Electoral bonds history

1. Background: why electoral bonds were introduced

Political parties require money for organisation, communication and election campaigns. Historically, substantial reliance on cash and incomplete donor disclosure made Indian political finance difficult to scrutinise. Before electoral bonds, Section 29C of the Representation of the People Act, 1951 required parties to report contributions exceeding ₹20,000 to the Election Commission of India. However, fragmentation into smaller contributions and weak enforcement limited transparency. Electoral trusts, introduced earlier, offered a separate regulated channel for collecting and distributing donations.

The Union Budget 2017–18 proposed electoral bonds as a banking-based alternative to cash. The government argued that purchases through accounts, compliance with know-your-customer requirements and redemption through designated party accounts would bring funds into formal banking channels. Donor confidentiality was defended as protection against political retaliation. The proposal therefore combined traceability within the banking system with anonymity from the general public.

The central policy dispute concerned whether formal banking alone could produce clean political finance. Critics distinguished banking transparency from electoral transparency: a bank might know the purchaser, while voters remained unable to identify who financed a party. The Election Commission raised concerns about reduced disclosure and corporate-funding safeguards. The Reserve Bank of India also expressed objections concerning the proposed bearer-instrument arrangement. These concerns predated the scheme’s eventual constitutional invalidation.

2. Legal architecture and working of the scheme

The Finance Act, 2017 created the principal enabling framework. It amended the Reserve Bank of India Act, 1934 to permit the Central Government to authorise a scheduled bank to issue electoral bonds. Changes to Section 29C of the Representation of the People Act and Section 13A of the Income-tax Act, 1961 removed the ordinary donor-identification requirements for contributions received through these bonds. The Electoral Bond Scheme, 2018 supplied the operational rules.

An Indian citizen or an entity incorporated or established in India could purchase bonds from authorised SBI branches after fulfilling banking and KYC requirements. A purchaser could transfer the instrument to an eligible political party, which redeemed it through its designated account. The bond carried neither interest nor the purchaser’s name on its face. Although popularly called anonymous, it was not anonymous to the issuing bank: SBI held purchase records, and unique identifiers subsequently enabled matching of purchases and redemptions.

Ordinarily, sales took place during specified ten-day windows in January, April, July and October. Additional windows were permitted for elections under the scheme and later amendments. Bonds had to be redeemed within 15 calendar days; unredeemed amounts were transferred to the Prime Minister’s Relief Fund. Eligibility to receive bonds was narrower than mere registration as a political party because of the additional 1% vote-share threshold.

A connected amendment to Section 182 of the Companies Act, 2013 removed the ceiling limiting corporate political contributions to 7.5% of average net profits during the preceding three financial years. It also replaced party-wise disclosure with disclosure of the aggregate contribution. These changes were especially consequential because they weakened checks against disproportionate corporate influence and funding through entities without a meaningful profit history.

3. Constitutional challenges and the 2024 judgment

Petitioners challenged the scheme as inconsistent with informed electoral choice and political equality. In April 2019, the Supreme Court ordered parties to provide specified bond-related information to the Election Commission in sealed covers but did not stop the scheme. In March 2021, it declined to stay further sales. A five-judge Constitution Bench heard the substantive constitutional challenge in 2023 and delivered judgment on 15 February 2024.

In Association for Democratic Reforms v. Union of India, the Court unanimously held that withholding information about political contributions through electoral bonds violated the voter’s right to information under Article 19(1)(a). Its reasoning built on the constitutional importance of informed voting recognised in earlier cases concerning candidate disclosures, including Union of India v. Association for Democratic Reforms, 2002. Information about party financing helps citizens evaluate influence over public policy, not merely the personal background of candidates.

Applying proportionality analysis, the Court rejected the proposition that combating unaccounted money justified this degree of secrecy. Less restrictive alternatives could promote banking-based donations without extinguishing public scrutiny. The Court recognised that political affiliation and donor privacy deserved consideration, but a blanket shield for political contributions failed to adequately balance privacy against voters’ informational interests.

The Court separately held that permitting unlimited corporate contributions was manifestly arbitrary under Article 14. Corporate donations can seek commercial returns through political access, and removing the funding ceiling disregarded relevant differences between companies and individuals and between profit-making and loss-making companies. It invalidated the scheme and the challenged statutory changes. The decision should not be reduced to a general ruling against all confidential donations, nor treated as a conclusive determination of every controversy surrounding the Finance Act’s passage as a Money Bill.

4. Disclosure, institutional roles and historical significance

The Court directed SBI to stop issuing electoral bonds and disclose purchase and redemption information to the Election Commission, which was required to publish it. SBI sought time until 30 June 2024, citing the work involved in compiling the records. On 11 March, the Court rejected the extension request and required disclosure by the following day. The Election Commission published the initial datasets on 14 March.

Further judicial directions required complete disclosure, including the unique alphanumeric bond numbers. The expanded records published in March enabled researchers and citizens to connect purchasers with recipient parties for the disclosed period. The disclosure exercise covered transactions from 12 April 2019 onward under the Court’s directions; it should not be described as an automatically complete transaction-level history beginning with the first sales in March 2018.

The episode illustrates distinct institutional functions. Parliament altered the statutory framework, the Union government notified the scheme, SBI administered it, the Election Commission published information, and the Supreme Court tested constitutionality. Article 324 gives the Election Commission responsibility for the superintendence, direction and control of elections, but does not enable it to disregard statutes or independently strike down a funding scheme.

For electoral reform, the principal lesson is that formal payment channels, disclosure and enforcement are complementary. Publicly accessible, standardised donation records, effective auditing and safeguards against circumvention remain essential. Disclosure may reveal patterns warranting investigation, but a donation followed by a contract or regulatory decision does not by itself prove bribery. The constitutional judgment established the scheme’s invalidity; criminal responsibility requires separate evidence and proceedings.

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