The bond was the least important part of the electoral bond scheme. A donor walked into a branch of the State Bank of India, completed the bank’s know your customer formalities, paid from a bank account, and received a printed instrument that named nobody: not the buyer, not the political party that would eventually deposit it, not any person in between. The instrument carried a denomination, a serial number and a fifteen day life, and it behaved, by design, like currency with a bank counter at both ends. If the scheme had consisted of that instrument alone, it would have changed remarkably little, because the law that had governed political donations for decades was built around records: records kept by parties, records filed with the Election Commission, records published in company accounts, and a ceiling that tied corporate generosity to corporate profit. What gave the scheme its effect was not the bond but the set of removals enacted alongside it. Through the Finance Act of 2017, Parliament amended five statutes in a single legislative movement, and four of those amendments withdrew a protection that had previously attached to a political donation. A party no longer had to report a bond receipt to the Election Commission. A party no longer had to keep a statutory record of who had given it. A company no longer faced a ceiling of seven and a half per cent of its average net profits on what it could contribute. A company no longer had to name the party it had funded when it published its accounts. A fifth amendment, carried by the Finance Acts of 2016 and 2018, redrew the definition of a foreign source with retrospective effect reaching back to 1976, so that donations which a court had held to be foreign contributions fell outside the prohibition. Read together, the five amendments meant that a donation could be very large, entirely corporate, routed through a bearer instrument, and invisible in every public record that the law maintained. That combined effect, and not the paper instrument, is the subject of this article.

The scheme itself was short lived. It was announced in the Union Budget presented on 1 February 2017, its statutory foundations were enacted when the Finance Act of 2017 received assent on 31 March 2017, and the Electoral Bond Scheme was notified by the Ministry of Finance on 2 January 2018, with the first sale of bonds opening on 1 March 2018. The Supreme Court struck the scheme and its supporting amendments down on 15 February 2024 in Association for Democratic Reforms v Union of India. That judgment, its two constitutional grounds and the disclosure it ordered are treated in the companion piece on the judgment itself; the task here is the legislation as enacted: what each amendment said, which disclosure it removed, what the position had been before it, and what body of funding law stands once the amendments are stripped away. The account that follows is a reading of the statutes, the scheme notification and the official correspondence that the amendments generated, and it is general legal information rather than advice on any party’s or company’s compliance position.

Political funding before the bond: a system built on records

To see what the amendments removed, the prior system has to be seen whole, because its logic was cumulative. Indian political funding law before 2017 did not rest on a single transparency provision. It rested on four obligations that reinforced one another, spread across the Representation of the People Act of 1951, the Income-tax Act of 1961, the Companies Act of 2013 and the Foreign Contribution (Regulation) Act of 2010, and a fifth support in the form of tax deductions that rewarded a donor for leaving a paper trail. Each obligation was modest on its own. Together they meant that a substantial donation normally generated three independent records: one in the party’s report to the Election Commission, one in the donor company’s published accounts where the donor was a company, and one in the tax filings at both ends.

The first obligation sat on the party. Section 29B of the Representation of the People Act permits a political party to accept voluntary contributions from any person or company other than a government company, subject to the discipline of company law and to the foreign contribution prohibition. Section 29C then required the treasurer of every political party to prepare, for each financial year, a report of the contributions received by the party in excess of twenty thousand rupees from any person, and in excess of twenty thousand rupees from any company, and to submit that report to the Election Commission before the date by which the party had to furnish its income tax return. The report named the contributor and the amount. Its sanction was fiscal rather than criminal: a party that failed to submit the report lost its entitlement to tax relief under the Income-tax Act. The Election Commission published the reports it received, and it was from those reports, more than from any other single source, that the public record of large political donations was assembled.

The second obligation sat inside the Income-tax Act. The income of a political party is exempt under Section 13A, but the exemption is conditional, and the conditions are the enforcement machinery of the whole design. The party had to keep and maintain such books of account and other documents as would enable the Assessing Officer to deduce its income properly. It had to keep a record of each voluntary contribution in excess of twenty thousand rupees, recording the name and address of the contributor alongside the amount. Its accounts had to be audited. It had to ensure that no donation exceeding two thousand rupees was received otherwise than by an account payee cheque, an account payee bank draft, electronic clearing through a bank account or an electoral bond, a condition framed as a ceiling on cash rather than on generosity. And it had to furnish its return of income by the due date under Section 139(4B). A party that failed the conditions lost the exemption and was taxed on its income, which made the record keeping condition more than a formality: the party’s own file of donors above twenty thousand rupees existed because its tax status depended on keeping it.

The third obligation sat on the corporate donor. Section 182 of the Companies Act of 2013 permits a company, other than a government company or a company that has been in existence for less than three financial years, to contribute to a political party or for a political purpose, provided the contribution is authorised by a resolution of its board of directors passed at a meeting, and by no other means. Before the Finance Act of 2017, the first proviso to Section 182(1) capped the aggregate of a company’s political contributions in any financial year at seven and a half per cent of its average net profits during the three immediately preceding financial years. The ceiling had a longer pedigree than the 2013 Act: Section 293A of the Companies Act of 1956, inserted in 1960 when corporate donations were permitted after an initial prohibition, had set the cap at five per cent of average net profits, and the 2013 Act raised it to seven and a half per cent while retaining the board resolution discipline. Section 182(3) then required the company to disclose in its profit and loss account the total amount contributed during the financial year and the name of the party to which the contribution was made. A shareholder, a creditor, a journalist or a rival could therefore read a company’s political giving, party by party, from its audited accounts.

The fourth obligation was the foreign contribution bar. The Foreign Contribution (Regulation) Act prohibits political parties, candidates and a range of other persons from accepting foreign contributions at all, and Section 2(1)(j) of the 2010 Act defines a foreign source to include a company whose nominal share capital is held by foreign persons or entities to the extent of more than one half. The definition caught the Indian subsidiary of a foreign group: majority foreign shareholding made the subsidiary a foreign source even though it was incorporated in India, earned its income in India and was staffed in India. In a judgment delivered on 28 March 2014, the Delhi High Court held that the two largest national parties had prima facie violated the foreign contribution law by accepting donations from Indian subsidiaries of a foreign mining group, a holding that stood uncorrected by any amendment for two years and that forms the background to the fifth of the amendments examined in this article.

Around these four obligations sat a deduction structure that pushed in the same direction. Sections 80GGB and 80GGC of the Income-tax Act allow a company and any other taxpayer respectively to deduct contributions made to a political party or an electoral trust, but no deduction is available for a contribution made in cash, so a donor who wanted the fiscal benefit had to pay by an instrument that identified the payment. The design, taken as a whole, was a pincer: the party reported, the company disclosed, the tax system rewarded identified payment, and the foreign bar stood outside the structure as an absolute prohibition rather than a reporting duty. It is against this architecture that the Finance Acts of 2016, 2017 and 2018 have to be measured, because each amendment is intelligible only as the removal of one of its load bearing parts.

The bond as an instrument

The electoral bond itself was created not by a standalone statute but by a notification. The Electoral Bond Scheme, 2018 was notified by the Department of Economic Affairs in the Ministry of Finance on 2 January 2018, in exercise of the authority that the Finance Act of 2017 had inserted into the Reserve Bank of India Act. The scheme defined the bond as a bearer instrument in the nature of a promissory note, an interest free banking instrument that the buyer could purchase from the authorised bank and that an eligible political party could encash through its account with that bank. The State Bank of India was the sole authorised bank, selling through twenty nine specified branches across the country. The bonds were issued in five denominations: one thousand rupees, ten thousand rupees, one lakh rupees, ten lakh rupees and one crore rupees.

Eligibility ran asymmetrically at the two ends of the transaction. At the buying end, a bond could be purchased by a citizen of India or by a body incorporated or established in India, which meant individuals, companies, firms, Hindu undivided families, associations of persons and trusts could all buy, provided the purchase was made on compliance with the bank’s know your customer norms and payment was made from a bank account. Cash purchase was excluded by the scheme’s own terms: the authorised bank was not to accept a cash payment, and every payment had to move by demand draft, cheque, electronic clearing or direct debit through the banking system. At the receiving end, eligibility was much narrower. Only a political party registered under Section 29A of the Representation of the People Act that had secured not less than one per cent of the votes polled in the most recent general election to the House of the People or to the Legislative Assembly of a State could receive bonds, and it could encash them only by depositing them into the account it had designated for the purpose with the authorised bank. Parties below the one per cent threshold, which included most registered parties, were excluded from the channel altogether, however lawfully they could accept a cheque or a bank transfer.

The bond’s life was deliberately short. A bond remained valid for fifteen calendar days from the date of its issue, and no payment was to be made to a payee party if the bond was deposited after the validity period expired. A bond deposited in time was credited to the party’s account on the same day. The fifteen day window was presented as an anti hoarding measure: the instrument could not circulate for long as a store of value, and a buyer who wished to benefit a party had to complete the gift promptly. What the short window could not do, on the design’s own terms, was identify the giver, because the bond bore no name of the payee and the scheme forbade trading in the instrument without requiring any record of a transfer between buyer and party to be filed anywhere outside the bank. Paragraph 12(2) of the scheme dealt with failure: the amount of bonds not encashed within the validity period of fifteen days was to be deposited by the authorised bank to the Prime Minister Relief Fund, so that an undelivered or undelivered in time bond enriched a public relief fund rather than reverting to the buyer.

Sale was confined to notified windows. The scheme provided that bonds would be available for purchase for a period of ten days each in the months of January, April, July and October as specified by the Central Government, with an additional period of thirty days to be specified in the year of a general election to the House of the People. The Electoral Bond (Amendment) Scheme, 2022, notified on 7 November 2022, added a further additional period of fifteen days in the year of general elections to the Legislative Assembly of a State or of a Union territory with a legislature, and the first sale under the amended paragraph opened two days after that notification. Two features of this machinery deserve emphasis before the statutory amendments are examined. The first is that the bank at the centre of the scheme was a public sector bank answerable to the government of the day, so the one complete record of purchases that the system generated sat inside an institution within the State’s own reach. The second is that the instrument was physical. The Reserve Bank of India had pressed for bonds to be issued only in electronic or dematerialised form, in which a transfer leaves a trail by the nature of the medium; the scheme as notified retained the printed, scrip form, in which a transfer by delivery leaves no trail at all. The difference between those two versions of the bond is the difference between anonymity from the public and anonymity from everyone, and the correspondence examined later in this article shows that the distinction was understood by every institution that commented on the design.

Interest, transfer and the legal character of the bond

Three smaller properties of the instrument complete its legal description, and each was a considered choice. The bond carried no interest. The scheme described it as an interest free banking instrument, and the economics follow from the validity rule: a bond bought and delivered within days and encashed within fifteen had no time to function as an investment, and the absence of interest confirmed that the instrument was a pure conduit, a token whose whole value lay in its face amount and whose purchase was a gift in transit rather than a deposit. No buyer could profit from holding a bond, and no party could gain by delaying its deposit; the design removed every financial motive except the donation itself. The bond was also not eligible for trading. The scheme withheld from it the quality of a marketable security, so that no exchange, broker or secondary market could lawfully develop in it, and a person who acquired a bond from a buyer acquired it outside any regulated market, by the simple act of delivery that bearer paper permits. The conjunction of those two properties, bearer transferability with a prohibition on trading, is unusual and deliberate: the bond could pass from hand to hand as a matter of physical fact, and the Reserve Bank’s correspondence records that it did so pass outside any trail, while the law declined to recognise the passage as a market transaction with the records a market would have kept. Finally, the bond’s encashment was confined to a single act by a single class of holder. Only an eligible party, depositing into its designated account with the issuing bank, could convert the instrument into money. In every other hand the bond was value in suspense, realisable only by delivery to such a party within fifteen days, and worthless paper thereafter except for the relief fund destination of its face amount. The instrument therefore sat in a category of its own in Indian financial law: not currency, which the Reserve Bank alone issues and which passes without condition; not a security, which a market trades and a register tracks; not a cheque, which names its payee and dies in the clearing system with a record at every step. It was a statutory bearer token whose only lawful destiny was a political party’s bank account, and whose legal character was exhausted by that destiny. The amendments examined in this article were the price of creating it, and they are the reason a fifteen day token required five statutes to be changed before it could exist.

