What are electoral bonds? Did they give BJP an unfair advantage?

Electoral bonds scheme was struck down by the Supreme Court on Thursday. The mechanism allowed anonymous funding to political parties.

Electoral bonds, the scheme introduced by the NDA government in 2018 allowing anonymous funding to political parties, was struck down by the Supreme Court on Thursday.

Electoral bonds, the scheme introduced by the NDA government in 2018, was struck down by the Supreme Court on Thursday

What are electoral bonds?

Electoral bonds are money instruments that act as promissory notes or bearer bonds that can be purchased by individuals or companies in India. The bonds are issued specifically for the contribution of funds to political parties.

These bonds are issued by the State Bank of India (SBI) and are sold in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore. The donations made under this scheme by corporate and even foreign entities enjoyed 100% tax exemption while the identities of the donors are kept confidential - both by the bank as well as the recipient political parties.

How are the donations made?

The bonds can be purchased through a KYC-complaint account to make donations to a political party. Once the money is transferred, the political parties will have to encash the donations within a given amount of time.

Notably, there is no limit on the number of electoral bonds that a person or company can purchase.

Who can receive funds via electoral bonds?

According to the provisions of the scheme, only the political parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than 1 per cent of the votes polled in the last elections to the Lok Sabha or a state legislative assembly are eligible to receive electoral bonds.

Electoral bonds scheme and the case

The electoral bonds scheme was first announced by former finance minister Arun Jaitley during the 2017 Budget Session. Later, it was notified in January 2018 as a source of political funding by way of money bills introducing amendments to the Finance Act and the Representation of the People Act. In order to implement the scheme, the Centre carried out certain amendments to the Companies Act, Income Tax Act Foreign Contribution Regulation Act (FCRA), and the Reserve Bank of India Act.

However, several petitions were filed in the Supreme Court, including those filed by CPI(M), Congress, and some NGOs, against the constitutional validity of the electoral bonds scheme. The hearing into this matter began on October 31 last year. Several arguments were made by the petitioners on the scheme including its legality and the possible threat it may impose to the country.

According to the petitioners, the scheme violates the right to information, opens doors to shell companies, and promotes corruption. Rajya Sabha MP and senior advocate Kapil Sibal had raised that a political party could use the donations for any other purposes than election.

However, the Centre has maintained that the scheme ensures “transparency” and is a “powerful check on the use of illicit money in elections.”