Legal Developments


Advocate Varsha Gulaya & Advocate Yamina Rizvi

The year 2020 assumes importance in India politically, with two major states scheduled to have elections. And, with the election, the debate regarding electoral bonds has once again come to the fore. 

In the 2017 budget speech, Arun Jaitley announced the electoral bonds scheme as a means of a donation to political parties. In its pursuance Finance Act, 2017 introduced electoral bonds in the Indian political system. Further, it amended various laws, including The Representation of the People Act,1951 (RPA, 1951), The Income Tax Act and The Companies Act. While The Finance Act 2016 has already made changes in the Foreign Contribution (Regulation) Act (FCRA) of 2010. 

The scheme has been challenged by CPI (M), and two NGOs- Association for Democratic Reforms and Common Cause, but till now there has been no decision in the matter as the Supreme Court has refused to grant any stay on the scheme of electoral funding in January 2020.

What are Electoral Bonds?

  • Electoral bonds are bearer instruments like Promissory notes. The details of the donor are not made public and are available only with the bank.
  • It can be purchased by an Indian citizen or a body incorporated in India.
  • A political party registered under RPA, 1951 that secures at least 1% of the votes polled in a state election or Lok Sabha elections will be allotted an account by the Election Commission of India, into which the bonds can be redeemed within 15 days of purchase.
  • Donations made through these bonds will be exempted from taxes.
  • Bonds will be issued in the multiples of Rs 1000, Rs 10,000, Rs 1 Lakh, Rs 10 Lakh and Rs 1 Crore.
  • The cost of printing the electoral bonds is not borne by the buyer but the government. That means the printing cost is being borne by the people taxpayer indirectly..

Laws governing Electoral Funding of Parties

I. Representation of People’s Act, 1951 (RPA)

Section 29 BPermits political parties to accept any amount of voluntary contributions without limit. Further 29 C requires Political parties should disclose donations above Rs. 20,000 received by them from any person or company in a financial year.
Section 77It requires every candidate to maintain an account of their election. Further, under subsection (3) it provides that expenditure shall not exceed such amount as may be prescribed.
Section 78The candidate is to submit a true account of their expenses to the district election officer within a prescribed period.

II. Conduct of Election Rules

Rule 90The prescription under section 77 of RPA 1951 has been done through Rule 90 the limits differ from state to state
Form 26In relation with transparency related to the contributions received by a candidate, the limited extent to which this has been required is in the obligation to declare assets under Form 26. A 2017 amendment has further mandated to include information regarding their source.

Development of Election Funding

The political parties in India have been largely funded by private donations and membership dues. RPA 1950 and 1951 were passed by the Constituent Assembly which concentrated on the regulation of individual candidates while not putting in place any provision for the regulation of political parties. The only provision relating to political funding was the Election Expense provisions contained in Chapter VIII of the RPA 1951.

The Santhanam Committee on Prevention of Corruption (1964) highlighted that black money was being channelled back to political parties and candidates to garner favourable policy decisions. The Government banned corporate donations to political parties completely through the amendment of Companies Act, 1956.

In Kanwar Lal Gupta v. Amar Nath Chawla (1974), the Supreme Court declared that a party’s expenditure on behalf of its candidate must be included in the calculation of a candidate’s election expenses. In 1979, political parties were exempted from income and wealth taxes, provided they filed annual returns including audited accounts, listed donations of Rs. 10,000 and above, and disclose the identities of such donors. 

In 1985, the Government removed the ban on corporate donations by amending Section 293A of the Companies Act, 1956, subject to certain restrictions. Both the Goswami Committee on Electoral Reforms (1990) and Indrajit Gupta Committee on State Funding of Elections (1998) recommended partial state funding of elections.

In 2013, the government introduced electoral trusts by an amendment to Income Tax Rules, 1962. The ostensible purpose of these trusts was to ensure the anonymity of donors, especially corporate donors while ensuring that they could still claim the income tax benefits. In 2015-16, 90% of contributions vide electoral trusts went to the ruling party at the centre. Similarly, the electoral bond scheme is not far away. As the BJP, the ruling government in India received Rs. 1450 cr. worth electoral bond which amounted to approximately 57% of the total number of electoral bonds (i.e. approx. 2551 cr.) in the FY 2018-19.

In 2017 the cap of 7.5% of the profit on a company for electoral donations was removed. The requirement for such firms to have existed for the last three years on a profit-making basis has also been deleted.