One Finance Act, five statutes

Political funding reform in India had historically proceeded statute by statute, and slowly: the Companies Act amendments of 1960 and 1985, the Election and Other Related Laws (Amendment) Act of 2003 that inserted Section 29C into the Representation of the People Act, and the electoral trust provisions of 2009 and 2013 each travelled as separate measures with separate debates. The electoral bond scheme broke with that pattern. Its five statutory foundations were laid in three Finance Acts, and the central four were carried in a single Bill in a single Budget session. Section 135 of the Finance Act of 2017 amended the Reserve Bank of India Act of 1934. Section 137 amended the Representation of the People Act of 1951. Section 11 amended the Income-tax Act of 1961. Section 154 amended the Companies Act of 2013. The foreign contribution change arrived in two instalments, through Section 236 of the Finance Act of 2016 and a further amendment of that section by the Finance Act of 2018, each operating retrospectively. None of the five changes was presented to Parliament as a political funding bill. Each appeared as one clause among the hundreds of clauses by which a Finance Bill amends fiscal and regulatory law after a Budget.

Five amendments, one combined effect

The five amendments interlocked so completely that the effect of the scheme cannot be recovered by reading any one of them alone. The Reserve Bank amendment supplied the instrument, the Representation of the People amendment silenced the party’s report, and the Income-tax amendment silenced the party’s file.

The Companies amendment removed the ceiling and the company’s disclosure together, and the foreign contribution amendment reopened a source the law had closed. A donation channel is anonymous or transparent in the round, not clause by clause, and this channel was anonymous in the round.

The interlocking also explains why the scheme’s defenders and its critics talked past one another for six years. Defenders pointed to the purchase end, where the design was genuinely strict: know your customer verification, payment from a bank account, no cash at the counter, a short validity period, a single authorised bank. Nothing in that description was inaccurate. Critics pointed to the reporting end, where the design was genuinely empty: no report to the Election Commission, no record duty on the party, no ceiling on the company, no name in the company’s accounts, no bar on the foreign controlled donor. Nothing in that description was inaccurate either. The two descriptions were of the same machine seen from opposite ends, and any honest account of the legislation has to hold both at once, which is the course this article follows: the amendments are stated first, exactly as enacted, and the case for and against them is taken up afterwards on the record that each side actually made.

The Reserve Bank of India Act amendment: authorising a bearer bond

The first amendment solved a problem of monetary law. Section 31 of the Reserve Bank of India Act of 1934 embodies one of the oldest principles of Indian central banking: no person in India other than the Reserve Bank, and no authority other than the Central Government as expressly authorised, may draw, accept, make or issue a bill of exchange or promissory note payable to bearer on demand. The prohibition is the legal wall between banknotes, which the Reserve Bank issues, and private paper, which must not be allowed to circulate as a substitute currency. An electoral bond is, in form, precisely what Section 31 forbids: a bearer instrument, transferable by delivery, purchased for value and surrendered for value at a bank counter. Without an amendment to the Reserve Bank of India Act, the scheme could not lawfully exist, because the State Bank of India had no more power than a private citizen to issue bearer paper on demand.

Section 135 of the Finance Act of 2017 inserted sub-section (3) into Section 31. The new sub-section provides that nothing contained in Section 31 shall apply to an electoral bond issued by the State Bank of India or by any other bank authorised by the Central Government by notification in the Official Gazette, and it carries an Explanation defining the term: an electoral bond means a bond issued in the nature of a promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee. Three features of the drafting repay attention. The authorisation runs to the Central Government, which may designate the issuing bank by notification, so the choice of the State Bank of India was an executive choice under the section rather than a choice Parliament made in the section itself. The definition is placed in the Reserve Bank of India Act rather than in the scheme, which means the namelessness of the instrument is statutory: the Explanation does not merely omit the buyer’s name, it provides that the bond shall not carry the name of the buyer or the payee, converting anonymity from an administrative practice into a property of the instrument defined by Act of Parliament. And the section was framed as a carve out from the bearer prohibition rather than as a general power to create funding instruments, so the amendment’s own architecture concedes that the bond belongs to the family of instruments that central banking law treats with suspicion. The correspondence of the Reserve Bank, examined later in this article, shows that the Bank made exactly that point to the Finance Ministry in January 2017, before the Budget was presented, and that the Ministry proceeded regardless. The amendment took effect with the Finance Act itself, but it slept until the scheme notification of 2 January 2018 gave it an instrument to authorise.

Section 29C and the party’s report to the Election Commission

The second amendment was the shortest of the five and, for the public record, the most consequential. Section 137 of the Finance Act of 2017 inserted a proviso into sub-section (1) of Section 29C of the Representation of the People Act: nothing contained in that sub-section shall apply to the contributions received by way of an electoral bond. The main provision, as described earlier in this article, obliges the treasurer of a political party to report contributions above twenty thousand rupees to the Election Commission, naming the contributor; the full working of that reporting duty, its link to the party’s tax exemption and its place among the contribution rules of the Representation of the People Act, 1951 is set out in the companion article on that Act. The proviso carved bond receipts out of the duty entirely. A party could receive a contribution of any size through a bond and the receipt generated no line in the report the Election Commission published, no name, no amount attributed to a donor, nothing from which the statutory question under Section 29B, whether the party had accepted a contribution from a government company or another prohibited source, could be tested against the largest single channel of receipts.

The Election Commission saw the consequence at once, and said so in terms that leave no room for reconstruction. By a letter dated 26 May 2017 addressed to the Legislative Department of the Ministry of Law and Justice, the Commission recorded that the amendments would have a serious impact on the transparency of political finance and the funding of political parties, and it described the proviso to Section 29C as a retrograde step as far as transparency of donations is concerned, adding that the proviso needed to be withdrawn. The Commission’s reasoning was administrative rather than rhetorical: in the absence of the report of contributions received by way of electoral bonds, it cannot be ascertained whether a political party has taken a donation in violation of Section 29B, the provision that bars contributions from government companies and foreign sources. A regulator that cannot see the receipts cannot audit the prohibition. The Commission also warned that the corporate law changes taken with the bond channel would lead to increased use of black money for political funding through shell companies. These objections were not made public by the government at the time; they surfaced later, when the Commission’s correspondence was placed before the Supreme Court as part of its affidavit in the litigation over the scheme, a sequence that itself illustrates the information asymmetry the amendments created.

What the Election Commission could no longer verify

With bond receipts outside the Section 29C report, the Election Commission lost the only statutory instrument by which it could test a party’s receipts against the prohibitions of Section 29B and the foreign contribution law: the report had named every substantial contributor, and its absence left the largest donations unexaminable.

The regulator could not examine, attribute or clear the very receipts most in need of examination. Verification did not move elsewhere. It simply ended for that channel.

What the proviso did not do deserves separate statement, because its narrowness was the point. It did not repeal Section 29C, and parties continued to file reports disclosing their cheque, transfer and other identified receipts above twenty thousand rupees throughout the scheme’s life. It did not touch Section 29B, so the substantive prohibitions on who may give remained on the statute book in full force. It did not even exempt a category of donor; it exempted a channel. The legal consequence was that the same donation, from the same company, on the same day, was a reportable event if made by cheque and a non event if made by bond. Disclosure under the amended law therefore measured not the generosity of donors but their choice of instrument, and since the choice of instrument belonged to the donor, the amended Section 29C in effect allowed every substantial donor to elect whether the donation would appear in the public record. A reporting system whose coverage the reported person controls is a reporting system in name only, and that, rather than any single figure, is the accurate description of what Section 137 of the Finance Act of 2017 accomplished.

Section 13A and the Income-tax conditions

The third amendment worked one level deeper, on the party’s own file rather than on its report to the regulator. Section 13A of the Income-tax Act exempts the income of a political party from tax, and the first proviso to the section attaches conditions, of which clause (b), before 2017, required the party to keep and maintain a record of each voluntary contribution in excess of twenty thousand rupees together with the name and address of the contributor. Section 11 of the Finance Act of 2017 inserted into that clause the words other than contribution by way of electoral bond. The party’s statutory duty to record who had given it money therefore ceased to attach to bond receipts. The distinction between this removal and the Section 29C removal matters. Section 29C governed what the party had to tell the Election Commission, and through publication, the voter. Section 13A governed what the party had to be able to show its Assessing Officer, the tax authority charged with verifying that the exemption was properly claimed. After the amendment, a party’s exemption could not be imperilled by its failure to record a bond donor, because no record of a bond donor was required to exist. The one institution with a statutory right to inspect the party’s internal record, the Income-tax Department, was placed in the same position as the voter in relation to the identity of bond donors: the record it was entitled to demand did not include them.

The same section of the Finance Act made a second change to Section 13A which belonged to the opposite policy direction, and fairness to the legislation requires it to be stated with equal clarity. A new clause in the first proviso, clause (d), provided with effect from 1 April 2018 that no donation exceeding two thousand rupees shall be received by a political party otherwise than by an account payee cheque, an account payee bank draft, electronic clearing through a bank account or an electoral bond, and the Act added a further condition requiring the party to furnish its return of income by the due date under Section 139(4B). The two thousand rupee clause implemented a recommendation the Election Commission had made for years, reducing the effective cash ceiling for donations from the twenty thousand rupee level at which anonymity in cash had previously been tolerated to two thousand rupees, and the Finance Minister’s Budget speech of 1 February 2017 announced the change expressly as a response to the Commission’s suggestion. Its drafting, however, placed the electoral bond inside the list of approved non cash modes, so that the bond stood in the statute as the equal of an account payee cheque: an instrument whose entire legal function is to identify a payment was listed beside an instrument whose defining statutory property is that it identifies nobody. The Central Board of Direct Taxes, in its Circular No. 2 of 2018 explaining the Finance Act’s changes to the conditions governing the exemption of political parties under the Income-tax Act, 1961, recorded both limbs of the amendment without comment on the tension: the record keeping condition would not apply to contributions by way of electoral bond, and the two thousand rupee ceiling on other modes would.

A party’s tax exemption is the hinge on which the whole disclosure structure swings, because the exemption is worth more to a party than any single donation, and the conditions were designed so that a party would police its own record keeping to protect it. The 2017 amendment kept the hinge and removed the door. The exemption still depended on books of account, on audit, on the return being filed, and on the record of contributions above twenty thousand rupees, except that the largest and fastest growing category of contributions was excised from the record by the inserted words. An Assessing Officer examining a party’s claim after the amendment would find a complete file of identified donors up to the amounts given by cheque and transfer, and beside it a single aggregate of bond receipts for which the statute required no names at all. The amendment did not merely decline to publish information. It relieved the party of the duty to possess it.

Section 182 and the end of the corporate ceiling

The fourth amendment, Section 154 of the Finance Act of 2017, made three changes to Section 182 of the Companies Act of 2013, and it is the amendment in which the scheme’s transformation of political funding is most completely visible, because it acted on both dimensions of corporate giving at once: how much a company could give, and what it had to say about the giving. The framework within which those changes operated, the board resolution requirement and the three year existence rule among the contribution and disclosure provisions of the Companies Act, 2013, is set out in the companion article on that Act. What the Finance Act did to that framework was as follows.

First, it omitted the first proviso to Section 182(1). That proviso had capped the aggregate amount a company could contribute in any financial year at seven and a half per cent of its average net profits during the three immediately preceding financial years. The cap’s function was proportionality: it tied the scale of a company’s political generosity to the scale of its demonstrated commercial success, so that political giving remained, in law, an application of profit by a profitable enterprise. Its omission abolished the proportionality. After the amendment, the main provision authorised the board of a company in existence for three financial years or more to contribute any amount, subject to no statutory ceiling at all. A company with substantial profits and a company with none stood in identical positions, provided each had existed for three years and its board passed the authorising resolution at a meeting. The Companies (Amendment) Act of 2017, a separate measure of the same period, recast the wording of Section 182(1) itself, substituting a reference to contributions for any political purpose and adjusting the expenditure limb, but it left the Finance Act’s work untouched: the ceiling stayed out.

Secondly, the Finance Act substituted sub-section (3) of Section 182. The original sub-section had required every company to disclose in its profit and loss account the total amount contributed during the financial year and the name of the party to which the contribution was made. The substituted sub-section requires disclosure of the total amount contributed, and no more. The deletion of the party’s name from the disclosure is a small piece of drafting with a large consequence. A company’s accounts continued, throughout the scheme’s life, to reveal that it had contributed, and how much in aggregate it had contributed in the year. They ceased to reveal to whom. A shareholder reading the accounts of a company that had funded one party exclusively and a shareholder reading the accounts of a company that had spread its giving across five parties read identical disclosures. Combined with the bond, the substitution produced a particular configuration: the company could lawfully give without limit, through an instrument that named nobody, and report the transaction in its audited accounts without naming the recipient. Each layer of the transaction was lawful, and the whole of it was invisible.

