Supreme Court strikes down amended Finance Act rules for tribunals

Validity of Act as Money Bill referred to a larger Bench

The Supreme Court passed an interim order on Wednesday that said appointments to tribunals would be on the basis of existing laws governing the relevant sectors, and not on the basis of rules framed under the Finance Act of 2017.

The five-judge Constitution Bench, comprising Chief Justice Ranjan Gogoi and Justices N V Ramana, D Y Chandrachud, Deepak Gupta, and Sanjiv Khanna, also ordered that the validity of the passage of the Finance Act 2017 as Money Bill should be decided by a larger Bench.

Money Bills contain provisions for imposing taxes and appropriating sums out of the Consolidated Fund of India, and only require passage in the Lok Sabha. 

A petition by former Union minister Jairam Ramesh, on which the apex court gave the interim order on Wednesday, contends that since the Finance Act 2017 included rules on appointments to 19 different tribunals, it should not have been passed as a Money Bill.

Part XIV of the Finance Act 2017 had amended various Acts to provide for new rules and appointments to various tribunals, including the industrial tribunal, Railway Claims Tribunal, National Green Tribunal, Armed Forces Tribunal, appellate tribunals for sectors such as telecom, aviation, highways, taxation, company law, and others. Section 184 of the same Act gave the Central government the powers to frame rules regarding the tribunals. 

While the Bench upheld the Section itself, it struck down the rules formulated under it.

Part XIV and Section 184 were not there in the Finance Bill tabled in the Lok Sabha alongside the Union Budget 2017-18 by the late finance minister Arun Jaitley. 

An official who was part of the Budget-making team at the time said that the Law Ministry had the Section and part included later. “It was included as an amendment between the introduction of the Bill and its passage,” the official confirmed to Business Standard.

The Bench ordered the government to reframe the rules and said existing laws would govern the tribunals until then. The Law Ministry has been asked to conduct an impact study and its submit report to the apex court. “Through this petition, I had challenged the form of the Finance Act 2017 and the rules framed thereunder, through which the government had sought to dilute appointments to 19 tribunals,” Ramesh said after the ruling.

“Knowing fully well the Finance Act would not pass Parliamentary muster, the (Narendra) Modi government classified it as a Money Bill so as to prevent voting in the Rajya Sabha, where at the time, they lacked the numbers. I challenged the Act for its brazen attempt to seize control of prestigious independent tribunals, which act as a necessary check on arbitrary executive actions.” Ramesh said that through rules introduced under Section 184, the government had extended executive control over tribunals by altering the composition of the selection committees and vastly downgrading the experience required to staff these bodies. 

Ramesh said that Justice Chandrachud, in a separate judgment, held that Part XIV amounts to a “substantive irregularity”.

The government official quoted earlier said that while questions on the relevant section can be raised, the Finance Act itself cannot be a general bill. “Finance Bills are Money Bills as mandated by the Constitution. If the SC refers the validity to another Bench, and if that Bench rules that the Bill is not Money Bill, then all the tax announcements in that Budget will be deemed illegal or infructuous,” the person said. Incidently, the Finance Act 2017 also introduced electoral bonds and made Aadhaar compulsory for income-tax filing.