International Scenario

A glimpse into the regulation of political funding in democratic nations shows that there exist controlled measures to monitor it, fostering transparency and political values. 

In the UK, a political party can accept a donation for any amount, only from ‘permissible’ donors with a cap placed on spending limits, which is to be made public to ensure transparency. There also exists state funding for administrative costs. Foreign donors, other than registered British electors living abroad, are not considered to be permissible.

In Australia, political funding comprises of donations or public funding. Here, registered political parties, candidates and Senate groups are entitled to receive the lesser of – (i) The amount of claimed expenditure; or (ii) The amount calculated by multiplying the number of votes by the current election funding rate. And, a claim for this amount can be made 20 days after the polling day. Political parties and campaigners are not entitled to receive up to $1000 from foreign donors. There exists ‘Transparency register’ containing information about political parties, associated entities, third parties, political campaigners, candidates and Senate groups registered with or recognised by the Australian Election Commission; and financial disclosure scheme ensures that major financial sources of parties are made known to the citizens.

In the USA, the Federal Election Commission requires from candidate committees, party committees, etc. to file periodic reports disclosing the money they raise and spend; it places a limit on contributions; prohibits donations from labour organizations, foreign government contractors, foreign nationals, etc.; and it administers public funding by determining which candidates are eligible to receive funds. 


The massive supply of ‘money’ has made the political environment quite nebulous and foggy. Thus, it is pertinent to underline the challenges that democratic elections face in any country, which are:

1.  The commercialisation of Elections: Huge donations from the corporate houses and wealthy ones have the ‘might’ to unduly influence the policies of the state and ultimately undermining the integrity of elections. A democracy which is ‘for the people’ will be reduced to ‘for the Big donors’. 

2. Transparency: In Electoral bonds, only SBI knows the ‘in and out’ of political funding, they are outside the ambit of RTI, which brings in ‘opaqueness’ instead of ‘transparency’. Concerns regarding ‘flow of money’ & ‘transparency’ in elections has been emphasised in the United Nations Convention against Corruption (UNCAC), to which India is a party. Article 7.3 of the convention states that countries should “consider taking appropriate legislative and administrative measures… to enhance transparency in the funding of candidatures for elected public office and, where applicable, the funding of political parties”.

3. Unequal access to funding for different political parties: It has been highlighted by the International Institute for Democracy and Electoral Assistance (hereinafter IDEA), that this unequal access to political funding results in an unequal political playing field. Scroll in its article has shown that at least 95% of electoral bonds have been made in favour of BJP.

4. Rejection of Electoral bonds by key players: Reserve Bank of India (RBI), the Election Commission of India (ECI), and even Parliament all expressed serious reservations about the electoral bonds scheme as being vulnerable to money laundering, opacity, and potential abuse.

5. Foreign interference: The amendments to FCRA 2010 by the Finance Act, 2016 is particularly worrying since this would permit indirect foreign funding. The ECI has also shared its concerns that this may result in Indian politics being influenced by foreign companies.

Conclusion and Suggestions

There are myriads problems surrounding political funding in a democratic nation like, India. Thus, the authors suggest-

  1. Financial Reporting & its disclosure to the public: The political parties must submit the information on how they raised and spent the money also a disclosure via publication of sources of donation on the website, after polling. This may manifest if political parties are tilting their policies in the reciprocity of the supply of funds.
  2. The secretive Electoral Bond scheme with SBI must be amenable to RTI jurisdiction to reveal the name of donors. It is upon the government to choose between BIG DONORS or VOTERS’ CONFIDENCE.
  3. Its high time that the public funding scheme in elections is introduced in India. 
  4. Political parties in India take advantage of legal vacuum. Even the Representation of People Act, 1950 and 1951 did not have any provisions for regulating parties till the 1989 amendments. A comprehensive law for registering and regulating political parties is highly recommended. The law may focus on Disclosure Rules to ensure transparency, prescribing spending limits, providing public funding; requiring diligent reporting; allowing donations or contributions to be made only from a certain class of donors. This may deter the threat which ‘money game’ poses in diminishing the democratic values.
Cite this article as: Varsha Gulaya , Yamina Rizvi, "ARE ELECTORAL BONDS THREAT TO FREE & FAIR ELECTION?," in THE QUEST Sociolegal Review, July 24, 2020,

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