Thirdly, the Finance Act inserted sub-section (3A), which provided that a company shall not make any contribution except by an account payee cheque, an account payee bank draft or electronic clearing through a bank account, with a proviso that nothing in the sub-section prevents a company from making a contribution through any instrument issued under a scheme notified under any law for the purpose of encouraging monetary contribution. The bond entered company law through that proviso, described not by name but by function, as the notified scheme instrument. The sub-section’s discipline on payment modes was real, and it is the provision through which the government could fairly say that corporate political money after 2017 moved only through the banking system. But the proviso ensured that the one instrument exempt from the identification that the banking system ordinarily produces travelled inside the banking system’s respectability. The three changes together are the cleanest example of the scheme’s method: a ceiling removed in the proviso, a name removed in the sub-section, and a channel sanctified in the insertion, each change defensible in isolation as technical, and jointly amounting to the conversion of corporate political funding from a disclosed and limited activity into an undisclosed and unlimited one.

Two consequences of the ceiling’s removal deserve separate statement. The first concerns the company that has made no profits. Under the repealed proviso, such a company could contribute nothing, because seven and a half per cent of no average profit is nothing; the cap performed, incidentally, the work of excluding companies without a trading record of profitability. After the omission, the three year existence requirement in Section 182(1) was the only surviving threshold, and existence is a test any shelf company incorporated three years earlier can pass. The objection that the amendment permitted donations unconnected to profitability, funded out of capital or borrowings or passed through from another source, was therefore not a speculation about drafting; it followed from the arithmetic of the removed proviso. The second consequence concerns equality between donors. An individual donor’s giving is bounded in practice by personal wealth and in law by nothing comparable to a profit cap, and the government argued that the corporate ceiling was an anomaly. The removal was in time held manifestly arbitrary under Article 14, on the reasoning reserved for the judgment article; for the purposes of this statute article, the point to register is that the ceiling was the only provision in Indian law that measured a political contribution against the contributor’s capacity, and its removal left the Companies Act with an authorisation and no measure.

The foreign contribution amendments: a definition rewritten backwards

The fifth amendment differed from the other four in its instrument, its timing and its technique. It did not create the bond, silence a report or remove a ceiling. It redrew the boundary of the foreign contribution prohibition, and it did so backwards in time, through two Finance Acts, in a manner whose full extent only becomes visible when the sequence is laid out in order.

The Foreign Contribution (Regulation) Act of 2010 prohibits a political party from accepting any foreign contribution. Section 2(1)(j) defines a foreign source, and clause (vi) of that definition covers a company whose nominal value of share capital is held by foreigners, a foreign company, a foreign citizen or a foreign trust to the extent of more than one half. The clause embodies a substance over form judgment: a company incorporated in India but majority owned abroad is treated as foreign for the purposes of political money, because control, and not the place of incorporation, is what the prohibition is aimed at. In March 2014 the Delhi High Court, in litigation brought by the Association for Democratic Reforms, examined donations made to the two largest national parties by Indian subsidiaries of a United Kingdom based resources group and held that the parties had prima facie violated the foreign contribution law, the subsidiaries being foreign sources within the definition because their parent held the majority of their capital. The judgment left both parties exposed in respect of donations already received, under a statute whose successor, the 2010 Act, had carried forward the substance of the 1976 Act’s prohibition. Appeals against the judgment were later dismissed as withdrawn, and the holding was never reversed on its merits.

Section 236 of the Finance Act of 2016 responded. It amended Section 2(1)(j)(vi) by inserting a proviso: where the nominal value of the share capital of a company is within the limits specified for foreign investment under the Foreign Exchange Management Act and the rules and regulations under it, the company shall not be a foreign source, notwithstanding that more than one half of its capital is held by foreign persons or entities. The test of foreignness was thereby changed from control to compliance with sectoral investment caps: an Indian company majority owned from abroad ceased to be a foreign source so long as the foreign holding stayed within the ceiling that exchange control law permitted for its sector. The amendment was expressed to take effect from 26 September 2010, the date associated with the commencement of the 2010 Act’s definitional scheme, so that it governed donations received after that date, the donations the Delhi High Court had examined among them. It did not reach the donations in that case insofar as they had been received under the 1976 Act, and that residue is the explanation for what followed.

The Finance Act of 2018 then amended the Finance Act of 2016. It substituted, in the retrospectivity provision of Section 236, the date 5 August 1976 for 26 September 2010, pushing the proviso’s commencement back to the commencement of the Foreign Contribution (Regulation) Act of 1976 itself. The technique deserves to be noticed precisely: Parliament did not amend the 2010 Act’s definition a second time, nor did it touch the repealed 1976 Act. It amended the amending Act of 2016, so that the proviso is deemed to have been part of the law from the day the first foreign contribution statute commenced. The legal effect was that no donation received by a political party from an Indian company within the foreign investment limits could be treated as a foreign contribution at any point in the forty two years the prohibition had existed, and the factual foundation of the 2014 judgment was removed across the whole period the judgment covered. The prosecution risk, the refund risk and the disqualification arguments that had hung on those donations dissolved not by acquittal or appeal but by redefinition of the source, applied to years long closed. Whatever view is taken of the policy, and a defence of it exists: the 2016 proviso aligned the funding definition with the investment regime that already admitted the foreign capital lawfully, and a company lawfully present and regulated in India is an odd candidate for the category of foreign source. The retrospective reach to 1976 stands on different ground from the prospective policy. It converted a change in the rules for the future into a judgment on the past, delivered by the legislature in a Finance Act, in favour of parties that included the parties then in government and in opposition alike, both of which had been respondents to the 2014 holding.

Why the Finance Bill route mattered

Every change described in this article reached the statute book inside a Finance Bill, and the vehicle was not a neutral detail of parliamentary housekeeping. A Finance Bill that is certified as a Money Bill by the Speaker of the Lok Sabha travels a shortened constitutional path: it is introduced only in the Lok Sabha, the Rajya Sabha may discuss it and recommend amendments within fourteen days, the Lok Sabha may accept or reject every recommendation, and the President’s assent follows the Lok Sabha’s will. The distinction between a Money Bill and an ordinary financial bill, the text of Article 110 and the litigation over certification, are treated in the companion article on the difference between a Money Bill and a Finance Bill in India. What matters here is the application. Amendments to the law governing who may fund political parties, what the Election Commission may be told, what a company must disclose and what counts as a foreign source are not, on their face, provisions about taxation or expenditure from the Consolidated Fund. They travelled inside the annual Finance Bills of 2016, 2017 and 2018, and the Rajya Sabha’s role in their enactment was accordingly recommendatory only.

The Money Bill objection stood apart from the anonymity objection

The objection to the route was distinct from the objection to the scheme, and the two should not be merged: the anonymity objection said that the amendments were bad law whoever enacted them, while the Money Bill objection said that amendments of this character had not been enacted by the procedure the Constitution prescribes for them.

A Bill containing provisions outside Article 110 cannot claim the Money Bill’s shortened path merely because other provisions in the same Bill are financial. The electoral bonds judgment of February 2024 did not decide that second objection. The question whether the Finance Act route was constitutionally available for such amendments stood referred, in separate proceedings, to a larger Bench of the Supreme Court on the Money Bill issue, and the Constitution Bench in the bonds case left the route question open, deciding the scheme on the content of the amendments alone. A reader who takes the striking down of the scheme as also a vindication of the procedural objection therefore overreads the judgment. The scheme fell because of what the amendments did to information and to equality between donors. Whether they could have been carried in a Finance Bill at all remains, as a matter of decided law, an unanswered question, and it is the strongest reason for treating the judgment as the end of the bond rather than the end of the argument.

For the legislative historian, the route also explains the shape of the record. A standalone political funding bill would have been examined by a parliamentary committee, debated clause by clause in both Houses on its own merits, and answered for by a minister identified with the subject. The Finance Bill clauses were debated, to the extent they were debated, within the compressed timetable of the Budget session, in a Bill running to hundreds of clauses amending dozens of statutes, where the electoral bond clauses competed for attention with the entire fiscal programme of the government. The objections that were recorded at the time came not from the parliamentary process but from the two constitutional and statutory institutions the scheme most affected, the Reserve Bank of India and the Election Commission, writing to the executive before and shortly after enactment. That correspondence is the subject of the sections that follow, after the government’s own case has been stated, as it should be, on its strongest terms.

The case for the scheme, as its makers stated it

The government’s defence of the scheme rested on a diagnosis that its critics largely shared: the existing system had failed, and its failure was measurable in cash. Political parties in India raise and spend sums that their disclosed income has never accounted for, election expenditure at constituency level visibly exceeds the statutory limits, and the gap was filled, on any account, by unaccounted money. The Finance Minister’s Budget speech of 1 February 2017, announcing the scheme, put the point as a problem of the status quo rather than of reform: the existing system, in which donors had no incentive to declare and parties no disincentive to accept cash, had produced donations whose sources were unknown even to the regulator. The remedy proposed had three limbs, and each limb answered to a limb of the diagnosis. Cash donations to a party were capped at two thousand rupees, implementing the Election Commission’s own recommendation, so that the anonymous cash channel was narrowed to trivial sums. Donations above that level had to move through the banking system, by cheque, transfer or bond, so that the money at least entered the recorded economy at the point of donation. And the bond was offered as the bridge for the donor who would not give at all if giving meant publicity.

That donor, in the government’s account, was not a fiction or a euphemism. The retaliation argument ran as follows, and it was put at its strongest by the Finance Minister in a detailed public defence of the scheme in January 2018, at the time of the notification. A business that funds a party accepts a commercial risk if the funding is public, because a rival party that comes to power may treat the donation as an act of allegiance and respond through the discretionary powers of the State: licences, contracts, inspections, credit from public sector banks, the hundred small decisions by which a government can favour or punish an enterprise. Faced with that risk, the rational donor either gives in cash, where the record does not exist, or splits the donation, or does not give. In each case the public record is not enriched but falsified, because the published reports capture only the donations of those willing to be seen, and systematically misrepresent the flow of money into politics. Anonymity at the public end, on this argument, was not the price of the bond. It was the consideration for which the donor surrendered cash and entered the banking system, and the surrender was the reform. The purchase reflected in the donor’s own balance sheet and in the bank’s records; the party’s aggregate bond receipts were declared in its return; the money was clean in the only sense the tax system can certify, having moved through accounts that the Income-tax Department could examine. A system that knows the total and can audit the channel, the argument concluded, tells the voter more truth than a system that publishes names for a fraction of the flow and nothing for the rest.

The defence had a second, quieter limb directed at the opposition’s position. Full public disclosure, it was argued, is not a neutral rule in a polity where incumbency carries the powers described in the retaliation argument: disclosure tells the ruling party exactly who funded its opponents, while the ruling party’s own funding enjoys the protection of its control over the consequences of exposure. A confidential channel therefore protects the funding of opposition parties disproportionately, and a voter interested in competitive elections might rationally prefer a system in which challengers can raise money without the donor list being available to the incumbent. The know your customer record at the bank was offered as the safeguard against the abuse of that confidentiality: the State’s investigative agencies, armed with a court’s or an authority’s lawful process, could reach the bank’s record, so anonymity ran against the public and against rival parties, but not against the law. That is the defence at full strength, and it identifies a real trade off. Whether the amendments struck the trade at the right point is the question the objections addressed.

The objections recorded at the time

The objections to the scheme were not assembled in hindsight. Both institutions charged with the integrity of the systems the amendments touched recorded their objections in writing, to the government, before the first bond was sold, and the documents later became public through information applications and the litigation record. They deserve to be taken in the order in which the institutions spoke.

