Supreme Court of India Strikes Down the Electoral Bond Scheme

The scheme was notified by the Government of India in January 2018. According to a Ministry of Finance release from that year, bonds could be bought by Indian citizens and entities incorporated or established in India from the State Bank of India, and could be encashed only by political parties registered under section 29A of the Representation of the People Act 1951 that had secured at least 1% of the votes in the last general or state election.

What the court decided

In its judgment, the court held that the Electoral Bond Scheme, together with the amendments made by the Finance Act 2017 to section 29C of the Representation of the People Act, section 182(3) of the Companies Act 2013 and section 13A(b) of the Income Tax Act 1961, is unconstitutional. It also held that deleting the proviso to section 182(1) of the Companies Act, which had capped corporate contributions to political parties, was arbitrary and contrary to Article 14.

Directions to the bank and the Election Commission

The court ordered the issuing bank to stop issuing electoral bonds immediately. The State Bank of India must give the Election Commission of India details of every bond bought since the court's interim order of 12 April 2019, including the date of purchase, the purchaser's name and the denomination, together with details of each bond encashed by political parties. The bank must submit that information by 6 March 2024, and the Election Commission must publish it on its website by 13 March 2024. Bonds still within their 15-day validity that have not been encashed are to be returned and refunded to purchasers.

Who is affected

Companies that bought bonds face the prospect of their contributions becoming public, and the ruling brings the Companies Act limits on corporate political contributions back into focus. Political parties lose a funding channel that had operated since 2018. Boards and compliance teams at companies that made contributions under the Electoral Bond Scheme will want to review their records ahead of the March publication deadline.

Sources

• Supreme Court of India: Association for Democratic Reforms v. Union of India, judgment of 15 February 2024
• Press Information Bureau, Ministry of Finance: Electoral Bearer Bond Scheme 2018