2010 JTR(SC) 454
2010 91 AIC 270 ; 2010 6 AWC 6381 ; 2010 2 CC 640 ; 2010 254 ELT 193 ; 2010 324 ITR 166 ; 2010 5 JT 553 ; 2010 4 LW 18 ; 2011 7 RCR(Civ) 2838 ; 2010 5 Scale 445 ; 2010 11 SCC 67 ; 2010 4 SCJ 871 ; 2010 6 SCR 957 ; 2010 4 SLT 119 ; 2010 190 Taxman 432 ; 2010 KHC 4361 ; 2010 3 Supreme 765
2010 (3) Supreme 765
SUPREME COURT OF INDIA
CJI, K G Balakrishnan, R V Raveendran, D K Jain, P Sathasivam and J M Panchal, JJ.
Madras Bar Association — Petitioner
versus
Union of India — Respondent
Transferred Case (Civil) No. 150 of 2006
With
TC No.116/2006, 117/2006, 118/2006 and WP No. 697/2007
Decided on : 11-5-2010
Act
Referred
:COMPANIES ACT : Part.1(b), Part.1(c)
CONSTITUTION FORTY SECOND AMENDMENT ACT : S.46
CONSTITUTION OF INDIA : Art.323(b)
NATIONAL TAX TRIBUNAL ACT : S.13, S.5(5), S.7
(A) The National Tax Tribunal Act, 2005 (referred herein as 'the Act') is challenged for constitutional validity under Articles 13, 323B and related scheme of the Constitution, read with Part 1(B) and 1(C) of the Companies Act, 1956. Section 13 of the Act, authorising 'any person' duly authorized to appear before the Tribunal, is examined alongside Section 5(5) empowering the Central Government to transfer members and Section 7 establishing a Selection Committee with executive majority, raising concerns regarding judicial independence and composition. Additionally, challenge is mounted against section 46 of the Constitution (Forty-second Amendment) Act, 1976 and Article 323B of the Constitution, which permits legislatures to provide for adjudication of specified disputes and offences by Tribunals, on the ground that it creates a parallel system undermining the High Courts and erodes the basic structure by encroaching upon the exclusive domain of the judiciary in matters involving trial of offences and adjudication of pure questions of law. The interplay between these statutory provisions and the constitutional framework governing tribunal jurisdiction, separation of powers, and the rule of law forms the core of the dispute.
(B) Key legal principles include the doctrine of basic structure, the constitutional separation of powers, the exclusive jurisdiction of High Courts in adjudication and trial, and the permissible scope of Tribunals under Article 323B. The case underscores that tribunal mechanisms must not undermine judicial independence, must adhere to fair procedure, and cannot usurp the High Courts power in areas traditionally reserved for the judiciary such as criminal trials and pure questions of law.
Facts of the case:
Multiple petitions were filed challenging the constitutional validity of the National Tax Tribunal Act, 2005 and specific provisions of the Companies Act, 1956. A specific petition also challenged section 46 of the Forty-second Amendment Act and Article 323B of the Constitution. The petitions raised concerns regarding lack of representation of the legal profession, executive control over transfers, composition of the Selection Committee, and the potential for Tribunals to conduct trials without adherence to rules of evidence. The Court noted that these petitions involved distinct issues not fully addressed in earlier civil appeals and required separate listing.
Findings of Court:
The Court observed that the challenges to the NTT Act and Article 323B raised fresh legal issues not considered in related civil appeals. It noted that Tribunals following different evidentiary norms and comprising non-judicial members could undermine the principles of natural justice and separation of powers. The Court also clarified that the power to set up Company Tribunals in earlier cases was traceable to entries in the Seventh Schedule and not Article 323B. Consequently, the matters were required to be heard separately.
Issues:
Whether section 13 of the Act permitting 'any person' to appear before the Tribunal is constitutionally valid. Whether section 5(5) enabling transfer of members by the Central Government after consultation with the Chairperson impinges on judicial independence. Whether section 7s composition of the Selection Committee violates the principle of primacy of the judiciary. Whether Article 323B and section 46 of the Forty-second Amendment Act undermine the basic structure by enabling executive-controlled parallel adjudicatory mechanisms. Whether Tribunals can conduct criminal trials without adhering to the rules of evidence and without legally trained adjudicators.
Ratio Decidendi:
The Court held that challenges to the NTT Act and Article 323B involve distinct legal questions not resolved in prior civil appeals concerning Company Tribunals. Recognising the potential for executive overreach and erosion of judicial authority, the Court mandated that these petitions be delinked and heard separately to fully address the constitutional issues surrounding tribunal jurisdiction, composition, and adherence to judicial standards.
Result:
The petitions challenging the National Tax Tribunal Act, 2005, section 46 of the Forty-second Amendment Act, and Article 323B of the Constitution are to be heard separately and not disposed of in conjunction with the earlier civil appeals.