The Reserve Bank of India replied to the Finance Ministry’s consultation on 30 January 2017, two days before the Budget, in a letter from its Chief General Manager to the Joint Secretary in the Ministry. The Bank’s objection went to the instrument itself. It warned that the amendment of Section 31 would set a bad precedent, encourage money laundering and undermine faith in Indian banknotes, because bearer bonds have the potential to become currency and, if issued in sizeable quantities, can undermine faith in the banknotes issued by the Reserve Bank. It observed that the bonds are bearer bonds, transferable by delivery, so that who finally and actually contributes the bond to the political party will not be known, and that the identity of intervening holders being unknown would offend the principles and the spirit of the Prevention of Money Laundering Act of 2002. And it denied the premise of necessity: there was, in the Bank’s assessment, no special need for or advantage in the creation of an electoral bearer bond by disturbing an established international practice, because the stated purpose of clean political funding could be achieved through a normal cheque, a demand draft or any electronic or digital mode of payment. The Ministry’s response, recorded by the Revenue Secretary on the file the following day, was that the Bank had not understood the proposed mechanism. The Bank returned to the subject once more: by a letter of 27 September 2017, the Governor pressed the Finance Minister to confine the bonds to electronic or dematerialised form, warning that issue in physical scrip form was fraught with serious risk of money laundering, since scrip could pass from hand to hand against untrailed consideration. The scheme as notified in January 2018 retained the physical instrument. The central bank’s institutional memory of bearer paper, and its insistence that a transfer trail is the substance of clean money rather than a refinement of it, were set aside by the ministry that owned the scheme.

The Election Commission’s letter of 26 May 2017, addressed to the Legislative Department, has been quoted earlier in this article on Section 29C; its objection ranged wider than the single proviso. The Commission treated the amendments as a package and warned of their serious impact on the transparency of political finance and the funding of parties, identifying the two mechanisms through which the package would degrade its supervision: the disappearance of bond receipts from the contribution report it published, and the corporate law changes, which in its assessment would lead to increased use of black money for political funding through shell companies. In December 2017, answering a question in the Rajya Sabha about institutional consultation, the Finance Ministry informed the House that the government had not received any concerns from the Election Commission, a statement that the subsequent disclosure of the May letter placed in a difficult light. The Commission’s former leadership also stated publicly that the Commission had not been consulted before the amendments were introduced. The procedural complaint and the substantive complaint were the same complaint in the end: a reform of the information system of Indian elections had been designed without the referee of that system in the room, and the referee’s written advice, when given, was to withdraw the central provision.

What the bank knew and the voter did not

Every purchase of a bond generated a complete, identified record inside a public sector bank, so the State stood able in principle to know who had funded every party, while the voter, the opposition and the regulator were statutorily confined to ignorance of the same transactions.

Confidentiality ran in one direction only, and it ran against the citizen.

That asymmetry, more than the abstract value of disclosure, is what converted a technical debate about instruments into a constitutional one. A donor promised confidentiality by the design received confidentiality from the public, but not from the government of the day, whose bank held the know your customer file and whose agencies could seek it. The retaliation argument, which was the defence’s strongest card, assumed that publicity was the donor’s danger; the bank record meant that the donor’s exposure to the one actor with the greatest capacity to retaliate was preserved by the very instrument sold as protection from retaliation. Critics made a further point about the receiving end: since the State Bank alone sold the bonds and parties encashed through accounts with it, the data to reconstruct the entire flow, donor to party, existed in one institution, while the law forbade that reconstruction to be shared with the Election Commission or the public. The scheme’s information design thus allocated knowledge upward to the executive and denied it outward to everyone else, and it did so by statute rather than by leak or practice. It is this design, stated in the amendments themselves, that the constitutional challenge eventually attacked, and it is stated here as the legislation’s own text presents it, without borrowing the judgment’s conclusions.

Five statutes, five removals: the amendments in one view

The amendments are summarised in the table below, one row for each amended statute, stating the position the law held before the amendment, the change the Finance Acts made, the practical consequence the change released, and the position that stands after the Supreme Court’s judgment of 15 February 2024 removed the amendments. The table is a map of the argument of this article, and the text around it should be read as its commentary: every row except the first is a removal, and the removals, rather than the bond in the first row, are where the scheme’s legal significance lies. The foreign contribution row differs in kind from the others, because the change there was a redefinition with retrospective effect rather than a removal, and because the judgment did not disturb it; it is included because the brief of the scheme, as enacted across the three Finance Acts, is incomplete without it.

Statute and provision	What the law required before	What the amendment changed	What the removal made possible	Position after the judgment
Reserve Bank of India Act, 1934, Section 31	Bearer promissory paper could be issued only by the Reserve Bank or as expressly authorised	Section 135 of the Finance Act, 2017 inserted Section 31(3), authorising the Central Government to notify a bank to issue electoral bonds, defined as bearer instruments carrying no name of buyer or payee	A lawful bearer funding instrument sold across a bank counter	The authorisation fell with the scheme; the bearer prohibition stands unqualified for this purpose
Representation of the People Act, 1951, Section 29C(1)	The party treasurer reported every contribution above Rs 20,000, naming the contributor, to the Election Commission	Section 137 of the Finance Act, 2017 added a proviso exempting contributions received by way of electoral bond from the report	Bond receipts of any size generated no entry in the published contribution report	The proviso was struck down; bond receipts, were the instrument to exist, would be reportable like any other contribution
Income-tax Act, 1961, Section 13A	The party kept a record of each contribution above Rs 20,000 with the contributor’s name and address, as a condition of its tax exemption	Section 11 of the Finance Act, 2017 inserted the words other than contribution by way of electoral bond into the record condition, and added the Rs 2,000 ceiling on cash and other modes	The party owed no statutory record of its bond donors, and its exemption could not fail for want of one	The bond exclusion was struck down; the record condition and the Rs 2,000 ceiling stand
Companies Act, 2013, Section 182	Aggregate contributions in a year were capped at 7.5 per cent of average net profits of the three preceding years, and the profit and loss account disclosed the amount and the name of the party	Section 154 of the Finance Act, 2017 omitted the ceiling proviso, substituted Section 182(3) to require disclosure of the total amount only, and inserted Section 182(3A) admitting contributions through a notified scheme instrument	A company of three years’ standing could give without limit and report the giving without naming the recipient	The ceiling and the name of the party stand restored in Section 182; Section 182(3A) was not the subject of the striking down
Foreign Contribution (Regulation) Act, 2010, Section 2(1)(j)(vi)	A company with more than half its nominal capital held from abroad was a foreign source, whose contributions a party could not accept	Section 236 of the Finance Act, 2016 added a proviso treating such a company as not a foreign source where its foreign holding was within foreign investment limits, and the Finance Act, 2018 carried the proviso’s commencement back to 5 August 1976	Donations from majority foreign owned Indian companies within investment limits ceased to be foreign contributions across the entire life of the prohibition	The redefinition was not disturbed by the bonds judgment and stands

Two features of the map deserve emphasis. The first is the direction of travel in every row but the first: information that the prior law required somebody to create, file or publish ceased to be required, and in no row did the Finance Acts substitute a new disclosure addressed to a different audience at a different threshold. The scheme’s architecture is therefore misdescribed as a transfer of disclosure from the public to the bank. The bank’s record was a byproduct of the payment system, not a disclosure obligation imposed by the amendments, and the State Bank’s know your customer file would have existed had the amendments never mentioned records at all. The second feature is the survival pattern in the final column. The judgment removed the exemptions and restored the prior text of the three disclosure provisions and the ceiling, it left the two thousand rupee ceiling standing as the scheme’s one durable tightening of the law, and it left the foreign contribution redefinition untouched, because that amendment had not been the vehicle of the bond and fell outside the grounds on which the scheme was condemned. The funding system that stands after February 2024 is therefore not the system of 2016 restored entire. It is that system with a lower cash ceiling, a widened definition of the permissible Indian donor, and the disclosure provisions back in force.

The scheme in operation

The first tranche of bonds was sold from 1 to 10 March 2018 through the authorised branches of the State Bank of India, and sales followed in the notified windows of each quarter, with the extended windows in election years that the scheme and its 2022 amendment provided. The machinery ran without interruption for six years; no tranche failed for want of buyers, and the instrument’s short life meant that the flow of money into parties through the channel can be measured almost exactly by the sales, since a bond unsold in its window could not be sold later and a bond sold was, in the overwhelming pattern, deposited within its fifteen days. The figures that may responsibly be stated are those the selling bank itself supplied. On the State Bank of India’s figures, compiled from its responses to applications under the Right to Information Act and reported by the Association for Democratic Reforms, 28,030 electoral bonds of an aggregate value of Rs 16,518 crore were sold in thirty tranches between March 2018 and January 2024. That aggregate is the scale of the channel: it exceeds, by a wide margin, the total identified donations that the contribution reports of all parties had disclosed over comparable periods, and it moved through a channel that contributed no names to those reports. The same bank’s replies recorded the residue of the design: bonds of a little over Rs 20 crore went unencashed in the period to November 2021 and were transferred, as paragraph 12(2) of the scheme directs, to the Prime Minister Relief Fund, the measurable cost of the fifteen day validity rule in forgotten, late or undeliverable instruments.

Operation also settled one question the design had left open: which parties the channel could serve. The one per cent threshold confined receipt to parties with a demonstrated electoral presence, which in practice meant the national parties and the larger state parties, and excluded the long tail of registered parties entirely. The threshold was defensible as an anti proliferation measure, preventing the registration of paper parties as bond conduits, and it simultaneously guaranteed that the channel’s benefits were concentrated among parties that already commanded funding on a large scale through the disclosed routes. The scheme thus operated as a large, centralised and incumbent weighted channel laid over the older decentralised system of cheques, transfers and trusts, which continued in parallel and continued to be reported. When the Supreme Court struck the scheme down, the older system was what remained, and the parties’ obligation to report substantial contributions, and the companies’ obligation to cap and name theirs, revived with the striking down because the judgment removed the amendments rather than merely the notification.

A donation traced through the amended law

The operation of the five amendments is clearest when a single donation is followed through the law twice, once under the text as it stood in 2016 and once under the text as the Finance Acts left it. Take a company, in existence for a decade, with average net profits that would have supported a contribution of a fixed amount under the old ceiling, resolving instead to contribute a sum several times larger to one political party. Under the law of 2016, the transaction fails at the first step and is visible at every step thereafter. The board resolution authorising it would exceed the seven and a half per cent ceiling in the first proviso to Section 182(1), and the contribution beyond the ceiling would be unlawful. Payment would move by cheque or transfer from the company’s account to the party’s account. The party’s treasurer would record the contribution, with the company’s name and address, in the file Section 13A required for the exemption, and would report it by name in the Section 29C report to the Election Commission, which would publish it. The company’s profit and loss account would disclose the total contributed and the name of the party. A shareholder, a voter and the regulator would each be able to find the transaction in a record addressed to them, and the three records would corroborate one another.

Under the amended law, the same transaction is lawful at the first step and invisible at every step thereafter. The ceiling being omitted, the board resolution may authorise any sum, and the company’s three years of existence is the only threshold to cross. The company directs its bankers to purchase bonds of the required amount from the State Bank in a notified window, completing know your customer formalities and paying from its account; the bank’s file identifies the company, and that file is the only complete record the transaction will ever generate. The bonds, naming no buyer and no payee, are delivered to the party, which deposits them within fifteen days into its designated account, where they are credited the same day. The party’s Section 29C report contains no entry, the proviso having removed the receipt from the report. The party’s Section 13A record contains no name, the inserted words having removed the receipt from the record. The company’s profit and loss account discloses an aggregate of contributions for the year with no party named, the substituted sub-section requiring nothing more. If the company is majority owned from abroad within the foreign investment limits for its sector, the redefined foreign source provision removes the one further objection that might have attached to the gift. Three statutory audiences, the Commission, the tax authority acting on the party’s file, and the company’s own shareholders, each receive a record from which the transaction has been legislatively excised, while the fourth record, the bank’s, is complete, identified and closed to all three. That is the whole of the scheme, and it is why an account of the electoral bond that stays with the instrument misses the legislation: the bond is the only part of the machine that did nothing.

What the judgment did and did not decide

The challenges to the scheme were filed in 2017, before the first bond was sold, and the litigation ran alongside the scheme’s whole operating life: an interim direction in April 2019 required political parties to place details of bond receipts before the Election Commission in sealed cover, and the petitions were eventually heard by a Constitution Bench of five judges. On 15 February 2024 that Bench, unanimous in its result, struck down the Electoral Bond Scheme and the amendments to Section 13A of the Income-tax Act, the proviso to Section 29C of the Representation of the People Act and Section 182 of the Companies Act that had made the scheme work, and it directed a disclosure of the bond transactions that the State Bank had recorded. The grounds of that holding, the double proportionality analysis, the treatment of the corporate ceiling under Article 14 and the orders that followed, are the subject of the companion article on the electoral bonds Supreme Court judgment, and they are deliberately not analysed here. Three boundary points belong in this article because they define the legislation’s afterlife. The judgment removed amendments; it did not enact a replacement scheme, and no statutory successor channel has been created. It left the two thousand rupee ceiling on cash and other modes standing, since that tightening was not the instrument of anonymity. And it did not decide the Money Bill objection to the Finance Act route, for the reason given in the route section of this article. The statute book after the judgment therefore contains the pre 2017 disclosure structure, one stricter cash rule, a widened definition of the permissible corporate donor, and an unanswered procedural question.

