Supreme Court struck down Tribunal Rules formulated u/s 184 of the Finance Act, 2017 being contrary to the parent enactment and the Constitution
ABCAUS Case Law Citation:
ABCAUS 3188 (2019) (11) SC
A Constitution Bench of the Hon’ble Supreme Court have struck down the Tribunal, Appellate Tribunal and other Authorities (Qualification, Experience and other Conditions of Service of Members) Rules, 2017.
Further, several directions have also been issued vide the majority judgment for framing of fresh set of Rules. As an interim order, the Hon’ble Supreme Court have directed that appointments to the Tribunal/Appellate Tribunal and the terms and conditions of appointment shall be in terms of the respective statutes before the enactment of the Finance Bill, 2017.
However, liberty has been granted to the Union of India to seek modification of this order after they have framed fresh Rules in accordance with the majority judgment. However, in case any additional benefits concerning the salaries and emoluments had been granted under the Finance Act, they shall not be withdrawn and will be continued. These would equally apply to all new member.
Primary challenge in the present batch of cases was to the Finance Act, 2017. Though this enactment was purportedly to give effect to “the finance proposals of the central government for the financial year 2017-18” but Part XIV thereof consists of comprehensive provisions meant to effect “Amendments to Central Acts to Provide for Merger of Tribunals and other Authorities and Conditions of Service of Chairpersons, Members, etc.
Under Part XIV of the Finance Act, 2017, by virtue of Sections 158 to 182, the Parliament had amended twenty-five central enactments which form the foundation for multiple Tribunals. Sections 158 to 182 of Part-XIV are broadly in pari materia except that each Section deals with a separate Tribunal. By the amendment, the Parliament had sought to achieve a uniform pattern of qualifications, appointment, term of office, salaries and allowances, resignation, removal and other terms and conditions of service of members and presiding officers of various Tribunals under the Cinematograph Act, 1952, the Industrial Disputes Act, 1947.
The petitioners had questioned the validity of Part XIV read with the 8th and 9th Schedules of the Finance Act 2017, as being ex-facie unconstitutional, arbitrary, in colourable exercise of legislative power, and offensive to the basic structure of the Constitution. It was argued that by virtue of inclusion of Part XIV, the entirety of the Finance Act, 2017 had lost its colour as a ‘money bill’ under Article 110 and hence its passage without the assent of the Rajya Sabha as required under Article 107 renders it ultra vires the legislative scheme contemplated in the Constitution.
The Hon’ble Supreme Court formed the following questions of law:
(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?
(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?
(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?
(iv) Whether there should be a Single Nodal Agency for administration of all Tribunals?
(v) Whether there is a need for conducting a Judicial Impact Assessment of all Tribunals in India?
(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?
(vii) Whether direct statutory appeals from Tribunals to the Supreme Court ought to be detoured? (viii) Whether there is a need for amalgamation of existing Tribunals and setting up of benches.
In the instant batch cases, the constitutionality of Part XIV of the Finance Act, 2017 and of the rules framed had been challenged. In the lead case, originally the Petitioner had challenged the final judgment and order of the High Court of Kerala on the issue of constitutional validity of Section 13 (5- A) of the SARFAESI Act, 2002. However, during the course of arguments, it was brought to the notice of the Hon’ble Supreme Court that appointments to the Debt Recovery Tribunals was not in consonance with the Constitutional spirit of judicial independence.
In view of this, the Hon’ble Supreme Court kept the petition pending to allow consideration of broader issues concerning restructuring of Tribunals. Also, in another Writ Petition a petitioner, had filed a Public Interest Litigation challenging the vires of Part XIV of the Finance Act, 2017 by which the provisions of twenty-five different enactments were amended to effect sweeping changes to the requisite qualifications, method of appointment, terms of office, salaries and allowances, and various other terms and conditions of service of the members and presiding officers of different statutory Tribunals.