(A) The National Tax Tribunal Act, 2005 (referred herein as 'the Act') is challenged for constitutional validity under Articles 13, 323B and related scheme of the Constitution, read with Part 1(B) and 1(C) of the Companies Act, 1956. Section 13 of the Act, authorising 'any person' duly authorized to appear before the Tribunal, is examined alongside Section 5(5) empowering the Central Government to transfer members and Section 7 establishing a Selection Committee with executive majority, raising concerns regarding judicial independence and composition. Additionally, challenge is mounted against section 46 of the Constitution (Forty-second Amendment) Act, 1976 and Article 323B of the Constitution, which permits legislatures to provide for adjudication of specified disputes and offences by Tribunals, on the ground that it creates a parallel system undermining the High Courts and erodes the basic structure by encroaching upon the exclusive domain of the judiciary in matters involving trial of offences and adjudication of pure questions of law. The interplay between these statutory provisions and the constitutional framework governing tribunal jurisdiction, separation of powers, and the rule of law forms the core of the dispute.
(B) Key legal principles include the doctrine of basic structure, the constitutional separation of powers, the exclusive jurisdiction of High Courts in adjudication and trial, and the permissible scope of Tribunals under Article 323B. The case underscores that tribunal mechanisms must not undermine judicial independence, must adhere to fair procedure, and cannot usurp the High Courts power in areas traditionally reserved for the judiciary such as criminal trials and pure questions of law.
Facts of the case:
Multiple petitions were filed challenging the constitutional validity of the National Tax Tribunal Act, 2005 and specific provisions of the Companies Act, 1956. A specific petition also challenged section 46 of the Forty-second Amendment Act and Article 323B of the Constitution. The petitions raised concerns regarding lack of representation of the legal profession, executive control over transfers, composition of the Selection Committee, and the potential for Tribunals to conduct trials without adherence to rules of evidence. The Court noted that these petitions involved distinct issues not fully addressed in earlier civil appeals and required separate listing.
Findings of Court:
The Court observed that the challenges to the NTT Act and Article 323B raised fresh legal issues not considered in related civil appeals. It noted that Tribunals following different evidentiary norms and comprising non-judicial members could undermine the principles of natural justice and separation of powers. The Court also clarified that the power to set up Company Tribunals in earlier cases was traceable to entries in the Seventh Schedule and not Article 323B. Consequently, the matters were required to be heard separately.
Issues:
Whether section 13 of the Act permitting 'any person' to appear before the Tribunal is constitutionally valid. Whether section 5(5) enabling transfer of members by the Central Government after consultation with the Chairperson impinges on judicial independence. Whether section 7s composition of the Selection Committee violates the principle of primacy of the judiciary. Whether Article 323B and section 46 of the Forty-second Amendment Act undermine the basic structure by enabling executive-controlled parallel adjudicatory mechanisms. Whether Tribunals can conduct criminal trials without adhering to the rules of evidence and without legally trained adjudicators.
Ratio Decidendi:
The Court held that challenges to the NTT Act and Article 323B involve distinct legal questions not resolved in prior civil appeals concerning Company Tribunals. Recognising the potential for executive overreach and erosion of judicial authority, the Court mandated that these petitions be delinked and heard separately to fully address the constitutional issues surrounding tribunal jurisdiction, composition, and adherence to judicial standards.
Result:
The petitions challenging the National Tax Tribunal Act, 2005, section 46 of the Forty-second Amendment Act, and Article 323B of the Constitution are to be heard separately and not disposed of in conjunction with the earlier civil appeals.
ORDER
In all these petitions, the constitutional validity of the National Tax Tribunal Act, 2005 (‘Act’ for short) is challenged. In TC No.150/2006, additionally there is a challenge to section 46 of the Constitution (Forty- second Amendment) Act, 1976 and Article 323B of Constitution of India. It is contended that section 46 of the Constitution (Forty-second Amendment) Act, is ultra vires the basic structure of the Constitution as it enables proliferation of Tribunal system and makes serious inroads into the independence of the judiciary by providing a parallel system of administration of justice, in which the executive has retained extensive control over matters such as appointment, jurisdiction, procedure etc. It is contended that Article 323B violates the basic structure of the Constitution as it completely takes away the jurisdiction of the High Courts and vests them in the National Tax Tribunal, including trial of offences and adjudication of pure questions of law, which have always been in the exclusive domain of the judiciary.
2.When these matters came up on 9.1.2007 before a three Judge Bench, the challenge to various sections of the Act was noticed.
2.1)The first challenge was to section 13 which permitted “any person” duly authorized to appear before the National Tax Tribunal. Union of India submitted that the appropriate amendment will be made in the Act to ensure that only lawyers, Chartered Accountants and parties in person will be permitted to appear before the National Tax Tribunal.
