The concept of Electoral Bonds was introduced in the year 2017 in the finance bill 2017. This led to amendments in three statutes namely the Reserve Bank of India Act, the Income Tax Act and the Representation of People Act.
An electoral bond is a promissory note which can be bought by a company incorporated in India or by any citizen of India from selected branches of State Bank of India. The bond by them can then be donated to a political party of their choice. These bonds are free of interest and are similar to bank notes hence are payable to the bearer on demand. These bonds can be purchased either digitally or by cheque.
In 2017 petitions were filed by the political party Communist Party of India(Marxist), and NGOs Common Cause and Association for Democratic Reforms(ADR) challenging the provisions of the Finance Act which led the way to anonymous Bonds by stating “an obscure funding system which is unchecked by any authority”. The petitioners stated that by amending the companies act would lead to “private corporate interests taking precedence over the needs and rights of the people of the State in policy considerations.” Irrespective of the fact that the case was filed in 2017 it became active in March 2019 and by then most of the electoral bonds had been purchased. A three judge bench comprising of CJI Ranjan Gogoi, Justice Deepak Gupta and Sanjiv Khanna on 12th April, 2019 directed the political parties to submit the details of donations received to the Election Commission of India in a sealed cover by 30th May 2019.
The Election commission of India in the mean while had also filed a counter affidavit expressing its concerns about the anonymity of the bonds. It expressed that through the amendment made under section 29C of the Representation of Peoples Act, 1951 the political parties would not be bound to show where they received their donations from to the ECI. Due to this the ECI would be oblivious as to whether the donation was from foreign sources or a government company which is prohibited under Sec 29B of the same act thereby requesting for the withdrawal of the amendment.
The ECI also raised concerns regarding the amendment made in section 182 of the Companies Act, 2013. The amendment diluted the restriction under the section in accordance to which a company could donate only maximum 7.5% of the net average profit of three preceding financial years which in turn allowed the newly incorporated companies to donate as well thereby opening the possibility of shell companies.
Lastly the ECI pointed out that the amendment made in 182(3) removes the fact that the companies had to show the donation made to the political parties under that profit and loss account. Now they can show it under the head of total expenditure which according to the ECI would increase the possibility of funding the political parties through black money via shell companies. Through these points they expressed their concern towards the possible serious repercussions due to the amendments.
The ECI also stated that they were not against the bonds however requested for more transparency. The centre countered by stating that the schemes would bring transparency and the anonymity was to protect the privacy of the donor.
Finally in the order passed on 26th March, 2021 the Supreme Court refused to put a stay on issuance of new bond from 1stApril for the assembly polls in West Bengal, Kerala, Tamil Nadu, Assam and Puducherry. The court along with that dismissed the application filed by the NGO by stating that there was no justification for a stay then as the bonds were with great safety issued before in the years 2018,2019 and 2020.