The funding law that remains

What survived the judgment

The provisions that govern a political donation after the scheme’s removal are the provisions of the older architecture, restored to the reach they had before the Finance Acts cut them back, together with the two changes the judgment left standing.

Section 29B still states who may give: any person or company other than a government company, subject to company law and the foreign contribution bar. Section 29C again reaches every contribution above twenty thousand rupees, because the proviso that exempted the bond channel has been struck down with the scheme. Section 13A again makes the party’s exemption depend on a record of each contribution above twenty thousand rupees with the contributor’s name and address, and it keeps the clause the Finance Act added in the opposite direction, so that a donation above two thousand rupees must still arrive by account payee cheque, account payee bank draft, electronic clearing or another banking mode, the bond having fallen out of the list with the scheme. Section 182 again caps a company’s aggregate political contributions in a financial year at seven and a half per cent of its average net profits over the three preceding financial years, and again requires the profit and loss account to disclose the total contributed and the name of the party. And the foreign contribution definition stands as the Finance Acts of 2016 and 2018 left it, so that an Indian company whose foreign shareholding sits within the investment limits for its sector is not a foreign source. The scheme is gone; the system it displaced is back, with its cash ceiling lowered and its donor boundary widened.

Within that restored system, the channels for a lawful donation are the channels that preceded 2018, and each carries its own disclosure signature. A direct donation by cheque, draft or transfer is recorded by the party under Section 13A and reported under Section 29C where it crosses twenty thousand rupees, and a corporate donor discloses it by name under Section 182. A donation in cash is lawful only within the two thousand rupee ceiling that clause (d) of Section 13A imposes at the receiving end. Deductions under Sections 80GGB and 80GGC reward the identified payment, being unavailable for cash. And a donor who wishes to give through an intermediary has one statutory vehicle designed for the purpose, the electoral trust, which predates the bond by five years and survived it without amendment.

An electoral trust is a company registered under Section 8 of the Companies Act of 2013, corresponding to Section 25 of the Companies Act of 1956, formed with the sole object of distributing contributions received by it to political parties registered under Section 29A, and approved by the Central Board of Direct Taxes under the Electoral Trusts Scheme, 2013, notified on 31 January 2013 with the functions of such trusts prescribed by Rule 17CA of the Income-tax Rules. Section 13B of the Income-tax Act gives the trust its fiscal character: contributions received by an approved trust are excluded from its income on condition, principally, that the trust distributes at least ninety five per cent of the aggregate donations received during a financial year, together with any surplus brought forward, to eligible political parties before the close of that year, retaining no more than five per cent for the management of its affairs within prescribed rupee limits. The trust may accept contributions only by account payee cheque, account payee bank draft or electronic transfer, never in cash; it may not accept a contribution without the contributor’s permanent account number, or, for a citizen residing abroad, passport number; and it may not accept contributions from a person who is not a citizen of India, from a foreign entity, or from another electoral trust. It must maintain a list of the persons from whom contributions have been received and of the parties to whom they have been distributed, with names, addresses, permanent account numbers, amounts and modes of payment, obtain receipts from each recipient party, keep audited accounts, and furnish its lists and audit report to the prescribed income tax authority. Its approval runs for a block of financial years and must be renewed.

The contrast with the bond is instructive, because the trust solves the donor’s aggregation problem without solving it by secrecy. A donor to a trust is identified to the trust, the trust’s distributions are identified to the parties, and the trust’s own filings identify both ends to the tax authority; the party reports what it receives from the trust under Section 29C. What the trust interposes between donor and party is distance, not darkness: the public record shows the trust’s distribution to the party and, through the trust’s disclosures, the donor’s contribution to the trust, though the two records are not presented as a single linked transaction. For a treasurer or a company secretary assembling the contribution reports, board papers and trust filings that this system generates in parallel across the party, the donor company and the trust, the practical burden is documentary, and filings are assembled from spreadsheets, drafts and audited accounts that must agree with one another; papers of that kind can be checked in the browser before submission with a free office file viewer for Excel, Word and PowerPoint files, which keeps the figures in the report tied to the figures in the underlying schedules. The trust route carried substantial sums before 2018 and carries them again after the bond’s removal, on terms that the disclosure architecture was built to accommodate.

What the scheme left untouched

A reform is defined as much by its silences as by its clauses, and the electoral bond amendments left three large structures of election law exactly as they found them. The first is the law of election expenditure. The Representation of the People Act caps the expenditure of a candidate, through Section 77 and the Conduct of Elections Rules, and requires an account of it, but Indian law has never capped the expenditure of a political party, and the Finance Acts did not attempt to. The scheme therefore operated entirely on the income side of party finance: it changed how money could arrive, in what quantities from companies, and with what records, while the spending that the money feeds remained subject to no aggregate limit and to disclosure obligations that the amendments did not strengthen. The second untouched structure is candidate and party registration. Section 29A registration, the common symbol regime and the recognition of national and state parties continued undisturbed, and the one per cent receipt threshold in the scheme borrowed its voter share test from that electoral landscape without altering it. The third silence concerns the individual donor, to whom the amendments made only the offer of the bond itself. No ceiling on individual giving was introduced, no aggregate disclosure duty was placed on a person who gives to several parties, and the deduction provisions continued untouched. The scheme’s authors reformed the record, the ceiling and the source of corporate money, and left the demand side of elections and the personal donor where the law had always left them. Any future reform that begins where the Finance Acts stopped will find those three structures waiting, and will have to decide, as the bond’s authors did not, whether a funding system can be made transparent at the point of receipt while remaining unmeasured at the point of use.

The prohibitions that were never removed

It is one of the scheme’s central ironies that the substantive law of who may fund a political party was left entirely intact by the Finance Acts, and an account of the legislation that confines itself to the removals can mislead unless the survival of the prohibitions is stated plainly. Section 29B of the Representation of the People Act continued, throughout the scheme’s life, to govern the entitlement of a party to accept contributions: a party may accept a voluntary contribution from any person or from any company other than a government company, a government company being a company in which the Central Government, a State Government or governments together hold not less than fifty one per cent of the paid up share capital. The foreign contribution prohibition continued in parallel under its own Act: a political party was, and remains, barred from accepting a foreign contribution, with the boundary of the foreign redrawn by the Finance Acts as described in the foreign contribution section of this article. The Companies Act continued to require that a corporate contribution be authorised by a resolution of the board passed at a meeting, and continued to confine the power to companies that had been in existence for not less than three financial years. None of these provisions was amended in substance by the bond legislation, other than the ceiling and disclosure limbs of Section 182.

What the amendments removed was not the prohibitions but the means of knowing whether the prohibitions had been obeyed. A prohibition in a funding statute is enforced, in the ordinary case, not by policemen but by records: the regulator compares the party’s reported receipts against the classes of barred donors, the tax authority compares the party’s file against its exemption claim, and the company’s shareholders compare the board’s stated giving against the published accounts. The bond channel broke each comparison at the same joint. A party that received a bond from a government company, were such a purchase to occur, would file a Section 29C report from which the receipt was absent by force of the proviso, keep a Section 13A record from which the donor was absent by force of the inserted words, and face no statutory occasion on which the barred character of the donor could surface. The Election Commission’s May 2017 letter identified exactly this structure when it observed that, without the report, it cannot be ascertained whether a party has taken a donation in violation of Section 29B. The point generalises beyond the Commission. Every prohibition in the pre 2017 architecture was, in practice, a duty to be able to show compliance, and the amendments relieved the largest channel of receipts of the duty to be able to show anything. The prohibitions stood on the statute book in full force for six years, applicable to bond receipts in terms, and unexaminable in fact. A legal system can survive a repealed prohibition more easily than an unexaminable one, because repeal at least tells the citizen where the boundary lies; the bond amendments kept the boundary and removed the light by which it could be seen.

The donor’s position under the amended law

The amendments are usually described from the party’s side or the regulator’s, but they also rewrote the legal position of the donor, and not only of the corporate donor. An individual who wished to give a substantial sum to a party before 2017 faced a simple landscape. There was no ceiling on personal giving and no duty on the individual to report the gift to any authority, but the party’s duties closed around the transaction: the gift, if made by cheque or transfer and above twenty thousand rupees, entered the party’s Section 13A record with the donor’s name and address and its Section 29C report with the donor’s name, and a donor claiming the deduction under Section 80GGC created a further identified record in a personal tax return, the deduction being unavailable for cash. An individual donor who required anonymity therefore had, in practice, one lawful instrument, which was cash below the reporting thresholds, and the thresholds were low. The bond changed the individual’s position as completely as the company’s. An individual could purchase bonds of any amount through the banking system, on know your customer compliance, and deliver them to a party, and the transaction would be lawful in form, unlimited in amount, identified in the bank’s file and invisible in every record the funding statutes maintained. The channel was not a corporate concession with an individual spillover. It was a general redefinition of what a large lawful donation could look like, extended to every class of donor the scheme admitted, which is to say every citizen and every body incorporated or established in India.

For the company, the donor’s position after Section 154 of the Finance Act has been described in the Section 182 section of this article, but two practical incidents of that position belong here. The first is the fate of the board resolution. Section 182(1) continued to require authorisation by a resolution passed at a meeting of the board, a requirement the Finance Act did not touch, and the resolution remained the one internal corporate record in which a contribution was necessarily described before it was made. The resolution, however, is a private corporate document, produced to the company’s auditors and members on the terms company law prescribes for board papers generally, and not a disclosure to the public; the amendment thus left the most specific record of a company’s giving in the least public place the system contains. The second incident is the aggregate disclosure that substituted Section 182(3) preserved. A company’s accounts continued to state the total amount contributed in the year, and that survival mattered to the subsequent history of the scheme, because it allowed the scale of a company’s political giving to be known even while its direction was concealed, and the mismatch between a known total and an unknown destination became one of the recurring exhibits in the public debate. A shareholder could learn that the board had given, in aggregate, a sum larger than the dividend the company had declared, and could not learn from any statutory source which party or parties had received it. The donor’s anonymity under the amended law was therefore never absolute even in the public record; it was a specific anonymity, of destination rather than of amount, and it is accurately described only when that precision is kept.

A note on how the amendments were drafted

The legislative technique of the bond amendments repays attention, because the scheme’s effects were achieved with remarkably little text, and the economy of the drafting was itself a design decision. No new Act was passed. No new chapter was inserted into any of the five statutes. The operative words, across four statutes in the Finance Act of 2017, amount to a handful of insertions and one omission: a sub-section and an Explanation in Section 31 of the Reserve Bank of India Act, a proviso in Section 29C of the Representation of the People Act, a phrase of six words inserted into clause (b) of the first proviso to Section 13A of the Income-tax Act together with an added clause, the omission of a proviso and the substitution of a sub-section in Section 182 of the Companies Act, and, for the foreign contribution change, a proviso inserted by one Finance Act and a date substituted by the next Finance Act in the earlier Act rather than in the statute being amended. A reader of any of the parent Acts in its amended form meets the scheme obliquely, as a parenthesis in provisions whose main business lies elsewhere, and could read the Representation of the People Act from beginning to end without grasping that its reporting section had been disabled for the largest channel of receipts, unless the proviso to Section 29C(1) were read with the scheme notification in hand.

The definition of the instrument illustrates the same dispersion. The statutory definition sits in the Explanation to Section 31(3) of the Reserve Bank of India Act, the least consulted of the five statutes by an election lawyer, and the other Acts proceed by cross reference: Section 13A of the Income-tax Act carries its own Explanation providing that electoral bond means a bond referred to in the Explanation to sub-section (3) of Section 31 of the Reserve Bank of India Act, and the proviso to Section 29C proceeds on the same incorporated meaning. The operative terms of the instrument, its denominations, validity, windows, eligibility and the destination of unencashed funds, sit in none of the Acts at all, but in the scheme notification issued by the Department of Economic Affairs, amendable by the executive without recourse to Parliament, as the 2022 amendment of the sale windows demonstrated. Commencement followed the same layered pattern: the Finance Act amendments took effect with the Act, the Income-tax cash ceiling clause was deferred to 1 April 2018, the scheme itself commenced on its notification on 2 January 2018, and the first sale opened two months later. The practical consequence of this architecture was that the scheme could be, and was, dismantled by a judgment that struck the amendments and the notification together, without any need to repeal a principal Act; and its construction had required no principal Act either. A reform of the first importance in the law of democracy was built entirely out of provisos, and it fell the same way.

