Revision summary
Electoral bonds were 2018 SBI instruments bought with KYC and gifted to registered parties. The donor’s name did not appear in the public contribution trail. Finance Act 2017 changes enabled unlimited corporate giving and weaker disclosure. Opacity was asymmetric if the state could still infer donors while voters could not. The Supreme Court in 2024 held the scheme unconstitutional for violating Article 19(1)(a).
Model answer
Introduction
Electoral bonds were bearer-style debt instruments notified in 2018 so that a donor could buy a bond from the State Bank of India and hand it to a registered political party. They were sold as clean, cheque-based funding; in law and in practice they hid the donor from the voter.
Body
What the instrument was
- A buyer, including a company after the Finance Act, 2017 removed the company-donation cap and the need to name a party in accounts, purchased a bond in set denominations through KYC at SBI.
- The party encashed the bond in a designated account within a short window; the bond itself did not carry the donor’s name in the public domain.
- The scheme sat beside 7A of the Representation of the People Act and Income-tax changes that exempted these donations from the usual donor-disclosure trail.
Transparency test
- Transparency in political funding means the citizen can map money to a party and, where relevant, to a policy favour. Electoral bonds broke that map: SBI and the Government knew more than the Election Commission or the voter.
- Anonymity was asymmetric. The ruling party’s possible access to investigative and banking data, alleged in litigation, meant the donor was invisible to the public but not necessarily to power.
- Unlimited corporate gifts, including from loss-making or newly incorporated firms, and the end of the 7.5 per cent of profit cap, invited opacity and potential quid pro quo, not sunlight.
Judicial close
- In February 2024 the Supreme Court in Association for Democratic Reforms struck the scheme down as unconstitutional for violating the voter’s right to information under Article 19(1)(a).
- Bonds therefore failed the transparency test they were advertised to pass; they channelled legal money through a dark pipe.
Flow diagram
flowchart TD D[Donor KYC at SBI] --> B[Electoral bond] B --> P[Party encashment] P --> H[Public cannot see donor] SC[Supreme Court 2024] --> X[Scheme struck down]
Conclusion
Electoral bonds were SBI-sold instruments for party funding with KYC at the bank and anonymity toward the public. They were not capable of bringing transparency; the 2024 judgment confirmed that they sacrificed the voter’s information right for a claim of cashless cleanliness.
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Did electoral bonds stop cash donations entirely?
No. They created a banking channel for large gifts. Cash and other opaque routes were not abolished by the scheme.
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Why did the Supreme Court strike them down?
Because anonymous political donations violated the voter’s right to information, a part of freedom of speech under Article 19(1)(a), and were not a proportionate restriction.
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