2.2)The second challenge was to section 5(5) of the Act which provided that the Central Government may, in consultation with the Chairperson, transfers a Member from headquarters of one Bench in one State to the headquarters of another Bench in another State or to the headquarters of any other Bench within a State. Union of India submitted that having regard to the nature of the functions to be performed by the Tribunal and the constitutional scheme of separation of powers and independence of judiciary, the expression “consultation with the Chairperson” occurring in section 5(5) of the Act should be read and construed as “concurrence of the Chairperson”.
2.3)The third challenge was to Section 7 which provided for a Selection Committee comprising of the Chief Justice of India or a Judge of the Supreme Court nominated by him, (b) Secretary in the Ministry of Law & Justice, and (c) Secretary in the Ministry of Finance. It was contended by the petitioners that two of the Members who are Secretaries to the Government forming the majority may override the opinion of the Chief Justice or his nominee which was improper. It was stated on behalf of the Union of India that there was no question of two Secretaries overriding the opinion of the Chief Justice of India or his nominee since primacy of the Chairperson was inbuilt in the system and this aspect will be duly clarified.
2.4)In regard to certain other defects in the Act, pointed out by the petitioners, it was submitted that the Union Government will examine them and wherever necessary suitable amendments will be made. In view of these submissions, on 9.1.2007, this Court made an order reserving liberty to the Union Government to mention the matter for listing after the appropriate amendments were made in the Act.
3.On 21.1.2009, when arguments in CA No. 3067 of 2004 and CA No. 3717/2005, which related to the challenge to Parts 1B and 1C of Companies Act, 1956 were in progress before the Constitution Bench, it was submitted that these matters involved a similar issue and they could be tagged and disposed of in terms of the decision in those appeals. Therefore the Constitution Bench directed these cases to be listed with those appeals, even though there is no order of reference in these matters.
4.CA No. 3067 of 2004 and CA No. 3717 of 2005 were subsequently heard at length and were reserved for judgment. These matters which were tagged were also reserved for judgment.
5.We have disposed of CA No.3067/2004 and CA No. 3717/2005 today by a separate order. In so far as these cases are concerned, we find that TC (Civil) No. 150/2006 involves the challenge to Article 323B of the Constitution. The said Article enables appropriate legislatures to provide by law, for adjudication or trial by tribunals or any disputes, complaints, or offences with respect to all or any of the matters specified in clause (2) thereof. Sub-clause (i) of Clause 2 of Article 323B enables such tribunals to try offences against laws with respect to any of the matters specified in clauses (a) to (h) of clause (2) of the said Article.
6.One of the contentions urged in support of the challenge to Article 323B relate to the fact that Tribunals do not follow the normal rules of evidence contained in Evidence Act. In criminal trials, an accused is presumed to be innocent till proved guilty beyond reasonable doubt, and Evidence Act plays an important role, as appreciation of evidence and consequential findings of facts are crucial. The trial would require experience and expertise in criminal law, which means that the Judge or the adjudicator to be legally trained. Tribunals which follow their own summary procedure, are not bound by the strict rules of evidence and the members will not be legally trained. Therefore it may lead to convictions of persons on evidence which is not sufficient in probative value or on the basis of inadmissible evidence. It is submitted that it would thus be a retrograde step for separation of executive from the judiciary.
7.Appeals on issues on law are traditionally heard by courts. Article 323B enable constitution of Tribunals which will be hearing appeals on pure questions of law which is the function of courts. In L. Chandra Kumar v. Union of India,1 (1997) 3 SCC 261, this court considered the validity of only Clause 3(d) of Article 323B but did not consider the validity of other provisions of Article 323B.
8.The appeals relating to constitutional validity of National Company Law Tribunals under the Companies Act, 1956 did not involve the consideration of Article 323B. The constitutional issues raised in TC (Civil) No. 150/2006 were not touched as the power to establish Company Tribunals was not traceable to Article 323B but to several entries of Lists I and III of Seventh Schedule and consequently there was no challenge to this Article.
9.The basis of attack in regard to Part 1B and 1C of Companies Act and the provisions of NTT Act are completely different. The challenge to Part IB & IC of Companies Act, 1956 seeks to derive support from Article 323B by contending that Article 323B is a bar for constitution of any Tribunal in respect of matters not enumerated therein. On the other hand the challenge to NTT Act is based on the challenge to Article 323B itself.
10.We therefore find that these petitions relating to the validity of the NTT Act and the challenge to Article 323B raises issues which did not arise in the two civil appeals. Therefore these cases can not be disposed of in terms of the decision in the civil appeals but requires to be heard separately. We accordingly direct that these matters be delinked and listed separately for hearing.
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