The receiving end: eligibility, the threshold and the designated account

The scheme’s conditions at the receiving end were stricter than its conditions at the buying end, and the asymmetry shaped which parties the channel enriched. Registration under Section 29A of the Representation of the People Act was the first condition: the party had to be a registered party, with its constitution filed with the Election Commission and its office bearers on record, before a single bond could lawfully reach it. The second condition was electoral performance: the party must have secured not less than one per cent of the votes polled in the most recent general election to the House of the People or to the Legislative Assembly of a State. The test is applied election by election, so a party’s eligibility could be gained by a breakthrough performance and lost by a decline, and the class of eligible parties at any sale window was a matter of arithmetic on declared results rather than of administrative discretion. In practice the eligible class throughout the scheme’s life comprised the national parties and the larger state parties, a few dozen parties among the more than two thousand registered with the Commission, the great majority of which have never contested an election and could not have received a bond had a donor wished to give one.

The third condition was mechanical and, for the system’s information design, decisive: the party could encash bonds only through the account it maintained for the purpose with the authorised bank. A party’s ordinary bank accounts, held with whichever banks it used for its subscriptions and expenditure, were not a route to encashment. The bond had to be deposited into the designated account with the State Bank of India, and it was credited the same day. The design thereby guaranteed that one institution stood at both ends of every transaction the scheme processed: it sold every bond, on know your customer documentation that identified the buyer, and it credited every bond, into an account that identified the party. The complete map of the channel, buyer to party to amount to date, existed within a single bank’s records as an ordinary incident of the payment system, without the amendments having imposed any duty to compile it. When the litigation reached its final stage, it was the existence of that map that made a disclosure order practicable; when the scheme operated, it was the same map whose contents the law withheld from the Election Commission and the voter. A party, for its part, experienced the channel as an account relationship: it received physical instruments from donors, deposited them within fifteen days of their issue, and saw its balance rise by sums whose statutory reporting treatment was nil. The discipline the receiving end imposed, of prompt deposit and a single channel account, was administrative rather than informative, and it coexisted without tension with the complete absence of a reporting duty, because the two conditions governed different things: the money had to move tidily, and nothing had to be said about it.

The design choices examined

Four features of the scheme’s design were choices among alternatives that the record shows were available and urged, and each choice traded a safeguard for a facility. The first was the bearer form in physical scrip. Bearer paper is the oldest technology of anonymous value transfer the law knows, and its properties were the scheme’s selling point and its vulnerability in one: delivery completes the gift, no register intervenes, and no subsequent inquiry can reconstruct the chain from the instrument. The alternative, pressed by the Reserve Bank in September 2017, was issue in dematerialised or electronic form, in which the bond would exist as an entry in an account and every transfer would leave the trail that account systems generate by existing. The electronic form would have preserved confidentiality from the public, if that was the object, while making the channel auditable end to end by lawful process; the physical form made the channel unauditable between the bank counter and the party’s deposit, whatever process was brought. The government chose the physical form, and the choice is the single clearest instance of the scheme preferring irreversibility of anonymity over its mere confidentiality.

The second choice was the fifteen day validity. A short life confines the instrument’s usefulness as a parallel store of value, and answers, in part, the Reserve Bank’s warning that bearer bonds in sizeable quantities could function as currency and erode faith in banknotes. A bond that dies in a fortnight cannot circulate as money for long, and the windows confined issue to a few weeks a year besides. But the same brevity compressed the parties’ deposit discipline and produced the unencashed residue that the scheme sent to the Prime Minister Relief Fund, a destination which itself embodies a choice: the value of a failed gift went neither back to the donor, which would have required identifying the donor at the point of failure, nor to the Consolidated Fund as unclaimed money ordinarily might, but to a relief fund administered under the Prime Minister’s office. The third choice was the denomination ladder, rising by multiples of ten to a single bond of one crore rupees. Denominations of that size are not the small donor’s instruments; a ladder that begins at one thousand rupees and reaches one crore in five steps is designed for the whole range of political giving, and its top end exists for transactions of a scale at which the pre 2017 disclosure system had been specifically aimed. The fourth choice was the sale window system itself, quarterly windows of ten days with extensions in election years, extended again in 2022 to years of State assembly elections. Windows concentrated the flow into predictable fortnights, aligned the supply of the instrument with the electoral calendar, and made the channel’s rhythm a matter of executive notification. Each choice is defensible on the ground its defenders gave for it. Taken together they describe an instrument engineered to be convenient for large gifts, brief in its life, opaque in its passage and available exactly when elections made money most useful, which is why the debate about the scheme was never really a debate about banking technique.

The money trail under the scheme

It remains to state precisely what trail a bond transaction left in the records of the State, because the scheme’s defence and its condemnation both turned on the character of that trail, and loose statements in either direction misdescribe the legislation. At the point of purchase, the trail was complete. The buyer was identified by the bank’s know your customer process, the payment moved from the buyer’s bank account by a recorded mode, and the bank’s books linked buyer, amount, denomination and date of issue. No cash entered the transaction at the bank’s counter, and the purchase was as well documented as any large banking transaction in the country. At the point of deposit, the trail was again complete. The party’s designated account was credited with the amount on the day of deposit, and the bank’s books linked party, amount and date. Between those two points, the trail was the instrument, and the instrument was designed to say nothing. The bond bore a serial number, and the bank could in principle match an issued bond to the party that deposited it; but the passage of the bond from buyer to party, the identity of any person who held it between purchase and deposit, the consideration if any for its transfer, and the very fact of delivery from the purchasing donor to the receiving party were events that no provision of the scheme or of the amended statutes required anyone to record. A donor could buy and hand the bond to an intermediary, an intermediary to another, and the party would still deposit a valid instrument within its fifteen days, with every hand lawful and none of them documented.

The anti money laundering framework stood beside this design without engaging it. The Prevention of Money Laundering Act of 2002 and the know your customer regime built under the Reserve Bank’s directions police the entry of value into the banking system, and at the entry point the bond complied: identified buyer, accounted payment, regulated seller. What the framework exists to trace, however, is the movement of value between persons, and it was the movement of the bond that the scheme placed outside every recording duty, a point the Reserve Bank’s January 2017 letter made in terms when it said that the identities of intervening holders being unknown would offend the principles and the spirit of that Act. The trail the scheme left is therefore accurately described as two identified endpoints and an unrecorded middle, held within one bank, closed to the regulator charged with election finance, and complete enough at the endpoints to sustain the claim that no transaction was hidden from the State. Both halves of that description are true, and the legislation’s character is in their conjunction: a funding channel can be entirely banked and substantially unrecorded at the same time, when the recording duties are the very provisions the legislature has chosen to amend away.

The scheme and State politics

The electoral bond was a creature of Union legislation from first to last: the parent Acts it amended are Union statutes, the scheme was notified by the Union Ministry of Finance, the authorised bank was a national bank selling through branches designated by the Union, and the sale windows were specified by the Central Government. Yet a large part of the money the channel moved was destined for State politics. Eligibility at the receiving end ran to any registered party that had crossed the one per cent threshold in a general election to a Legislative Assembly, and the State parties that dominate several large States were among the channel’s principal users, since a party governing a State commands the attention of every donor with interests in that State’s contracts, licences and land. The original scheme acknowledged the State dimension only through the vote share test; its windows were keyed to the calendar of the House of the People, with the thirty day extension reserved for a general election to that House. The Electoral Bond (Amendment) Scheme, 2022 closed that gap expressly, adding the fifteen day window for years of general elections to the Legislative Assemblies of States and Union territories with legislatures, and the timing of the first sale under it, days after the notification in November 2022, showed the extension in immediate use ahead of assembly contests. Since assembly elections occur somewhere in the country in most years, the amendment generalised the extension from an occasional Lok Sabha year facility into a standing feature of the channel’s calendar. The federal point that follows is structural rather than partisan. Election finance law in India is Union law, because the Representation of the People Acts, the Companies Act, the Income-tax Act and the Reserve Bank of India Act are all Union instruments, and a reform of party funding made in New Delhi therefore governs the funding of parties that will never contest a parliamentary seat. The bond scheme exercised that Union competence to its full extent, and the disclosure it removed was removed for State politics as completely as for national politics, on the authority of a Money Bill procedure in which the Council of States, the chamber in which the States are represented, had only a recommendatory voice. The Rajya Sabha’s exclusion from effective decision on the Finance Bills thus carried a federal cost that the anonymity debate, conducted largely in national terms, rarely itemised: the funding rules of every State election in the country were rewritten in a legislative process from which the States’ House was constitutionally sidelined.

Where the disagreement actually lay

With the legislation and the record both stated, the controversy over the scheme can be located with some precision, and it is narrower than the public argument suggested. There was no serious disagreement about the disease. Parties needed money on a scale their disclosed income did not explain, cash filled the difference, and cash donations are anonymous in a way no reporting statute can cure, because a rupee note carries no name for a section to record. There was no serious disagreement about the purchase end of the bond: know your customer verification, payment from a bank account and a single authorised seller constituted a genuinely banked channel, and the sums that moved through it were money that had entered the recorded economy. And there was no disagreement about the text: the five amendments said what this article has said they said, and the defence never disputed the removals, only their significance.

The disagreement lay in three places. The first was the value of publicity itself. For the defence, donor confidentiality was a legitimate protection against retaliation and a practical inducement to banked giving, and the voter’s interest was sufficiently served by knowing the totals flowing to each party. For the critics, publicity was not a refinement of the disclosure system but its purpose, because a voter choosing between parties is entitled to weigh who is paying for each, and a total without a name answers a question nobody was asking. The second disagreement concerned the ceiling, and it was the one on which the anonymity debate shed least light. Whether corporate political giving should be measured against corporate profit is a question about the character of company money, the rights of shareholders whose company funds parties they may oppose, and the risk that a company with no profits and no business can serve as a conduit for money whose real source is elsewhere. The removal of the ceiling answered that question in a single omitted proviso, and the answer went largely undebated inside the larger argument about names. The third disagreement was about retrospectivity, and it stood apart from the bond altogether: whether a definition at the boundary of a prohibition may be rewritten backwards across forty two years, so as to determine the legality of donations long received and once adjudicated, is a question about the rule of law that would arise identically if the subject were any other prohibition. On each of the three, the scheme’s text took the position that reduced information or increased permissiveness, and on each the contrary position was available in the institutions’ letters or the prior law. The Supreme Court’s eventual holdings addressed the first two disagreements and, for the reasons given in this article, not the third and not the procedural question beneath them all. A reader who understands where the disagreement lay can see why the judgment closed the scheme without closing the subject: the questions of how party funding should be disclosed, capped and kept domestic remain legislative questions, and the statute book that answers them is the book of 2016 with a lower cash ceiling, awaiting a legislature willing to write a funding Act that says its own name.

The scheme’s legal lifespan

The scheme’s chronology, assembled from the instruments themselves, is short enough to state in a paragraph and strange enough to reward the stating. The foreign contribution proviso began the sequence in the Finance Act of 2016, retrospective to 2010 and later to 1976. The Budget of 1 February 2017 announced the bond and the cash ceiling together. The Finance Act of 2017, assented to on 31 March 2017, carried the four central amendments. The Reserve Bank’s objection preceded the Budget by two days, the Election Commission’s followed the Act by two months, and the Governor’s plea for electronic issue came in September of the same year. The scheme was notified on 2 January 2018, the Finance Act of 2018 completed the foreign contribution retrospectivity in March, and the first bonds were sold that month. The channel then operated for six years under challenge, its windows extended in November 2022, until the judgment of 15 February 2024 removed the amendments and the scheme together, seven years after the announcement and a little over six after the first sale. Few reforms of comparable consequence have been so completely contained within a single political decade, enacted by provisos, operated through a notification, and extinguished by a judgment, leaving behind one lowered cash ceiling, one widened donor definition and one unanswered question about the legislative road by which they arrived.

