Political Parties Used the Scheme to Extract Money, It Alleges

Newsreel Asia Insight #274
July 7, 2024

A petition filed before the Supreme Court is calling for the confiscation of all funds collected through the controversial electoral bonds scheme, initially introduced in 2018 and recently struck down. The petitioner is also urging the formation of a committee led by a former Supreme Court judge to investigate potential quid pro quo benefits granted to donors by public authorities under political influence.

The plea specifically requests the court to command the Income Tax authorities to re-assess the financial activities of beneficiary political parties from 2018-2019 to 2023-2024, as reported by Bar and Bench. It seeks to deny the income tax exemptions previously claimed under Section 13A of the Income Tax Act, and to impose taxes, interest and penalties on the received amounts through electoral bonds.

The electoral bonds scheme allowed donors to anonymously contribute funds to political parties by purchasing bearer bonds from the State Bank of India (SBI).

The scheme faced numerous legal challenges, leading to a Supreme Court decision in February, which invalidated the scheme and the legislative amendments that facilitated anonymous donations. The Court unanimously ruled that the scheme’s anonymity contravened the right to information, impacting free speech and expression as protected under Article 19(1)(a) of the Constitution.

Following the ruling, the Supreme Court ordered SBI to release details of all electoral bonds purchased and cashed since April 2019. SBI’s compliance revealed extensive data on the bonds, including which political parties engaged in the transactions.

The data prompted allegations that the electoral bonds were used by corporations to influence political parties, either to evade criminal prosecution or to secure financial benefits through contracts and policy decisions.

Companies previously flagged as high-risk violators of the Prevention of Money Laundering Act (PMLA) were reportedly removed from the list after buying large amounts of electoral bonds. This news deepened the controversy over the electoral bond scheme, criticized for favouring the ruling Bharatiya Janata Party (BJP).

Further, many firms previously subjected to central agency raids were found purchasing significant electoral bonds, and the BJP was allegedly the main recipient ahead of the 2024 Lok Sabha election.

The BJP received 27.19 billion rupees—93% of the total 29.02 billion rupees donated to 13 political parties through electoral bonds from April 12 to May 10, 2019.

The petition says that the alleged misuse of electoral bonds resulted in undue advantages for corporate entities, compromising public interests and the integrity of the political funding system.

“The political parties used the electoral bond as a tool and method to extract money, by conferring undue advantage to corporate houses by way of compromising their criminal prosecution or granting State largesse, at the cost of public exchequer and against public interest,” the petition states.