[Opinion] Income Tax & Balance Sheet Implications of SC Judgement on Unconstitutionality of Electoral Bonds

Mayank Mohanka – [2024] 159 taxmann.com 412 (Article)

Backdrop: The Electoral Bond Scheme, 2018 was notified on January 2, 2018 by the Department of Economic Affairs, Ministry of Finance, and it enabled the Indian companies and any other persons including individuals to make contributions to any registered political party in India by way of an electoral bond, without any monetary threshold. Electoral bond was a bond issued in the nature of promissory note which is a bearer banking instrument and did not carry the name of the buyer. The bonds were issued in denominations of Rs 1000, 10,000, 1,00,000, 10,00,000 and 1,00,00,000. A political party, to be eligible to receive an electoral bond, has to be registered under Section 29A of the Representation of The People Act, 1951 and ought to have secured not less than one per cent of the votes polled in the last general election to the House of the People or the Legislative Assembly of the State. An eligible political party could encash a bond only through a bank account with an authorised bank. The scheme has notified the State Bank of India as the bank authorised to issue and encash electoral bonds. Payments for the issuance of the bond could be accepted in Indian rupees, through demand draft, cheque, Electronic Clearing System or direct debit to the buyer’s account, only and not by way of cash. Where payment is made by cheque or demand draft, it must be drawn in favour of the issuing bank at the place of issue

The SC Judgement: On 15th February, 2024, the Constitutional bench of the honourable Supreme Court comprised of five judges and chaired by the honourable Chief Justice of India, in its landmark judgement, in the case of “Association for Democratic Reforms v. Union of India [2024] 159 taxmann.com 383 (SC),(hereinafter referred to as the ADR judgement), has unanimously struck down the Electoral Bond Scheme, holding it as Unconstitutional, and in violation of the Right to Information, provided in Article 19(1)(a) of the Constitution of India.

The hon’ble SC has directed that the issuing bank State Bank of India (SBI), shall herewith stop the issuance of Electoral Bonds and it shall submit complete details of the purchase of each Electoral Bond, the name of the purchaser of the bond and the denomination of the Electoral Bond purchased. The SBI has also been directed to submit the details of political parties which have received contributions through Electoral Bonds since April 2019 till date to the Election Commission of India (ECI). SBI has also been directed to disclose details of each Electoral Bond encashed by political parties.

The hon’ble SC has further directed the SBI to submit the above information to the ECI by March 6, 2024. The ECI has been directed to publish the information shared by the SBI on its official website within one week by 13 March 2024.

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