Supervision without sight: the Commission and the data that grew around the scheme

The Election Commission did not cease to supervise political finance during the scheme’s six years; it supervised a record from which the largest channel had been removed, and the consequences showed in the changing character of the public data. The Commission continued to receive and publish the contribution reports filed under Section 29C, and those reports remained accurate as far as they went: they recorded the identified donations, by cheque, draft, transfer and trust, that parties received above twenty thousand rupees. What they could not convey was proportion. A reader of a party’s report in, say, the financial year 2019-20 saw a complete account of its disclosed donations and no indication that a sum exceeding the whole of them might have arrived by bond, to be found only as an aggregate of bond receipts in the party’s audited annual accounts, a document filed for a different purpose under a different statute. The two public documents, the contribution report and the audited accounts, had been designed in the earlier system to interlock, the first naming the donors whose money the second accounted for. Under the amendments they drifted apart into parallel accounts of different money, and the work of reuniting them fell to civil society. The figures for the channel’s scale that exist in the public domain, the totals cited in this article among them, were assembled by the Association for Democratic Reforms from the State Bank’s answers to applications under the Right to Information Act, tranche by tranche, because no statute required the bank, the Commission or the parties to publish them. A disclosure system in which the central fact, the size of the largest funding channel, is available only through information litigation against the selling bank has inverted its own design, whatever view is taken of donor names.

The litigation produced one further anomaly in the information structure. Under the Supreme Court’s interim direction of April 2019, political parties placed particulars of their bond receipts before the Election Commission in sealed cover, and the Commission held that material, by order of the Court, without publishing it. For the remaining life of the scheme, therefore, the regulator possessed information about the channel that the statute denied to the public and the Court’s order denied to publication, a sealed supplement to a public record whose governing section had been amended to exclude the same receipts. The episode is worth recording in a statute article because it demonstrates, in the administration of the law itself, the thesis of the amendments’ critics: knowledge of political funding under the scheme existed, in the bank and latterly in the Commission’s sealed files, and the legal question throughout was never whether the information could exist but who would be permitted to have it. The judgment of February 2024 answered that question for the bond data by directing disclosure, and the answer belongs to the judgment article. For the legislation, the point is the one with which this article began. The bond was an ordinary banking instrument. The scheme was a settlement about information, enacted in provisos, and its history is the history of that settlement being made, administered and withdrawn.

The giver’s tax position and the bond

One corner of the amended law was never publicly tested, and it is recorded here for completeness because it shows the disclosure system pulling against itself. Sections 80GGB and 80GGC of the Income-tax Act allow a company and any other assessee respectively a deduction for contributions given to a political party or an electoral trust, and the deduction is not available where the contribution is made in cash. The provisions embody the system’s standing bargain with the donor: identify the payment, move it through the banking system, and the exchequer will share its cost. A contribution made by purchasing and delivering an electoral bond was made otherwise than in cash, the purchase being a banked transaction on know your customer documentation, and nothing in the Finance Acts excluded a bond contribution from the deduction provisions. A donor claiming the deduction would, however, have had to substantiate the contribution in a return of income, quantifying it and attributing it to a party, and thereby creating in the donor’s own tax file precisely the identified record that the bond existed to avoid creating anywhere else. The two halves of the statute book thus offered the corporate donor inconsistent inducements: the Companies Act and the Representation of the People Act promised that the destination of the gift would appear in no public record, while the Income-tax Act offered a fiscal reward for recording the gift in a return. How donors resolved the tension is not a matter of public record, for the obvious reason that tax returns are confidential, and no figure for deductions claimed on bond contributions has been published by any authority. The point for the reader of the legislation is structural. A disclosure system is a single fabric even when it is spread across five statutes, and a reform that amends four of them while leaving the fifth pulling the other way will produce behaviour that none of the five, read alone, predicts.

How the disclosed system was used in practice

The pre 2017 architecture, for all its gaps, generated a working public practice around its records, and the value of that practice is part of what the amendments withdrew. The contribution reports filed under Section 29C were published by the Election Commission, and they became the raw material of an entire field of election finance research. The Association for Democratic Reforms compiled them year by year, matched donors to parties across years, identified the corporate houses that funded both government and opposition, and measured the disclosed system against the parties’ audited accounts. Those analyses, built entirely from documents the statutes required to exist, repeatedly showed that the disclosed donations were a minority of party income and that the majority was returned against unknown sources, a finding that cut in both directions in the later debate: it was the government’s best evidence that the disclosure system had failed to capture real money, and the critics’ best evidence that the remedy for an incomplete register is to complete it rather than to exempt the largest channel from it. The Companies Act disclosure worked the other end of the same practice. Before the substitution of Section 182(3), a company’s profit and loss account named the parties it had funded, and those names were read: by shareholders at general meetings, by journalists assembling the funding profile of an election, and by the parties’ opponents. The disclosure occasionally embarrassed, which was its function; a board that had to name the recipient in audited accounts thought about the naming before it gave, and that anticipatory discipline, invisible in any statistic, was among the casualties of 2017. After the amendments, the practice did not die, but it changed its object. Research attention shifted from the statutory records, which had ceased to describe the main flow, to the information applications against the State Bank and the aggregate figures in audited accounts, and the public understanding of party finance in the bond years rests on that substitute record: partial, delayed, assembled by litigation and application rather than filed by duty. The contrast is the practical measure of the legislation. A disclosure statute is not only a rule about information; it is a decision about whether the information will exist in usable form at all, and the Finance Acts decided, for the largest channel, that it would not.

What the removal of the amendments did to the statute book

The legislative residue of the scheme repays a precise statement, because the judgment operated on amendments rather than on a principal Act, and the consequences differ by provision. Where a court strikes down an amendment as unconstitutional, the amendment is treated as void and the parent provision stands in the form it held before the amendment was made, since the amending words never lawfully entered the statute. Applied here, the proviso to Section 29C(1) is gone and the reporting duty reads unqualified again; the words other than contribution by way of electoral bond are gone from clause (b) of the first proviso to Section 13A, and the record duty again covers every contribution above twenty thousand rupees; the first proviso to Section 182(1) stands restored with its seven and a half per cent ceiling, and Section 182(3) again requires the disclosure of the total amount contributed together with the name of the party. The scheme notification, having been issued under a statutory authority that the judgment condemned together with the amendments it served, fell with them, and no instrument answers to the name of electoral bond in the operative law. Two products of the Finance Acts survived the operation because they were not the amendments the Court condemned. The two thousand rupee ceiling in Section 13A, which restricts the modes by which a party may receive a donation above that sum, stands, its list of permitted modes read without the bond. The foreign contribution proviso stands likewise, with its commencement in 1976, untouched by a judgment whose subject was the bond and the disclosures around it. The Section 31(3) authorisation in the Reserve Bank of India Act, the foundation on which the notification rested, was condemned with the scheme it authorised. A reader who opens the five parent Acts therefore finds a statute book that looks, at almost every point, like the book of 2016, and the exceptions, a stricter cash rule and a wider donor boundary, are the scheme’s only permanent bequests to the law it briefly transformed. The transformation itself survives in the reports of the cases, in the bank data the judgment caused to be published, and in the amended editions of the statutes in which the years 2017 to 2024 are recorded as a proviso that was, and then was not.

Conclusion: the bond and the removals

The electoral bond scheme will be remembered by its instrument, but it should be understood by its amendments. A bearer bond, sold by a bank against identified payment and deposited by a party within fifteen days, was a modest device for moving political money out of cash. What made the scheme the most consequential change in Indian political funding law since the disclosure architecture was built was the company it kept: a proviso that emptied the Election Commission’s contribution report of the channel, six words in a tax proviso that emptied the party’s own record of it, an omitted ceiling and a substituted disclosure that together freed and cloaked the corporate donor, and a redefinition of the foreign source carried back to 1976 that redrew the boundary of permissible money for every year the prohibition had existed. Each provision was small. Their combination was a system, and the system allocated knowledge of political funding to the one institution that also held power over the donors, while denying it to the voter, the regulator and the shareholder in whose names disclosure had originally been required. The judgment that removed the scheme has restored the older records and the older ceiling, and left standing the cash limit the same Finance Act had genuinely tightened and the donor definition it had genuinely widened. What no judgment could restore is the decade in which the channel operated, or answer the procedural question the amendments posed and evaded. Those remain on the record this article has set out, in the statutes as enacted, for the next legislature that takes up the subject, as sooner or later one must.

Frequently Asked Questions

Q: How did an electoral bond actually work?

A citizen of India or a body incorporated in India bought the bond from a specified branch of the State Bank of India during a notified sale window, completing the bank’s know your customer formalities and paying from a bank account by cheque, demand draft, electronic clearing or direct debit; cash payment was not accepted. The bond was a bearer instrument in the nature of a promissory note: it carried a denomination and a serial number but no name of the buyer or the payee. The buyer delivered it to a political party eligible to receive bonds, and the party deposited it into its designated account with the State Bank within fifteen calendar days of the bond’s issue, whereupon the amount was credited the same day. Because the instrument was transferable by delivery and named nobody, the passage from buyer to party generated no record outside the bank’s own books at the points of sale and deposit.

Q: Which laws were amended to create the electoral bond scheme?

Four amendments were carried by the Finance Act, 2017. Section 135 inserted sub-section (3) into Section 31 of the Reserve Bank of India Act, 1934, authorising the Central Government to notify a bank to issue electoral bonds, defined there as bearer instruments carrying no name of buyer or payee. Section 137 inserted a proviso into Section 29C(1) of the Representation of the People Act, 1951, exempting contributions received by way of electoral bond from the party’s report to the Election Commission. Section 11 amended Section 13A of the Income-tax Act, 1961, removing bond contributions from the record a party had to keep for its tax exemption and adding a ceiling of Rs 2,000 on donations received by other than banking modes or bond. Section 154 amended Section 182 of the Companies Act, 2013, removing the corporate contribution ceiling and the duty to name the recipient party. A fifth change, to the foreign contribution definition, came through the Finance Acts of 2016 and 2018.

Q: Why was the scheme introduced through a Finance Act?

The amendments were clauses of the annual Finance Bills that follow the Union Budget, and the scheme was announced in the Budget speech of 1 February 2017 as part of a package on political funding that also reduced the cash donation ceiling to Rs 2,000. Carrying the changes in a Finance Act placed them inside a Bill dealing with taxation and public finance, and because a Money Bill is considered by the Rajya Sabha in a recommendatory capacity only, the Lok Sabha’s decision governed their enactment. The government defended the route on the ground that the amendments touched fiscal statutes and the finances of political parties. The choice of vehicle mattered beyond convenience: whether provisions on party funding, company disclosure and the definition of a foreign source belong in a Money Bill at all became a distinct constitutional objection to the scheme, separate from the objection to anonymity, and the Supreme Court’s electoral bonds judgment did not decide it, the Money Bill question standing referred to a larger Bench in other proceedings.

Q: What was the corporate donation cap and what happened to it?

Before 2017, the first proviso to Section 182(1) of the Companies Act, 2013 capped the aggregate of a company’s political contributions in a financial year at seven and a half per cent of its average net profits during the three immediately preceding financial years. The ceiling had stood at five per cent under Section 293A of the Companies Act, 1956, and the 2013 Act had raised it to seven and a half per cent. Its function was proportionality: a company’s political giving could not exceed a fixed share of its demonstrated profit. Section 154 of the Finance Act, 2017 omitted the proviso altogether. From that omission until the Supreme Court struck the amendment down in February 2024, a company in existence for three or more financial years could contribute any amount its board authorised by resolution at a meeting, with no ceiling measured against profits, losses or turnover. The striking down of the amendment restored the seven and a half per cent ceiling to Section 182.

Q: Who could buy an electoral bond and who could receive it?

A bond could be purchased by a citizen of India or by a body incorporated or established in India, which covered individuals, companies, firms, Hindu undivided families, trusts and associations of persons, provided the purchase was made on compliance with the bank’s know your customer norms and the payment came from a bank account. Only the State Bank of India was authorised to sell, through twenty nine specified branches. Receipt was far more narrowly confined. The bond could be encashed only by a political party registered under Section 29A of the Representation of the People Act, 1951 which had secured not less than one per cent of the votes polled in the most recent general election to the House of the People or to the Legislative Assembly of a State, and only by deposit into the account that the party had designated for the purpose with the authorised bank. Registered parties below the one per cent threshold were excluded from the channel however lawfully they could accept donations by other modes.

Q: What disclosure did political parties have to make?

