The Electoral Bond Scheme was a mechanism, introduced in 2018 by the Central government, for funding political parties in India. The scheme was proposed in the Finance Bill, 2017, with the stated objective of enhancing transparency in political funding and curbing the use of black money by encouraging donations through formal banking channels.
The scheme worked by allowing any Indian citizen or entity incorporated in India to purchase interest-free, bearer banking instruments, called electoral bonds, from specified branches of the State Bank of India (SBI). These bonds were available in denominations like ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore, and were valid for 15 calendar days from the date of issue. A key provision was that the bonds did not carry the name of the donor, ensuring anonymity to the political party, which could then encash them through a designated bank account registered with the Election Commission of India (ECI).
The scheme was connected to several legislative amendments made through the Finance Act, 2017, which altered the framework of political funding. Amendments were made to the Reserve Bank of India Act, 1934, to allow the issuance of the bonds. The Representation of the People Act, 1951 (Section 29C), was amended to exempt political parties from disclosing contributions received through electoral bonds in their Contribution Reports. Furthermore, the Companies Act, 2013 (Section 182), was amended to remove the earlier cap on corporate donations, which was 7.5% of the company's average net profits over the preceding three years, thus allowing unlimited corporate funding.
The scheme was recently struck down as unconstitutional by the Supreme Court on February 15, 2024. In the case of Association for Democratic Reforms & Anr. v. Union of India & Ors., a five-judge Constitution Bench unanimously held that the scheme violated the voters' right to information under Article 19(1)(a) of the Constitution. The Court also held that the amendment to the Companies Act permitting unlimited corporate contributions was arbitrary and violative of Article 14. The judgment directed the SBI to submit details of all bonds purchased since April 12, 2019, to the ECI for public disclosure.