The Need to Recalibrate the Indian Approach towards Political Funding

An electoral bond, akin to a promissory note, can be purchased from select State Bank of India branches by any Indian citizen or company incorporated in India. The person or company can then contribute the funds to any registered political party of their choice. The bonds are similar to bank notes in that they are non-interest bearing and payable to the bearer on demand. Individuals or parties can buy these bonds online or with a cheque.

Each and every bond transaction is extremely opaque and notably, this opacity is not merely coincidental but integral to the scheme’s architecture itself. Furthermore, experts have pointed that when a private organization aids a certain political party (particularly in the Indian context as the scheme has now opened the gates for limitless donations), there is undoubtedly an element of  quid pro quo involved in these transactions.

Article 19(1) and the “Right to know”

According to Section 182 of the Companies Act 2013, an organization’s donations must not exceed 7.5 percent of its average profit over the previous three years; however, these limitations were later removed by the 2017 Finance Act. If voters are unaware of who is funding a candidate’s campaign, they will be unable to determine whether a political decision is taken in the citizens’ best interests, the national interest, or the best interests of whoever contributed the funds. This feature violates Article 19(1)(a) of the Constitution’s right to freedom of speech. Voters are entitled to all knowledge that gives meaning and intent to their right to freely express themselves during the democratic process. In this context, the Supreme Court in Union of India v Association of Democratic Reforms stated unequivocally that,  “There is no reason to that freedom of speech and expression would not cover a right to get material information with regard to a candidate who is contesting elections for a post which is of utmost importance in the country.”

The Court has previously denied granting an interim stay on the Electoral Bonds Scheme stating that the scheme has operated smoothly for past three years and that certain measures have been put in place to prevent its misuse. The scheme’s main critics argue that it is an opaque method of financing political parties that are designed to favour the dominant party. The fundamental issue involved herein is that the judiciary is yet to rule on petitions filed in 2018 challenging the electoral bonds system.

In a democracy, where collective decisions are taken, one of the most essential functions of freedom of expression is to ensure democratic dialogue so that all voices and views are heard. The Supreme Court noted in Romesh Thappar v State of Madras that “The public interest in freedom of discussion stems from the requirement that members of democratic society should be sufficiently informed that they may influence intelligently the decisions which may affect themselves.” In this context, the court particularly observed that it is not enough for democracy to work properly under the Constitution if all candidates’ voices are heard by including a positive right to know about candidates for election. Rather, voters must be provided with a base level of detail to assist them in making more informed decisions, including the fact that the candidates are unable to include such details under any other circumstance.

Campaign finance in other jurisdictions

The Political Parties, Elections and Referendums Act 2000 and other relevant campaign finance instrument in the UK have no donation cap to political parties for general parliamentary elections to the Westminster Parliament. The overall philosophy of the scheme is distinct: balancing the lack of donation caps with strict expenditure limits and allowable donor laws. Overall, the UK system is party-centered, and there are no candidate-centered groups running campaigns alongside political parties. When the donations are over the limit of 5000 euros during a general election, the information has to be sent to the Electoral Commission.

In Norway, donations from international interests and anonymous donors are prohibited. There are restrictions on companies that the government partially owns, and there are no restrictions on trade union contributions. There are no restrictions on the amount of money that can be contributed to political parties. Norway’s political parties may receive public support, which is distributed based on their vote share in the previous election and their representation in the elected body. There are no restrictions on how the money should be used. There is indirect public funding available in the form of tax relief. Financial details about the election campaign must be disclosed, and the identities of undisclosed contributors and the reports must be made public. The Political Parties Act Committee and the Party Auditing Committee oversee the reports. Fines, denial of public funds, seizure, and criminal penalties are all available to those who violate the law’s provisions.

Norway rated first in the 2020 democratic index, with the United Kingdom ranking 16th. India must deduce the working of a different developed nation in order to channel political funding properly. The UK government allows an elector who resides overseas to contribute to political campaigns, and it reduces the amount of black money channelled through shell companies. This type of foreign investment can be used in India to combat the flow of black money. Applying Norway’s political funding method like the public financial reporting model, financial disclosure, and strict usage against anonymous donations to India will provide a robust framework for political funding governance.

How it is unconstitutional and affects the transparency of the system

The government electoral bond transactions were handled through the regular banking system, guaranteeing that only legitimate organisations utilising white money benefited from the programme. It is similarly claimed that as a result of the digital paper trail, the SBI and, probably, the banking regulator would know which individuals had contributed to which political parties. Regrettably, this is where the openness starts and finishes. The donor is not required to report the donation, and the recipient the political party is not required to reveal the donor’s identity.

Furthermore, under Section 13A of the Income Tax Act, corporations that make donations in the form of electoral bonds would not be required to keep track of their contributions, and if there are no documents that must be kept, Income Tax authorities will not be able to ask any questions. The result is full financial secrecy: the Election Commission is unable to identify the donors, and the Income Tax department may demand confidentiality, even if challenged under the RTI Act.

Misuse of Section 29-C of the Representation of Peoples Act (RPA) has traditionally been the primary, though not exclusive, method by which political parties have collected significant sums of illegal funds. Under this provision, parties were not required to disclose the names of donors who gave less than Rs 20,000. As a result, up to 85% of contributors are to the Congress and BJP, which are the two largest political parties of the nation, according to the Association of Democratic Reforms, used this channel earlier for political party funds.


The present functioning of electoral bonds is merely a pernicious mechanism of political financing that is opaque and encourages corporate funding in return for favours performed by the ruling party. Additionally, shell companies may be set up to legally funnel illegal funds to a political party through electoral bonds. Sitting on these petitions and simply saying that the scheme has been operating without legal impediments for three years is to de facto legitimise the electoral bond scheme. The existing electoral bond mechanism has not yielded the anticipated results. Declining to reveal information and report of the donation is a crucial piece of knowledge to the elector, and it is influencing free will and violating the standards for a free and fair election. Refusing to strike down the current system and not necessitating parties to reveal who supports the  elected representatives and political parties of the nation is a step-back from the robust legal precedent on the right of voters to know and should be adequately addressed by the Supreme Court.


Shiv Sankar

Shiv is a first-year BBA LLB student at National Law University, Odisha.

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