For donations received by cheque, transfer and other identified modes, the pre 2017 disclosure duties continued throughout the scheme’s life: a party kept a record of each contribution above Rs 20,000 with the contributor’s name and address under Section 13A of the Income-tax Act, and its treasurer reported contributions above Rs 20,000 to the Election Commission under Section 29C of the Representation of the People Act, which published the reports. For bond receipts, the Finance Act, 2017 removed both duties. The proviso to Section 29C(1) exempted contributions received by way of electoral bond from the report, and the words inserted into Section 13A relieved the party of keeping any record of the donor. A party’s audited accounts therefore showed its aggregate bond receipts as a figure, with no contributor identified in any statutory filing. The Election Commission objected to that removal in writing in May 2017, calling the Section 29C proviso a retrograde step for transparency and asking for its withdrawal.

Q: How did foreign contribution rules change?

Section 2(1)(j)(vi) of the Foreign Contribution (Regulation) Act, 2010 treated a company as a foreign source if more than one half of its nominal share capital was held by foreign persons or entities, and a political party is barred from accepting a foreign contribution. Section 236 of the Finance Act, 2016 inserted a proviso: a company whose foreign share capital holding was within the limits permitted for foreign investment under the Foreign Exchange Management Act would not be a foreign source, notwithstanding majority foreign holding. The change was made retrospective to 26 September 2010. The Finance Act, 2018 then amended the 2016 provision to carry its commencement back to 5 August 1976, the commencement of the first foreign contribution statute. The effect across the whole period was that donations by Indian subsidiaries of foreign groups, held by the Delhi High Court in 2014 to have prima facie violated the prohibition, ceased to be foreign contributions in law. The redefinition was not disturbed by the electoral bonds judgment.

Q: What other routes exist for political funding?

A donation may be made directly to a political party by cheque, bank draft or electronic transfer, in which case the party records it under Section 13A of the Income-tax Act and reports it under Section 29C of the Representation of the People Act where it exceeds Rs 20,000, and a corporate donor is subject to the Section 182 ceiling and must disclose the amount and the name of the party in its accounts. Cash donations are confined by the Rs 2,000 ceiling in Section 13A. A donor may instead contribute to an electoral trust, a company approved under the Electoral Trusts Scheme, 2013 which must distribute at least ninety five per cent of the donations it receives in a financial year to registered parties, keep records of contributors and recipients, and file them with the tax authority. Donors may claim deductions under Sections 80GGB and 80GGC for contributions made otherwise than in cash. Parties also raise membership subscriptions and other income under the same reporting framework.

Q: What were the denominations of electoral bonds, and how long did a bond remain valid?

Electoral bonds were issued in five denominations: Rs 1,000, Rs 10,000, Rs 1,00,000, Rs 10,00,000 and Rs 1,00,00,000. A buyer could purchase bonds in any combination of those values, and there was no ceiling on the total amount a buyer could purchase in a sale window. A bond remained valid for fifteen calendar days from the date of its issue. The eligible political party had to deposit the bond into its designated account with the State Bank of India within that period, and a bond deposited in time was credited to the party’s account on the same day. No payment was to be made on a bond deposited after the validity period expired. The short life was a deliberate design feature: the instrument could not be held for long as a store of value, and a purchase had to be completed by delivery and deposit within a fortnight if it was to benefit the chosen party at all.

Q: Which bank issued electoral bonds, and through what kind of account could a party encash them?

The State Bank of India was the sole bank authorised under the Electoral Bond Scheme, 2018 to issue and encash electoral bonds, and it sold them through twenty nine specified branches across the country. Section 31(3) of the Reserve Bank of India Act allowed the Central Government to authorise the State Bank or any other bank by notification, but the authorisation was in fact given to the State Bank alone for the whole life of the scheme. A political party could encash bonds only through the account it had designated for that purpose with the authorised bank; its ordinary accounts with other banks could not be used. The deposit of a bond in the designated account was credited the same day. Because one bank stood at both ends of the channel, selling every bond against know your customer documentation and crediting every bond to an identified party account, the bank’s records formed the one complete map of the scheme’s transactions, donors, parties, amounts and dates.

Q: Could electoral bonds be bought with cash?

No. The Electoral Bond Scheme, 2018 required the purchase to be made on compliance with the bank’s know your customer norms and payment to be made from a bank account, and the authorised bank was not to accept payment in cash. Every purchase had to move by demand draft, cheque, electronic clearing system or direct debit, in rupees. The exclusion of cash at the point of purchase was the feature of the scheme its defenders relied on most heavily: unlike the cash donations that had dominated undisclosed political funding, a bond purchase entered the recorded banking system and appeared in the buyer’s own bank records and balance sheet, where the tax authorities could examine it. What the scheme did not provide was any record of the bond’s passage after purchase. The instrument was a bearer instrument, transferable by delivery, so the banking trail established who bought the bond, while no statutory record established who carried it to the party or whose gift it finally was.

Q: What happened to the money if a bond was not deposited before it expired?

Paragraph 12(2) of the Electoral Bond Scheme, 2018 directed that the amount of bonds not encashed within the validity period of fifteen days shall be deposited by the authorised bank to the Prime Minister Relief Fund. The money did not return to the buyer, and the party that received the bond too late, or failed to deposit it in time, obtained nothing from it. The buyer’s payment had left the buyer’s account at the point of purchase, so an expired bond represented a completed payment whose intended beneficiary never benefited. On the State Bank of India’s figures, reported from its responses to applications under the Right to Information Act, bonds of a little over Rs 20 crore went unencashed during the period to November 2021 and were transferred to the relief fund under this provision. The rule illustrates the scheme’s priorities: a refund to the buyer would have required the bank to treat the buyer as the continuing owner of an identified instrument, which the bearer design of the bond was constructed to avoid.

Q: What did the Reserve Bank of India object to when the scheme was proposed?

The Reserve Bank replied to the Finance Ministry on 30 January 2017, two days before the Budget announcement. It warned that amending Section 31 of the Reserve Bank of India Act to authorise bearer bonds would set a bad precedent, encourage money laundering and undermine faith in Indian banknotes, since bearer bonds have the potential to become currency if issued in sizeable quantities. It pointed out that the bonds were transferable by delivery, so who finally and actually contributes the bond to the political party would not be known, and that the identity of intervening holders being unknown would offend the principles and spirit of the Prevention of Money Laundering Act, 2002. It also held that there was no special need for an electoral bearer bond, since the purpose of clean funding could be achieved through a cheque, demand draft or electronic payment. The Ministry recorded that the Bank had not understood the mechanism. In September 2017 the Governor again urged that bonds be issued only in electronic form, warning that the physical scrip form carried a serious risk of money laundering.

Q: What objections did the Election Commission record against the amendments?

By a letter dated 26 May 2017 to the Legislative Department of the Ministry of Law and Justice, the Election Commission recorded that the amendments made by the Finance Act, 2017 would have a serious impact on the transparency of political finance and the funding of political parties. On the proviso inserted into Section 29C of the Representation of the People Act, which exempted bond receipts from the party’s contribution report, the Commission said the proviso was a retrograde step as far as transparency of donations is concerned and needed to be withdrawn. Its reasoning was practical: without the report it cannot be ascertained whether a political party has taken any donation in violation of Section 29B, the provision barring contributions from government companies and foreign sources. The Commission also warned that the corporate law amendments, taken with the bond channel, would lead to increased use of black money for political funding through shell companies. The letter became public later, when the Commission’s correspondence was placed before the Supreme Court in the litigation over the scheme.

Q: What is an electoral trust, and how is it different from an electoral bond?

An electoral trust is a company registered under Section 8 of the Companies Act, 2013, approved by the Central Board of Direct Taxes under the Electoral Trusts Scheme, 2013 and governed by Rule 17CA of the Income-tax Rules, whose sole object is to distribute contributions it receives to political parties registered under Section 29A of the Representation of the People Act. Under Section 13B of the Income-tax Act it must distribute at least ninety five per cent of the donations received in a financial year, with any surplus brought forward, to eligible parties before the year ends. It may accept contributions only by account payee cheque, bank draft or electronic transfer, never in cash, and only with the contributor’s permanent account number. It must maintain lists of contributors and recipient parties, with amounts and modes of payment, obtain receipts, keep audited accounts and furnish its lists to the tax authority. The difference from a bond is one of record: a trust interposes distance between donor and party, but every contribution and distribution is documented and filed, whereas a bond contribution was documented only inside the selling bank.

Q: Why was the foreign contribution change made with retrospective effect?

The change answered a specific legal exposure. In March 2014 the Delhi High Court held that the two largest national parties had prima facie violated the foreign contribution law by accepting donations from Indian subsidiaries of a foreign group, because the subsidiaries were foreign sources under the definition, their parent holding more than half their capital. Section 236 of the Finance Act, 2016 redefined the position for the future, treating a company as not a foreign source where its foreign holding was within the foreign investment limits for its sector, but a purely prospective change would have left the donations already received, those the High Court had examined among them, governed by the old definition and exposed to the consequences of violation. Retrospectivity to 26 September 2010, and then by the Finance Act, 2018 to 5 August 1976, removed that exposure for every year the prohibition had existed. The government’s stated rationale aligned the funding definition with the investment regime that already admitted the foreign capital lawfully. Critics treated the retrospective reach as the legislature deciding decided cases in favour of the parties before the court.

Q: Could a company that had made no profits lawfully donate after the ceiling was removed?

Yes, within the remaining conditions of Section 182 of the Companies Act, 2013. The ceiling that the Finance Act, 2017 omitted had measured a company’s permissible contribution against its average net profits of the three preceding financial years, so a company without profits could contribute nothing under it. Once the first proviso to Section 182(1) was omitted, no provision measured the contribution against profitability at all. A company that had been in existence for three or more financial years, and whose board authorised the contribution by a resolution passed at a meeting, could lawfully contribute any amount, whether funded from profits, reserves, capital or borrowings. That consequence was central to the objection that the amendment enabled conduit or shell company donations: a company needed a trading history of three years, but not a profitable one, to give without limit. The Supreme Court’s judgment striking down the removal of the ceiling restored the profit linked measure, so the position is governed again by the seven and a half per cent rule.

Q: How much money passed through electoral bonds while the scheme operated?

On the State Bank of India’s figures, compiled from the bank’s responses to applications under the Right to Information Act and reported by the Association for Democratic Reforms, 28,030 electoral bonds of an aggregate value of Rs 16,518 crore were sold in thirty tranches between March 2018 and January 2024, when sales ended with the Supreme Court’s judgment. The figure is the bank’s own record of sales, and it is the measure of the channel’s scale: in six years the bonds moved a sum larger than the identified donations disclosed in parties’ contribution reports over comparable periods, while contributing no donor names to those reports. The bank’s replies also recorded that bonds of a little over Rs 20 crore were not encashed within their fifteen day validity in the period to November 2021 and passed to the Prime Minister Relief Fund under the scheme. Figures for individual parties’ receipts for the whole period were not published by any statutory authority during the scheme’s operation; they entered the public record through the disclosure the judgment later directed, which is treated in the companion article on the judgment.

Q: Did the electoral bond carry the donor’s name or the party’s name anywhere on it?

No. The definition inserted into the Reserve Bank of India Act by the Finance Act, 2017 provided that an electoral bond is a bearer banking instrument which shall not carry the name of the buyer or payee, so the absence of names was a statutory property of the instrument and not merely a printing practice. A bond carried its denomination, a serial number and the issuing branch’s marks, and nothing identifying the person who had bought it or the party expected to deposit it. Identification existed, but elsewhere: the bank’s know your customer file recorded the buyer at the point of sale, and the party’s designated account recorded the deposit. Neither record appeared on the instrument, in the party’s contribution report or in the donor company’s published accounts. The contrast with an account payee cheque, which names the payee on its face and leaves a clearing record, was the heart of the objection that the bond’s anonymity was designed into the law rather than incidental to the banking process.

Q: When during the year could electoral bonds be bought?

The Electoral Bond Scheme, 2018 confined sales to windows specified by the Central Government: a period of ten days each in the months of January, April, July and October, with an additional period of thirty days in the year of a general election to the House of the People. The Electoral Bond (Amendment) Scheme, 2022, notified on 7 November 2022, added a further additional period of fifteen days in the year of general elections to the Legislative Assembly of a State or of a Union territory with a legislature, and the first sale under the amended scheme opened on 9 November 2022. Sales outside a notified window were not permitted, and each sale was organised as a numbered tranche through the twenty nine authorised branches of the State Bank of India. The first tranche was sold from 1 to 10 March 2018, shortly after the scheme’s notification on 2 January 2018. The window system aligned the supply of bonds with the electoral calendar, and the 2022 extension meant that in a year containing assembly elections, as most years do, up to fifty five days of sale could be notified.