Electoral Bonds Strike down by Supreme Court

Electoral Bonds Strike down by Supreme Court

This article covers ‘Daily Current Affairs’ and the topic details of ”Electoral Bonds Strike down by Supreme Court”.This topic is relevant in the “Polity & Governance” section of the UPSC CSE exam.


Why in the News? 

The Electoral Bond Scheme (EBS) and related amendments were unanimously declared unlawful by a five-judge Constitution Bench of the Supreme Court (SC) of India in a historic ruling that has profound implications for political finance in India. The SC claimed that the EBS had breached Article 19(1)(a) of the Constitution, which guarantees a person’s fundamental right to information.


About the verdict of the Supreme Court 


The Supreme Court (SC) has declared the Electoral Bond Scheme (EBS) and associated amendments to key legislations as unconstitutional. The affected statutes include the Finance Act, 2017, the Representation of the People Act (RPA), 1951, the Income Tax Act, 1961, and the Companies Act, 2013.


Restoration of Pre-Amendment Legal Framework

The SC’s judgment reinstates the legal framework that existed before the Finance Act, 2017, significantly impacting political party funding regulations.


Representation of the People Act, 1951:

Section 29C, requiring disclosure of donations exceeding Rs 20,000, has been reinstated by the SC, striking down the Finance Act’s intervention allowing exemptions for Electoral Bond donations.


Finance Act, 2017 Intervention:

The SC nullified the amendment exempting Electoral Bond donations from disclosure requirements, emphasizing the need for transparency and a balance between privacy and information.


Double Proportionality Test

The SC applied the “double proportionality” test, balancing competing fundamental rights – the right to information and the right to privacy. It stressed the importance of the least restrictive methods by the state to achieve its objectives without disproportionate impacts on fundamental rights.


Companies Act, 2013 & Income-tax Act, 1961:

Section 182, imposing caps and disclosure requirements on corporate donations, has been restored by the SC, overturning the Finance Act’s changes that removed such restrictions. The SC struck down the Finance Act’s amendment exempting Electoral Bond contributions from record-keeping requirements, upholding voters’ right to information.


Application of Proportionality Test

The SC employed the proportionality test to assess the balance between voters’ right to information and the transparency of the electoral process. This test has gained significance in evaluating the constitutionality of state actions affecting fundamental rights.


Government’s Argument and SC’s Stance

The government’s claims of curbing black money and protecting donor anonymity were dismissed by the SC. The Court prioritized voters’ right to information, rejecting donor anonymity as a legitimate state aim.


SC’s Directions and Immediate Actions

The SC issued directives, ordering the State Bank of India (SBI) to halt further issuance of electoral bonds and provide details of bonds purchased by political parties since April 12, 2019, to the Election Commission of India (ECI). The ECI is mandated to publish this information by March 13, 2024, and electoral bonds within the validity period, but not encashed, must be returned with refunds issued to purchasers by the issuing bank.


About Electoral Bonds


  • Electoral bonds, introduced in 2018, constitute a system permitting undisclosed financial support to political parties. These bonds serve as financial instruments comparable to promissory notes or bearer bonds and are specifically crafted for contributions to political entities.
  • The inception of the Electoral Bonds Scheme (EBS) occurred during the 2017 Budget Session, and it was officially implemented in January 2018. The EBS was established through amendments to key legislations, namely the Finance Act of 2017, the Representation of the People Act of 1951, the Income Tax Act of 1961, and the Companies Act of 2013, facilitating a streamlined mechanism for political funding.
  • The alterations made by these amendments substantially relaxed the constraints on political party funding associated with electoral bonds. They eliminated the donation limit for companies and removed the obligation to disclose and maintain records of donations made through electoral bonds.


Mechanism of Donations via Electoral Bonds:


  • Electoral bonds are issued by the State Bank of India (SBI) and its designated branches, available in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore. Donors can acquire these bonds through a Know Your Customer (KYC) compliant account and subsequently transfer the funds to political parties.
  • Both individuals and companies, as donors, can purchase electoral bonds while maintaining confidentiality of their identities from both the bank and the recipient political parties. Contributions made through electoral bonds enjoy complete tax exemption under the scheme. Although, there exists no restriction on the quantity of electoral bonds that an individual or company can procure.


Criteria for Receiving Funds via Electoral Bonds:

  • Political parties eligible to receive electoral bonds must be registered under Section 29A of the Representation of the People Act of 1951. Furthermore, these parties must have secured not less than 1% of the votes polled in the previous elections to the Lok Sabha or a state legislative assembly.


Prelims practice questions


Q1. Consider the following statements: 

  1. Local police authorities are responsible for monitoring and enforcing the Model Code of Conduct
  2. The primary purpose of the Representation of the People Act, 1951 is to regulate corporate donations
  3. Use of government machinery is prohibited during the election period

How many of the statements above are Incorrect?

A. Only one

B. Only two

C. All three

D. None




Mains practice questions


Q1. Explore the relationship between the Representation of the People Act, 1951, and the Electoral Bonds Scheme. How do the amendments to the Act align with or deviate from the principles of fair and transparent electoral processes?

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