Explainer | SC resumes hearing Electoral Bonds case: What is the issue all about?

Do electoral bonds promote Indian democracy or stifle it? This question is at the root of the challenge now being studied by the Supreme Court to a scheme that enables anonymous funding of political parties.

On Tuesday (November 1), a five-judge bench of the Supreme Court headed by Chief Justice DY Chandrachud resumed hearing arguments on the Electoral Bonds Scheme. The apex court observed that electoral bonds were kept anonymous perhaps to prevent repercussions from parties to whom the donor has not made donations. The top court also asked the Election Commission (EC) to continue maintaining records of the money received by all political parties through electoral bonds since its interim order in 2019.

The court’s observation came while hearing a batch of pleas challenging the legal validity of the anonymity clause of electoral bonds.

What are electoral bonds?

An electoral bond is in the nature of a promissory note or bearer bond which can be purchased by any individual, company, firm or association of persons provided the person or body is a citizen of India or incorporated or established in India.

The Electoral Bond Scheme allows donors to anonymously fund a political party after buying bearer bonds from select branches of the government-owned State Bank of India.

The bonds are sold in denominations ranging from ₹1,000 to ₹1 crore. Political parties are entitled to encash these bonds within 15 days of receiving them to fund their electoral expenses.

These bonds are available only for 10 days in the beginning of every quarter: January, April, July and October. An additional 30 days shall be specified by the government in the year of Lok Sabha elections.

There is no limit on the number of bonds an individual or company can buy.

Why is the anonymity clause contentious?

While the scheme ensures that the identity of the donor is kept secret, civil society groups and opposition parties argue that the scheme, in fact, helps super rich corporates to fund the ruling party in particular with huge doles of money to influence government decisions.

Although it is claimed that the funding will be a secret and done through banking channels, the ruling party, which controls the government, can find out who is funding who, they allege.

This simply takes away the level playing field between the ruling and opposition parties which is vital for the functioning of a democracy.

Also, the secret funding by political parties also means that shareholders who invest money in companies are kept in the dark about how large sums are being used for purposes ostensibly not linked to corporate growth.

In any case, critics say, the secret funding means that voters at large too do not know who is funding the political parties although they are entitled to know about the antecedents of all the candidates in elections.

What is the Electoral Bonds case?

The first petitions against the controversial scheme were filed in 2017, three years after Narendra Modi became the prime minister.

The CJI and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala and Manoj Misra will continue hearing arguments on the first batch of pleas challenging the legal validity of the Electoral Bonds Scheme after a gap of over two years.

All eyes are on the verdict of the top court as it will be significant ahead of the Assembly elections and the Lok Sabha polls next year.

What arguments have the petitioners made?

Appearing for the Association for Democratic Reforms (ADR), advocate Prashant Bhushan on Tuesday said that the bonds hit the root of the democracy.

He alleged that the parties in power were receiving "kickbacks" through the bonds. He said the BJP alone had received more than 50 per cent of the donations. Less than one per cent went to the opposition parties.

Insisting that there was circumstantial evidence that the bonds were used as kickbacks and possible quid pro quo, Bhushan wondered why a debt-ridden company like Vedanta was donating to parties.

In 2019, the Supreme Court declined to stay the scheme, saying both the Central government and the Election Commission had raised "weighty issues" that had a major bearing on the sanctity of electoral democracy.

Only political parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than one per cent of votes polled in the last general election to parliament or state assemblies are eligible to receive electoral bonds.

The government argues that the bonds would keep a tab on the use of black money for funding elections. In their absence, businesses would provide money in cash to political parties.

According to one report, between 2016 and 2022, a whopping ₹16,437.635 crore was donated to 31 recognised political parties. Of this, 55.9 per cent or ₹9,188 crores were received through the bonds.

The remaining amount of ₹4,614.53 crore (28.07 per cent) came from the corporate sector and ₹2,634.74 crore (16.03 per cent) from other sources.

Is BJP getting plum donations?

During this period, more than 52 per cent of BJP’s total donations came from electoral bonds worth ₹5,271.97 crore.

The Congress received the second-highest donation from the bonds – ₹952.29 crore.

When the bonds were introduced, the EC too said it would compromise electoral transparency. But the poll panel did a U-turn a year later.

Milan Vaishnav of Carnegie Endowment for International Peace, a Washington-based think tank even went as far as saying, “With electoral bonds, the government has essentially legislated opacity.”

A BBC report quoted him as saying, “Donors can make gifts of any size to recipients and neither side must publicly disclose the details of the transactions. If this is being advertised as ‘transparency’, it is truly a novel definition of the word.”