Electoral Trusts and Electoral Bonds:

An In-Depth Overview

1. Introduction

Political funding in India has long been a subject of concern due to the lack of transparency and the dominance of anonymous donations. To bring about reforms in this space, the Government of India introduced various mechanisms, notably Electoral Trusts and later the Electoral Bond Scheme. While both aimed to streamline political contributions and increase accountability, they have been marred by criticisms of opacity, legal loopholes, and alleged misuse by political entities

2. What are Electoral Bonds?

Definition and Nature

Electoral Bonds function as interest-free, bearer financial instruments, similar to promissory notes. They can be purchased by Indian citizens or entities registered in India. Once acquired, these bonds could be donated to political parties of the purchaser's choice, which in turn could encash them through designated bank accounts.

Denominations and Availability

Electoral Bonds were available in various fixed denominations—₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore. They were issued solely through select branches of the State Bank of India (SBI), and their purchase was permitted only via cheque or digital payment, ensuring a non-cash trail.

KYC Requirements

Purchasers had to comply with Know Your Customer (KYC) norms as mandated by the Reserve Bank of India (RBI). However, the anonymity of donors was maintained publicly, which was a core aspect of the scheme's design.

3. History and Legislative Journey

Introduction and Implementation

The concept was introduced in the Finance Bill of 2017 by the then Finance Minister Arun Jaitley during the Union Budget for 2017–18. Despite its far-reaching implications on electoral funding, the provision was passed as a Money Bill, thereby bypassing scrutiny in the Rajya Sabha. This classification raised serious constitutional concerns, especially in light of Article 110 of the Constitution. Although the proposal was introduced in early 2017, the Electoral Bond Scheme 2018 wasofficially notified by the Department of Economic Affairs on 2 January 2018, and the first tranche of bonds was issued in March of thesameyear. Amendments and Expansion.

In November 2022, thegovernment amended theschemeto increasethenumberof sale days from 70 to 85 annually, specifically in years when assembly elections were scheduled. This amendment was introduced right before elections in Gujarat and Himachal Pradesh, raising concerns about the timing and intent

4. Use and Scale of Transactions

Between March 2018 and April 2022, approximately 18,299 electoral bonds worth ₹9,857 crore (₹98.57 billion) were sold. This massive volume reflects the growing reliance of political parties on this instrument for securing funding

5. The Supreme Court Verdict

On 15 February 2024, a five-judge Constitutional bench of the Supreme Court of India, led by Chief Justice DY Chandrachud, unanimously declared the Electoral Bond Schemeunconstitutional. The verdict also struck down the associated amendments to the Representation of People Act, Companies Act, and Income Tax Act.

Key Observations of the Court:

• The scheme violated Article19(1)(a)oftheConstitution, which guarantees freedom of speech and expression, by denying citizens their right to information about political funding.
• It enabled quidpro quo arrangementsbetweencorporationsandpoliticalparties, facilitating undue influence and corruption.
• The Right to Information(RTI) was compromised as the anonymity clause concealed the nexus between donations and policy decisions

Following the judgment, the SBI was directed to submit all details of bond donors and recipients to the Election Commission of India (ECI) by 6 March 2024. The ECI wasthen instructed to publish this information on its official website by 13 March 2024. After some delay, the information was eventually disclosed.

6. Government’s Justification and Stated Objectives

Capping Cash Donations

The government had previously capped cash donations to political parties at ₹2,000 per person. The intent was to force donors to use banking channels for larger contributions, thereby creating a traceable digital footprint

Transparency and Accountability

Arun Jaitley defended the scheme as a reform that would enhancetransparency and reduce the use of black money. Heemphasized that donor anonymity was necessary to protect contributors from political retribution or coercion and that disclosing donor identity might drive them back to cash-based donations

7. Pre-Implementation Political Funding Scenario

Reporting Requirements

Before the introduction of electoral bonds, political parties were required to report the names and details of all individuals donating more than ₹20,000. Donations below this threshold were classified as income from “unknown sources,” making up a large chunk of political funding.

ADR2017 Study Findings

The Association for Democratic Reforms (ADR) revealed that between 2004–05 and 2014–15, political parties received ₹11,367 crore, out of which ₹7,833 crore (69%) came from unknown sources. Notably, the Bahujan Samaj Party (BSP) reported 100% of its ₹111.96 crore income in 2014–15 as coming from unknown sources.

Other highlights:

● Congress: ₹3,982 crore total income;83%from unknown sources.
● BJP: ₹3,272.63 crore income ;65% from unknown sources.
● CPI(M): ₹893 crore declared income(thirdhighest).
● Samajwadi Party: ₹819.1 crore total income with 94% from unknown sources

8. Post-Implementation Outcomes

Impact on Political Funding

After the scheme's implementation, a noticeable shift was observed in the funding pattern:

● Congress initiated public donation drives for the first time, citinga lackof corporate funding.
● BJP’s income doubled during the same period,raising concerns of disproportionate benefit

ADR Audit Report (2021–22)

Among 27 regional parties, ₹887.55 crore out of ₹1,165.576 crore (75%) came from unknown sources. Electoral Bonds accounted for 93.26% of this figure

Top Regional Parties by Unknown Source Funding:

9. Criticism and Controversies

Misuse of Money Bil Route

Critics argue that classifying the scheme under a Money Bill was a strategic move to avoid deeper legislative scrutiny. The Constitution mandates that a Money Bill must only contain provisions related to taxation, borrowings, or public expenditure. The insertion of unrelated electoral reforms was seen as a constitutional overreach.

Asimilar precedent was observed in amendments to the Foreign Contribution Regulation Act (FCRA), where retrospective changes were made to protect both BJP and Congress from prosecution, as previously determined by the Delhi High Court.

Shielding Black Money

Many experts argue that electoral bonds facilitated the legalization of black money. Political parties had vested interests in maintaining anonymity to protect donors and obscure the quid pro quo nature of transactions. Without mandatory disclosures, these funds remained unaccounted and untraceable.

Limited Impact on Electoral Cleanliness

Despite government claims, the scheme did little to improve transparency. Instead, it institutionalized secrecy by shielding both donor identities and the amounts contributed. Critics note that while the cash limit was reduced, corporate contributions flourished under the veil of anonymity.

10. Electoral Trusts vs. Electoral Bonds

Electoral Trusts

Prior to the bond scheme, Electoral Trusts were introduced by the UPA government in 2013 asan alternate method of channeling corporate donations. While these trusts required some disclosures, they lacked robust transparency, and many corporate donors were indirectly linked to political parties.

Difference

● Trusts required declaration of donor names to some extent, whereas bonds ensured complete anonymity.
● Trusts were less widely used and offered limited funding options, whereas electoral bonds became the dominant mode of political financing until 2024.

11. Conclusion

The introduction and eventual discontinuation of electoral bonds mark a significant chapter in India’s electoral reform journey. While originally framed as a transparency enhancing mechanism, the schemefaced severe criticism for its opaque structure and potential misuse. The Supreme Court’s intervention has reaffirmed the importance of citizens’ right to information, transparency in political funding, and constitutional checks and balances. India’s path to clean and transparent politics remains fraught with challenges, but the verdict on electoral bonds has opened new possibilities for more accountable governance and fairer electoral practices