What are Electoral Bonds? How Do They Work and What are the Challenges in the Supreme Court?

In a significant ruling, the Supreme Court of India declared electoral bonds illegal, calling them “unconstitutional.” This decision came on February 15, a few months before the biggest democratic elections in the world, the Lok Sabha elections of 2024, take place.

The decision was taken by a five-judge bench in the Supreme Court, led by the Chief Justice of India, Hon. Dhanajay Yeshwant Chandrachud. The court said, "The scheme has been declared unconstitutional, the issuance of fresh bonds is prohibited."

"The ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual. Contributions made by companies are purely business transactions made with the intent of securing benefits in return,” wrote SC.

But what are the electoral bonds, and how do they work? Let’s elaborate on them. 

Electoral Bonds

Electoral bonds are a political funding system that keeps the identities of the donors anonymous. They were introduced in the Finance Bill of 2017, presented by Finance Minister Nirmala Sitharaman, during the 2017–2018 budget session. 

In simple terms, electoral bonds (EBs) are special financial instruments sold in various denominations such as ₹1,000, ₹10,000, ₹100,000, and higher. Individuals or companies can buy these bonds and give them to a political party of their choice. The party can then use or cash these bonds after 15 days without paying any extra money. Unlike regular donations, where political parties have to disclose names for donations over ₹2,000, donations using electoral bonds can stay anonymous, regardless of how much money is given by the donors.

How do Electoral Bonds Work?

Electoral bonds are financial instruments sold by the State Bank of India, the biggest commercial bank in the country. Individuals, groups, or corporations can buy these bonds and then donate them to a political party.

• Purchase: Interested parties buy electoral bonds from SBI in different amounts, ranging from 1k to 10 million. 
• Donation: The buyer then gives these bonds as a donation to the political party they support.

• Redemption: The political party can redeem these bonds after a 15-day cooling-off period. The redemption process does not involve paying any additional interest.

The Controversy

Since Electoral Bonds were introduced in 2017, they have faced intense criticism from the opposition and other parties, as they hindered the transparency of political funding. Critics have also pointed out that, because of EBs, private entities can impact and influence the government’s decisions. 

Notably, the ruling party, the BJP, has profited the most from donations via electoral bonds. 

Up to November 2023, individuals and companies purchased 165.18 billion rupees ($1.99 billion) worth of these bonds, according to the Association for Democratic Reforms (ADR), a non-governmental civil society organisation that works on financing elections in India. Since their introduction, the BJP has issued bonds worth 120.1 billion rupees, of which 65.66 billion rupees, or more, have been received. The bonds were sold until the conclusion of the fiscal year in March 2023.