India's Supreme Court has struck down as unconstitutional a system that allowed people to anonymously donate to political parties.
Electoral bonds were launched by Prime Minister Narendra Modi's government in 2018 to increase transparency in political funding.
But critics say this has done the opposite, making the process more opaque.
Mr. Modi's Bharatiya Janata Party (BJP) received most of its funding through bonds.
The plan was challenged in the Supreme Court as a “distortion of democracy.”
On Thursday, the five-judge Constitutional Court ruled that electoral bonds violate the people's right to access information held by the government.
India's Chief Justice DY Chandrachud said the Right to Information (RTI) law is “not limited to national politics but also includes information necessary for participatory democracy”.
“Political parties are relevant units in the electoral process and information about party funding is essential for electoral choices,” he added.
The court also stated that electoral bonds are not the only system to curb black money, and there are other alternatives.
Electoral bonds were introduced to eliminate cash donations to political parties, as most elections in India are financed by private donations.
These interest-free fixed-term bonds are issued in fixed denominations ranging from 10 to 10 million rupees ($1,250 to $125,000) and can be purchased from state-run banks at specified periods throughout the year.
Citizens and businesses can donate to political parties without revealing their identity.
Only registered political parties that won at least 1% of the vote in the last parliamentary or state legislative elections can receive the bonds, which must be cashed within 15 days.
Supporters of the system argue that it makes political party funding traceable and transparent, while also protecting the identities of donors.
But critics say state-owned banks have records of both donors and recipients, making it easier for the ruling government to access details and “use” that information to influence donors. Therefore, the bonds claim that they are not completely anonymous.
He added that there is also no public record of who bought each bond and who donated it to, so taxpayers remain in the dark about the source of their donations.
Petitioners in court argued that this violated the public's right to know about political party funding and promoted corruption.
The government denies the charges, insisting that the identities of donors must be kept secret to avoid exposing them to “retaliation from political parties.”
So far, electoral bonds worth 160 billion rupees ($1.9 million, £1.5 million) have been sold in 29 tranches.
The BJP is seen as the main beneficiary, receiving 57% of the national debt, compared to 10% for the main opposition Congress party.
