top of page
  • Writer's pictureIRALR


This blog is authored by Aiswariya Pratap Jena a fourth year student at School of Law, K.I.I.T. University

What is an electoral bond and how does it work?

An electoral bond is a financial instrument used for making donations to political parties. It was introduced by the then Finance Minister, Arun Jaitley in the Union Budget of 2017-18. It was put into effect by the Electoral Bond Scheme of 2018 by the Union government and was introduced in the Finance Bill, 2017. The Bill introduced ‘electoral bonds’ as an interest-free bearer instrument (similar to promissory notes) that will be available for purchase from the State Bank of India within a designated window of 10 days in every quarter of the financial year.

It is in the form of a promissory note which is bearer in character. So, the most important point of consideration is that it does not carry the name of the buyer or the payee and can be anonymously issued by a citizen of the country or a domestic company established or incorporated in the country.

These bonds are issued in multiples of Rs. 1,000. Rs. 10,000, Rs. 1 lakh, Rs, 10 lakh and Rs. 1 crore. It can be purchased by a citizen of India, or a business entity established or incorporated in India at any of the branches of the State Bank of India (SBI) only. No limit exists on the number of electoral bonds that a person (including corporate entities) can purchase.

Further, such amount should be withdrawn within a period of 15 days by such political parties to which the donation has been made. The bonds that are not encased within the time period would be deposited by the authorised bank to the Prime Minister Relief Fund (PMRF).

Legal parameters to consider

Although buyers of the bonds have to submit their full KYC details to the political party to which a donation is made, the parties are not required to reveal the identity of the entity that has made such donations. To make this unhindered, Section 29C of The Representation of the People Act, 1951 has been amended in 2017 to remove any obligation on political parties to disclose the identity of donors who gives any sum of money through Electoral Bonds or report the same to the Election Commission of India (ECI) annually. Further, Section 2(j)(vi) of the Foreign Contribution (regulation) Act, 2010, has proved to be advantageous to political parties, where any contributions from a foreign company that owns a majority stake in an Indian company is allowed. Moreover, section 182(1) of Companies Act, 2013, that provides a cap on the amount that can be donated to the political parties stating that it should not exceed 7.5% of the average net profit for the last 3 years has been amended. Due to the said amendment, even a loss-making company would be allowed donate money to political parties. The only point of consideration is that the political party must be registered as per Section 29A of the Representation of the People Act,1951 in order to receive donations through electoral bonds. These bonds can be bought by any entity who wishes to make a donation at any authorised scheduled bank. The same has been made possible through amendment of Section 31 of the Reserve Bank of India Act, 1934 to insert Clause 31(c), which provides for the Central government to authorise any scheduled bank to issue the electoral bond.

Drawbacks and reservations about the scheme

A bill would only qualify as a Money bill if it follows the same nature as laid down in Article 110(1) of the Constitution. Although the Electoral Bond Scheme has been introduced by the Finance Bill of 2017, the same has also been given effect by introducing amendments in the Representation of the People Act, the Companies Act and the Foreign Contribution (Regulation) Act, which does not qualify as Money Bill under Article 110(1).

As the donor remains anonymous, it can be severely detrimental to the transparency of the political process. If the channels of donation were known to the public, then there would have been a fear of political retribution. This also brings into question the election expenditure and use of the funds by the political parties. Further, if the information of the donor is not revealed and made available to the public, the same would be a violation of right to know, which has been asserted as an essential subset of the freedom of speech and expression of the Indian Constitution.

Moreover, it was explained through a reference note issued by the Lok Sabha secretariat that the objective of the scheme is to promote transparency and to keep a tab on the use of black money for funding elections. So far, the scheme has been proving to do the contrary. As the amendments introduced in various Acts would keep the information of the donor anonymous from the election commission contradicts with the objective. There seems to be no nexus between the amendments and the objective that it seeks to achieve. So, it can also be seen to be arbitrary and violative of Article 14.

Due to these setbacks, the scheme has been criticised and said to be promoting opaqueness in the political process. The Election Commission, in its submission to the Standing Committee on Personnel, Public Grievances, Law and Justice on May 2017 had objected to the amendments in the Representation of the People (RP) Act, which exempt political parties from disclosing donations received through electoral bonds. It described the move as a “retrograde step”. Further, the commission also wrote a letter the same month to the Ministry of Law and Justice, asking the government to reconsider and modify the Amendments introduced in the Acts.

Current developments

Despite the several shortcomings the detrimental effects of the scheme and the several amendments to give fruition to it still continue to pose a threat to the democratic process.

In a recent judgement delivered by the Hon’ble Supreme Court in the case of Association for Democratic Reforms v. Union of India on March 26, 2021, the Apex Court refused to stay the sale of electoral bonds ahead of the state assembly elections in West Bengal, Tamil Nadu, Kerala, Assam and the Union Territory of Puducherry.

In the said judicial proceeding, the petitioner stated the serious apprehensions that sale of electoral bonds before the said Assembly elections would “further increase illegal and illicit funding of political parties through shell companies.” In a turn of events, the Election Commission retracted from its previous stance and extended its support to the Central government in favour of the scheme. The Chief Justice Bobde, J. stated that the Bench did not detect any shortcomings in the scheme. It was stated that the issue of bonds was not illegal as Clause 14 of the Scheme prohibited the trading of bonds and hence, the question of circulation of black money was completely out of question. It was also put forth that as the schemes were operating through the State Bank of India and appropriate banking channels, the bearer of the instrument would even remain anonymous from the political parties along with the public. It also stated that it was essential to keep the identity of the donor anonymous so that they do not become liable to pay taxation annually on the amount donated, which would not deter such donations.

The Court also frowned upon the applications which came periodically seeking interim relief.

Although this brings into question the sudden change in majority view on the scheme, this is yet another reflection of the propagation of political agenda through complete negation of constitutional principles and the sanctity of the democracy.


Transparency is one of the primary pillars of democracy. Citizens should be informed of the actions of the political parties. If political funding related information is not made publicly available, it can pose a serious threat to the bedrock of responsible and accountable democracy. Although the Election Commission has chosen to retract from its previous stand against the scheme, there is still no guarantee as to if this scheme would not affect the electoral process and the utilisation of election expenditure in a fair manner by political parties. So, for the time this scheme remains in force, there needs to be a regulation of the same by assessment of the donations to major political parties and the usage of the funds received by them. However, in the long run, it is imperative that the Hon’ble Supreme Court look into the depths and introduce changes that would truly withstand the anvil of the Constitution, and not in a falsified manner.

bottom of page
ga('require', 'ipMeta', { serviceProvider: 'dimension1', networkDomain: 'dimension2', networkType: 'dimension3', }); ga('ipMeta:loadNetworkFields'); ga('send', 'pageview');