps the donors’ details anonymous from the public, there would be no restriction on the Government for accessing the information from the State Bank of India as it is a public sector bank. The reason enumerated by the Association for Democratic Reforms to substantiate such an assumption is seen in the unique alphanumeric characters hidden in the top right corner of the bonds. Invisible to the naked eye, these characters are visible under ultraviolet light. Although the Government claims security reasons behind these alphanumeric characters, it raises a considerable doubt that the ruling government wants to keep a concealed track of the donors.

The opposition for the Electoral Bonds Scheme does not just stem from the transparency activists but also the reasoned voices of independent institutions of the country like the Reserve Bank of India and the Election Commission of India. The Scheme that has conveniently amended the RBI Act to introduce electoral bonds was passed through the Financial Bill 2017 by the Government of the day in an extremely hasty manner without proper consultation with the RBI which was unequivocally critical of the scheme. According to the RBI, “electoral bonds would act as ‘bearer bonds’ with no trace of their own which will set a bad precedent by encouraging “money laundering and undermining faith in Indian banknotes,” thus eroding a core principle of central banking legislation.” When the Supreme Court refused to grant an interim stay on Electoral Bonds in 2019, the Election Commission of India made it clear that while they were not against the entirety of the Scheme, they opposed the anonymity of donors demanding full disclosure and transparency. Their concern stemmed from the lack of transparency and the possible use of black money for election funding through shell companies.

The Association of Democratic Reforms (ADR), filed its fourth application in the Supreme Court on 9th March 2021 to stop the sale of electoral bonds for the upcoming State Assembly Elections as ADR’s petition challenging the Electoral Bonds Scheme is still pending in the Court since 2017. The application submitted by ADR cites important revelations from the audit reports for FY 2017-18 and FY 2018-19, which show that “the ruling party had received more than 60 percent of the total electoral bonds issued to date.” The petition highlighted how electoral bonds have opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies while enjoying 100 percent tax exemption leading to illegal funding that taints the institution of democracy.

The Supreme Court’s response to the previous applications by ADR in 2019 was an interim order asking political parties to disclose to the Election Commission in sealed cover details of donations received by way of electoral bonds. Such an order is confusing as following it will lead the political parties to breach the conditions of the Electoral Bonds Scheme that emphasizes that the political party is not supposed to know the identity of the donor. The stay on the implementation of the Electoral Bonds Scheme was not granted then and in yet another letdown, the plea for the stay was refused by the Supreme Court on 26th March 2021. The petitions opposing the scheme have been languishing over three years and it is about time the Supreme Court reflected on its order of 2019 where it observed that the electoral bonds give rise to “weighty issues which have a tremendous bearing on the sanctity of the electoral process in the country and require an in-depth hearing.”

As the electoral bonds were issued between 1st to 10th April ahead of the State Assembly elections, the issue regarding the transparency of this scheme must receive its due hearing in the Supreme Court before the next State Assembly Elections in 2022. The loopholes in the Scheme are evident, so the first measure for improvement calls for making the donors’ identity accessible to the public. Election funding and spending policies in the United Kingdom (UK) require political parties to record the details of the donor’s name and address which will be revealed in their spending and donation return if the amount for donation exceeds £50. Similarly, the National and Regional parties in India must be obligated to declare the number of financial contributions they receive through electoral bonds, give details of all donors to the Election Commission of India, and make this information available under the Right to Information (RTI) Act. A standardized procedure must be followed to reveal this information and it should be monitored by the Election Commission of India. Penalties must be levied on political parties that fail to follow the disclosure provisions of the Election Commission. One way is that the party would be entitled to lose the tax benefits on receiving donations if it is found to be non-compliant with the disclosure measures.

To conclude, the current Electoral Bonds Scheme poses huge challenges to the country’s election system and its spirit of democracy. As a reply to an RTI, the State Bank of India recently revealed that it sold the highest amount of electoral bonds worth ₹ 695.34 crores from 1st April to 10th April before the State Assembly elections in West Bengal, Tamil Nadu, Puducherry, Assam, and Kerala. Neither the names of the political parties nor the commission charged by SBI were revealed. Despite the scope of improvement and the repeated pleas for its stay in the Supreme Court, the Electoral Bonds Scheme continues to see the light of day.

By Janhavi Jadhav, Research Associate, Policy, LQF