The Supreme Court of India has declared the electoral bonds scheme unconstitutional. This scheme was introduced by the central government in 2017 as an alternative to cash donations made to political parties to enhance transparency in political funding.

Reasons of Electoral Bond to be Unconstitutional

The amendment to Section 182 of the Companies Act, which allows for blanket corporate political funding, has been deemed unconstitutional by the Supreme Court. Before the amendment, loss-making companies were unable to contribute.
Still, the amendment fails to recognize the potential harm of allowing such companies to contribute due to the possibility of quid pro quo. Therefore, the amendment is manifestly arbitrary as it needs to differentiate between profit-making and loss-making companies.
The Supreme Court has held that citizens have the right to hold the government accountable, and information about the funding of political parties is crucial for electoral choices.
Political parties are relevant units in the electoral process and expanding the right to information includes information necessary for participatory democracy.
The Supreme Court has also stated that financial contributions to political parties are made for two purposes: to support political parties or as a form of quid pro quo. However, not all political contributions are made with the intent to alter public policy.
While the right to privacy of political affiliation exists, it does not extend to contributions made to influence public policy and only applies to contributions below a certain threshold.

About the Electoral Bond Scheme

The Electoral Bonds Scheme was introduced in 2017 through a Finance bill and implemented in 2018. The scheme allows individuals and groups to contribute to registered political parties while keeping their identities confidential. This maintains donor anonymity while making donations.
The scheme stated that only political parties registered under Section 29A of the Representation of the People Act, 1951 which secured at least 1% of valid votes polled in the previous elections of the Lok Sabha or a state legislative assembly are eligible to receive electoral bonds.
The Electoral Bonds are Promissory Notes and are Bearer in nature, meaning they do not carry the buyer's or payee's name.
They are available in five denominations - Rs. 1,000, Rs. 10,000, Rs. 1,00,000, Rs. 10,00,000, and Rs. 1,00,00,000.
The validity period of the Electoral Bonds is 15 calendar days from the date of issuance. If the Electoral Bond is deposited at the Authorized SBI Branches after the validity period expires, no payment will be made to any payee Political Party.
The issuing branch will provide the Electoral Bonds to the applicant if all the requirements are fulfilled. The information the purchaser provides will be confidentially treated by the State Bank of India and will not be disclosed to any authority except when demanded by a Competent Court or upon registration of a Criminal Case by any Law Enforcement Agency.
A non-KYC-compliant application that does not meet the requirements, such as citizenship, KYC norms, etc., will be rejected. The Electoral Bonds will be issued to the purchaser on a non-refundable basis.
The Electoral Bonds can be purchased for ten days each quarter as GOI advised. GOI will specify an additional period of thirty days in the year of General Elections to the House of People.
The Bonds do not accrue interest and are not tradable on any Stock Exchange. No loan can be extended against the security of these Bonds.