The Court through numerous decisions had observed that the term ‘Tribunal’ refers to a quasi-judicial authority. A test to determine whether a particular body was merely an administrative organ of the Executive or a Tribunal was also evolved whereby it is to be examined whether the body is vested with powers of a Civil Court or not, and it was held that any adjudicatory body vested with powers of taking evidence, summoning of witnesses, etc. must be categorised as a Tribunal.
It was noted that another Constitution Bench while examining the Constitutional validity of the provisions of the Companies Act, 1956 observed that if Tribunals are established in substitution of Courts, they must also possess independence, security and capacity. Additionally, with transfer of jurisdiction from a traditional Court to a Tribunal, it would be imperative to include members of the judiciary as presiding officers/members of the Tribunal. Technical members could only be in addition to judicial members and that also only when specialised knowledge or know-how is required. Any inclusion of technical members in the absence of any discernible requirement of specialisation would amount to dilution and encroachment upon the independence of the judiciary.
Further it was also observed whilst striking down the newly-created National Tax Tribunal under the National Tax Tribunals Act, 2005, it was observed that procedure of appointment and conditions of service of members must be akin to judges of the Courts which were sought to be substituted by the Tribunal(s)
Supreme Court struck down Tribunal Rules formulated u/s 184 of Finance Act 2017
The Hon’ble Supreme Court by majority held that:
(i) The issue and question of Money Bill, as defined under Article 110(1) of the Constitution, and certification accorded by the Speaker of the Lok Sabha in respect of Part-XIV of the Finance Act, 2017 has been referred to a larger Bench.
(ii) Section 184 of the Finance Act, 2017 does not suffer from excessive delegation of legislative functions as there are adequate principles to guide framing of delegated legislation, which would include the binding dictums of this Court.
(iii) The Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017 suffer from various infirmities as observed earlier. 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, have been struck down in entirety.
(iv) The Central Government is accordingly directed to re-formulate the Rules strictly in conformity and in accordance with the principles delineated by this Court in R.K. Jain, Madras Bar Association and Gujarat Urja Vikas Ltd. conjointly read with the observations made in the decision.
(v) The new set of Rules to be formulated by the Central Government shall ensure non-discriminatory and uniform conditions of service, including assured tenure, keeping in mind the fact that the Chairperson and Members appointed after retirement and those who are appointed from the Bar or from other specialised professions/services, constitute two separate and distinct homogeneous classes.
(vi) It would be open to the Central Government to provide in the new set of Rules that the Presiding Officers or Members of the Statutory Tribunals shall not hold ‘rank’ and ‘status’ equivalent to that of the Judges of the Supreme Court or High Courts, as the case may be, only on the basis of drawing equal salary or other perquisites.
(vii) There is a need-based requirement to conduct ‘Judicial Impact Assessment’ of all the Tribunals referable to the Finance Act, 2017 so as to analyse the ramifications of the changes in the framework of Tribunals as provided under the Finance Act, 2017. Thus, we find it appropriate to issue a writ of mandamus to the Ministry of Law and Justice to carry out such ‘Judicial Impact Assessment’ and submit the result of the findings before the competent legislative authority.
(viii) 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 or other Acts as listed in para 174 of this order 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.
(ix) The Union Government shall carry out an appropriate exercise for amalgamation of existing Tribunals adopting the test of homogeneity of the subject matters to be dealt with and thereafter constitute adequate number of Benches commensurate with the existing and anticipated volume of work.
The Hon’ble Supreme Court directed that appointments to the Tribunal/Appellate Tribunal and the terms and conditions of appointment shall be in terms of the respective statutes before the enactment of the Finance Bill, 2017. However, liberty is granted to the Union of India to seek modification of this order after they have framed fresh Rules in accordance with the majority judgment. However, in case any additional benefits concerning the salaries and emoluments have been granted under the Finance Act, they shall not be withdrawn and will be continued. These would equally apply to all new members.
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