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SC upholds Section 184 of the Finance Act 2017, but the Rules framed under Section 184 struck down.

Rojer Mathew v. South Indian Bank Ltd. & Others. Civil Appeal No. 8588 of 2019 [Arising out of Special Leave Petition (Civil) No.15804 of 2017] Decided on: – 13th November 2019

The Hon’ble Supreme Court’s five judge Constitutional bench comprising of Chief Justice Ranjan Gogai, Justice N V Ramana, Justice Dr. DY Chandrachud, Justice Deepak Gupta and Justice Sanjiv Khanna have upheld the Constitutional validity of Section 184 of the Finance Act, 2017 and struck down the rules framed there under. The bench had also referred the issue regarding the passing of the Finance Act, 2017 as a money bill is referred to seven judge Constitutional bench. The SC also directed the Central government to re-formulate the Rules strictly in conformity and in accordance with the principles delineated by the SC in R K Jain v. Union of India, [(1993) 4 SCC 119], L Chandra Kumar v.Union of India, [(1997) 3 SCC 261],Madras Bar Association v. Union of India, [(2014) 10 SCC 1] and Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. [(2016) 9 SCC 103], and to carry out an appropriate exercise for amalgamation of existing Tribunals adopting the test of homogeneity of the subject matters.

This decision had dealt with three different petitions-

One Writ petition preferred by the Madras Bar association, seeking a writ of mandamus to the Union of India, to implement the directions of the SC in Union of India v. R. Gandhi [(2010) 11 SCC 1] and L. Chandra Kumar v. Union of India [(1997) 3 SCC 261] and seeking a direction to the Ministry of law and justice to carry out ‘Judicial Impact Assessment’ on all tribunals created by Parliament and submit a report on the same to this Hon’ble Court.

Second, a Special leave petition filed by Mr. Rojer Mathew, challenging the Constitutional validity of Section 13 (5- A) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002 which permits secured creditors to participate in auction of immoveable property if it remained unsold for want of reserve bid in an earlier auction.

Third, a Public Interest Litigation filed by Mr. Kundrat Sandu challenging the vires of Part XIV of the Finance Act, 2017.

The main issues formulated by the bench in decided these batches of petitions and answered the same as follows-

I. Whether the ‘Finance Act, 2017’ insofar as it amends certain other enactments and alters conditions of service of persons manning different Tribunals can be termed as a ‘money bill’ under Article 110 and consequently is validly enacted?

The petitioner placed arguments based on the wordings of Article 110. It was contended that a bill shall be a money bill only if it falls within any of the Clauses of Article 110(1). Therefore, by virtue of the presence of Part XIV, the Finance Act lost its nature as a money bill; therefore its passage without the assent of Rajya Sabha renders it ultra vires. The petitioner also relied on the constitutional assembly debates for interpretation of the word ‘only’.

The Union of India refuted the petitioner’s arguments and submitted that Article 110(1) must be interpreted in their widest amplitude, and when the principle enactment of the Finance Act, 2017 has a dominant character of a money bill, all matters incidental thereto would also draw the colour and characteristic of a ‘money bill’. Further, the decision of the speaker of Lok Sabha is final and hence not subject to judicial review.

The court after consideration of these arguments accepted that the decision of the speaker is final. But the court also observed that

On the substantive question of whether the Finance Act, 2017 was a ‘money bill’ under Article 110(3) it must be noted that until the turn of the twenty-first century, this Court took a consistent position that Article 110(3) of the Constitution would act as an express bar against judicial inquiry into the correctness of the certificate of ‘money bill’ given by the Speaker of the Lok Sabha.”

The court quoted Justice Puttaswamy (Retd.) and Anr. v. Union of India [(2019) 1 SCC 1] and L. Chandra Kumar v. Union of India [(1997) 3 SCC 261] and held that due to the various challenges made to the scope of judicial review and interpretative principles, this issue is referred to a larger bench. Justice Deepak Gupta in his judgment had dissented in referring this issue to a larger bench.

II. If the answer to the above is in the affirmative then whether Section 184 of the Finance Act, 2017 is unconstitutional on account of Excessive Delegation?

The Petitioners submitted that Section 184 of the Finance Act, 2017 threatens and poses a risk to the independence of the tribunals, but on the other hand the learned Attorney General submitted that Section 184 was inserted to bring uniformity and with a view to harmonise the diverse and wide-ranging qualifications and methods of appointment across different tribunals. This submission was accepted by the SC and it was held that Section 184 of the Finance Act, 2017 does not suffer from an excessive delegation of legislative functions as there are adequate principles to guide the framing of delegated legislation. Justice Chandrachud in his concurring opinion recommended the formation of a “National Tribunals Commission” to oversee the selection process of members, criteria for appointment, salaries, and allowances, of tribunals. Justice Deepak Gupta dissented and held that Section 184 suffers from the vice of excessive delegation and is accordingly struck down.

III. If Section 184 is valid, Whether Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017 are in consonance with the Principal Act and various decisions of this Court on functioning of Tribunals?

The Hon’ble SC after analysing the Composition of the selection committee, Qualifications of members and presiding officers, the term of office and maximum age and constitutionality of the procedure for removal held that the rules are inconsistent with each other and Rule 07 gives unwarranted discretion to the central government. Following the Madras Bar Association v. Union of India [(2014) 10 SCC 1], the SC held that “the Central Government cannot be allowed to have administrative control over the Judiciary without subverting the doctrine of separation of powers.”

