India’s Supreme Court bans political funding via electoral bonds
Undeclared individuals and companies bought Rs165.18b of such bonds up to November 2023
NEW DELHI: India’s Supreme Court on Thursday scrapped a seven-year-old election funding system that allows individuals and companies to donate money to political parties anonymously and without any limits, calling it “unconstitutional”.
The system, called Electoral Bonds, was challenged by opposition members and a civil society group on grounds that it hindered the public’s right to know who had given money to political parties.
Under the system, a person or company can buy bonds from the state-run State Bank of India and donate them to a political party.
Undeclared individuals and companies bought Rs165.18 billion ($1.99 billion) of such bonds up to November 2023, according to the Association for Democratic Reforms, a non-government civil society group working on election funding in India. The group was a petitioner challenging the system.
A five-judge bench headed by Chief Justice D.Y. Chandrachud said: “Political contributions give a seat at the table to the contributor... this access also translates into influence over policy making.”
Because of the close nexus between money and politics it is possibile that financial contributions “would lead to quid pro quo arrangements”, the court said.
Individuals can donate any amount of cash. Companies had been restricted based on their revenue and profits, but the bond system removed those limits.
The anonymous and tax-exempt bonds would then be handed to political parties and exchanged for cash.
Denominations range from Rs1,000 rupees ($12) to Rs10 million ($120,000).
In addition to the concerns about the scheme allowing huge anonymous donations to parties, critics also feared it gave the government the power to access donor details through the state-owned SBI.
Electoral bonds were first sold in 2018. In the period 2021-22, ADR calculated that more than half of all donations received by political parties used the scheme.
In the 2019 general elections, spending by candidates and political parties ran up to $8.7 billion, according to the New Delhi-based Centre for Media Studies.
The Supreme Court brought reinstated corporate donation limits, saying that treating companies and individuals alike for this was “manifestly arbitrary”.
“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,” the court wrote.
"Before the amendment, loss making companies were not able to contribute. The amendment does not recognise the harm of allowing loss-making companies to contribute due to quid pro quo. The amendment to Section 182 Companies Act is manifestly arbitrary for not making a distinction between loss making and profit making companies," the court added.
The court directed SBI to not issue any more such bonds, to furnish identity details of those who bought them, and to provide information about bonds redeemed by each political party.
The federal government had defended the policy, saying it mitigates the use of cash or “black money” in political funding, allowing donors a confidential channel to contribute to any party’s funds.
Of the Rs120.1 billion worth of bonds sold up to the end of the fiscal year in March 2023, the ruling Bharatiya Janata Party had received more than half, worth Rs65.66 rupees.