What are electoral bonds, and why has their validity been challenged in the Supreme Court?

The Supreme Court of India has reserved its decision on the matter and directed the Election Commission to submit a report on donations received by political parties in Electoral Bonds till 30 September; Image: Anushree Fadnavis

Electoral Bonds are interest-free bearer bonds that can be issued for the purpose of donation to a political party. An individual, company, or firm can purchase these bonds from selected branches of the State Bank of India after completing the due KYC procedure.   

Electoral Bonds were introduced in 2017 through the Finance Act. These bonds can be issued in the name of political parties registered under the Representation of People Act, 1951, and that have secured at least 1 per cent votes in the last State Assembly or Lok Sabha elections. 

Electoral Bonds do not contain the buyer's name or other information, and there is no limit on the number of bonds a person or company can purchase. These bonds can be issued for any value in the multiples of Rs 1,000, 10,000, 1 lakh, 10 lakh and 1 crore. The bonds have a life of only 15 days. 

The anonymity of the buyer of Electoral Bonds has become a big issue, and therefore, several petitions have been filed in the Supreme Court against them since the inception of the bonds. A Constitutional Bench of the Supreme Court, headed by CJI DY Chandrachud, is hearing the matter. 

Representing the government in the Supreme Court, Solicitor General of India Tushar Mehta said that the confidentiality of the bond's buyer is essential to protect the donor's privacy and prevent retribution and victimisation from any other political party. Furthermore, he said, only the recipient party could know the donor's details.  

Senior advocates Kapil Sibal, Shadan Farasat and Prashant Bhushan, the petitioners, argued that the scheme undermines the public interest and the citizens’ right to know who contributes to their political parties. Shadan Farasat said, “Right to privacy of individuals cannot extend to shadow the entire political system and affect the public interest.” 

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Another highly contended issue in the court was the risk of the creation/use of shell companies for political donation purposes. Before introducing the Electoral Bonds through the Finance Act 2017, which amended the Income Tax Act, the RBI Act, and the Representation of People Act, companies were allowed to donate at most 7.5 per cent of their profits. But now, any company, irrespective of their profits and losses, can contribute. Also, the Indian subsidiaries of foreign companies can make donations.  

SG Tushar Mehta said in the court that some companies in the past wanted to donate more than the cap limit of 7.5 per cent, which led to the creation of shell companies. He said that the removal of the cap would help in disincentivising the shell companies.  

Underlining the issues with the current system, CJI DY Chandrachud said, “Would that be valid—if a company was to donate even 100 per cent of its revenue? Is that guided by altruistic motives?” 

The Supreme Court of India has reserved its decision on the matter and directed the Election Commission to submit a report on donations received by political parties in Electoral Bonds till 30 September.