These Rules formulated by the Central Government under Section 184 of the Finance Act, 2017 being contrary to the parent enactment and the principles envisaged in the Constitution as interpreted by this Court, are hereby struck down in entirety.” Therefore, the court directed the Union of India, to form new rules in conformity of the judgments of the SC in R K Jain, L Chandra Kumar, Madras Bar Association and Urja Vikas Ltd(Supra).

IV. Whether there should be a Single Nodal Agency for administration of all Tribunals?

The SC had quoted the submissions of the learned Amicus Curie Mr. Arvind Datar for deciding on this issue- “an apparent problem persisting in the current Tribunal framework in India. Tribunals established under different Central and State enactments are usually administered by their sponsoring or parent Ministry or concerned department. Thus, when Tribunals or members thereof have to seek financial, administrative or any other facility from a department who is also the litigant before them, their fairness or independence is likely to be compromised. Such an anomalous situation can only be remedied by the establishment of a single nodal agency, overseeing the entire Tribunal system in the country, bringing all such Tribunals to parity.” The court also noted the view of the Union of India that the Ministry of Law is already overburdened and cannot effectively perform the supervisory function, as a single nodal Ministry, for all the Tribunals.

The SC held that it is of paramount importance to have financial independence to every tribunal. The Ministry of Finance shall, in consultation with the Nodal Ministry/Department, shall earmark separate and dedicated funds for the Tribunals. It will not only ensure that the Tribunals are not under the financial control of the Department, who is a litigant before them, but it may also enhance the public faith and trust in the mechanism of Tribunals.

V. Whether there is a need for conducting a Judicial Impact Assessment of all Tribunals in India?

The petitioners submitted that there is an imminent need for conducting a Judicial Impact Assessment of all the Tribunals referable to the Finance Act, 2017, and the state had not conducted any assessment to analyse the adverse effect due to changes brought in the framework of tribunals.

The Hon’ble Court accepted this contention and also placed reliance on Salem Advocate Bar Association. (II) v. Union of India, [(2005) 6 SCC 344], where it was observed that it is imperative for the Legislature to perform a Judicial Impact Assessment of the enactment passed to assess its ramifications on the judiciary. Therefore, the court observed that “the legislature has not conformed to the opinion of this Court with respect to ‘Judicial Impact Assessment’ and thus, has not made any attempt to assess the ramifications of the Finance Act, 2017”.  Due to the above said reasons the Hon’ble court directed the Union of India to carry out financial impact assessment in respect of all the Tribunals referable to Sections 158 to 182 of the Finance Act, 2017 and undertake an exercise to assess the need based requirements and make available sufficient resources for each Tribunal established by the Parliament.

VI. Whether judges of Tribunals set up by Acts of Parliament under Articles 323-A and 323-B of the Constitution can be equated in ‘rank’ and ‘status’ with Constitutional functionaries?

The SC held that it is the duty of the Union of India to ensure that judges of High Courts and the Supreme Court are kept on a separate pedestal distanced from any other Tribunal or quasi-judicial Authority. For this, the court relied on the judgment of T.N. Seshan v. Union of India [(1995) 4 SCC 611], where the Constitutional bench held that mere equality in conditions of service to that of a Supreme Court judge cannot confer equal status to such other functionaries.

The Hon’ble court further held that “Furthermore, that even though manned by retired judges of High Courts and the Supreme Court, such Tribunals established under Article 323-A and 323-B of the Constitution cannot seek equivalence with High Courts or the Supreme Court. Once a judge of a High Court or Supreme Court has retired and he/she no longer enjoys the Constitutional status, the statutory position occupied by him/her cannot be equated with the previous position as a High Court or a Supreme Court judge. The rank, dignity, and position of Constitutional judges is hence sui generis and arise not merely by their position in the Warrant of Precedence or the salary and perquisites they draw, but as a result of the Constitutional trust accorded in them.”

VII. Whether direct statutory appeals from Tribunals to the Supreme Court ought to be detoured?

The court observed that “Tribunalisation has increased at a rapid pace in the past few decades in our country. Since establishment of the ITAT during the pre independence era, the number of tribunals has now increased to several dozens” and analysed the original, appellate and advisory jurisdictions of the Supreme Court.

The court also observed that “in providing for appeals directly from Tribunals, the jurisdiction of High Courts is in effect curtailed to a great extent. Not only does this hamper access to justice, but it also takes away the much needed exposure for High Court judges, earnestly needed in a vibrant and ever-evolving judiciary. Since majority of the judges of the Supreme Court are elevated from the High Courts, their lack of exposure to these specialised areas of law hinders their efficacy in adjudicating the direct statutory appeals from specialised Tribunals.”

Therefore, it is ordered by the court that the Central government in consultation with the Law Commission of India or any other expert body shall re-visit the provisions of the statutes referable to the Finance Act, 2017 and place appropriate proposals before the Parliament for consideration of the need to remove direct appeals to the Supreme Court from orders of Tribunals. A decision in this regard by the Union of India shall be taken within six months.

VIII. Whether there is a need for amalgamation of existing Tribunals and setting up of benches?

The SC directed that Union of India to amalgamate the existing tribunals based upon their case load and subject- matter after conducting a Judicial Impact Assessment, in line with the Law Commission’s 272nd Report. Additionally, the Union was directed to ensure that, at the very least, circuit benches of all Tribunals are set up at the seats of all major jurisdictional High Courts.

With the rulings above the SC disposed the petition.

by Sowjanya



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