Tribunals and the Finance Act

Case Description

A five-judge Bench of the Supreme Court assessed the constitutional validity of the Finance Act, 2017. In particular, it evaluated provisions of the Act which pertain to the structure and organization of tribunals.

The Finance Act, 2017 came into effect on March 31st, 2017 after it received presidential assent. Under Part XIV of the Finance Act, 2017 certain amendments were carried out to merge together the provisions regarding the structure and organization, as well as the conditions of service of tribunals. Section 184 of the Finance Act in particular authorizes the Central Government to notify rules governing persons appointed to tribunals on the following matters: qualification, appointment, terms of office, salaries and allowances, resignation, removal, and other terms and conditions of service. Pursuant to its powers under Section 184, the Central Government notified the Appellate Tribunal and Other Authorities (Qualifications, Experience and Other Conditions of Service of Members) Rules 2017 (Rules).

Note, tribunals resolve administrative and tax-related disputes. They run in parallel to the courts and generally are less formal, less expensive and less time consuming.

After the Act was passed, several petitions (17 in total) were filed challenging the constitutional validity of the Act by individuals, Lawyers Unions and Bar Associations of tribunals. Notably, the Income Tax Appellate Tribunal, the National Green Tribunal and the Central Administrative Tribunal filed petitions.

The petitioners challenged the passage of the Act as a Money Bill. They argued that Part XIV of the Act dealt with issues that cannot qualify as purely fiscal measures (or as provisions enacted purely on financial considerations). Part XIV deals with the appointment, selection, eligibility and other service conditions of members of Scheduled Tribunals. Therefore, the petitioners asked the Court to strike down the Finance Act, 2017 as null and void for violating Articles 107, 110 and 117 of the Constitution of India.

Further, the petitioners argued that Part XIV of the Act violates certain basic features of the Constitution, namely the independence of the judiciary and the separation of powers. They requested the Court to declare Part XIV of Finance Act, 2017 as ultra vires Articles 14, 21, 50 and 323B of the Constitution. One of the petitions filed by the Revenue Bar Association stated that the delegation of critical aspects affecting independence of tribunals is arbitrary.

Finally, the petitioners also challenged the provisions under Part XIV of the Act in view of the decision of the Constitution Bench in Madras Bar Association v. Union of India (2010). The five-judge Bench in Madras Bar Association had held that though the legislature can legislate which disputes will be decided by courts and which disputes will be decided by tribunals, this is subject to constitutional limitations. The Bench held that such legislation cannot encroach upon the independence of the judiciary and must respect the principles of the rule of law and the separation of powers. It held that if tribunals are to be vested with judicial power hitherto vested in or exercised by courts, such tribunals should possess the independence, security and capacity associated with courts.

In Madras Bar Association (2010), the Bench made observations regarding when tribunals can include technical non-judicial members. It stated that if a tribunal is intended to serve an area which requires specialised knowledge or expertise, technical members should be allowed in addition to judicial members. However, the Court emphasised that when a category of cases is transferred from the courts to the tribunals merely to either expedite cases, then there is no need for non-judicial technical member. It emphasised that in such non-technical tribunals, only members of the judiciary should be the Presiding Officers/Members.

On April 2nd 2019, the Bench reserved judgment in the matter. On November 13th 2019, the Bench delivered its judgment. Although the majority struck down the Rules as being destructive of judicial independence, it referred the question of whether Part XIV of the Act was validly passed as a Money Bill to a larger Bench. The reference was prompted by the Court’s finding that the decision in the Aadhaar case had not classified it to be a Money Bill without first delineating the scope of such Bills.

Given that the Aadhaar Bench was one of co-equal strength, the Court found it prudent to refer the issue to a larger seven-judge Bench to avoid any conflict in the decision.

On February 12th 2020, the Finance Ministry notified a new set of rules to govern the tribunals.