Finance Bill 2017 debate: Changes made to tribunals are unconstitutional and ill-considered

As has been widely reported, the Finance Bill 2017 passed by Lok Sabha on Wednesday has proposed sweeping changes that, among other things, make the Aadhaar unique identity number mandatory for filing income tax returns, remove caps on corporate funding to political parties and overhaul the functioning of tribunals.

India has numerous tribunals that look into matters pertaining to company law, environmental law, competition law, intellectual property law, employment disputes, censorship, taxation, customs, securities regulation, debt recovery, telecom disputes, consumer disputes, service issues pertaining to the civil and military personnel, claims against the railways and other regulatory disputes. Such tribunals have proliferated ever since Indira Gandhi’s infamous 42nd amendment, which made several changes to the country’s Constitution, was enacted in 1976 during the Emergency. Among other things, the amendment sought the creation of tribunals under the Centre or the State to adjudicate on certain issues that were till then under the purview of India’s independent judiciary.

The measures proposed in the Finance Bill are aimed at streamlining an increasingly unwieldy system of tribunals by winding up some existing tribunals and merging their functions into existing tribunals. These amendments also transfer to the central government the power to draft rules pertaining to the appointment, qualifications, terms of office and removal of the tribunal chairperson and members.

Some commentators have argued that the decision to merge tribunals is problematic, because a body like the Competition Appellate Tribunal cannot be consolidated with the National Company Law Tribunal as the latter does not have the specialisation to handle matters to do with competition laws. This argument, however, holds little water because most adjudicators sitting on Indian tribunals, lack any kind of specialist skills. The true reason for setting up tribunals was to whittle down judicial independence by appointing their own personnel to tribunals and control the appointment process. However, the Supreme Court has thrown a spanner in the works in a series of judgments.

The real problems with these amendments are first, the seeming lack of application demonstrated in the drafting of the bill; second, the fact that the Centre is indulging in a naked power grab by usurping for itself wide ranging powers related to appointment, removal and qualification criteria of judges appointed to these tribunals; and third, the government is in effect firing judges from eight tribunals with a compensation amounting to just three months of salary.

Let us look at these problems one by one.

Poor drafting

The Finance Bill aims to reform a total of 27 tribunals. Of these, it seeks to shut down eight by merging them with the 19 remaining tribunals. From a legislative perspective, this is a massive exercise because each tribunal has been set up under a different Act of Parliament. In effect, therefore the Finance Bill is aimed at amending 27 legislations to do with tribunals alone (in all, the Bill proposes a record 40 amendments).

Given that each Act has a different language and legislative scheme, the finance ministry should have worded the amendments carefully. Unfortunately, the finance ministry has chosen a copy and paste method to draft the legislation. For instance, the following provision has been reproduced multiple times in the Finance Bill to amend 19 different legislations:

“Notwithstanding anything contained in this Act, the qualifications, appointment, term of office, salaries and allowances, resignation, removal and the other terms and conditions of service of the Chairman, Vice-Chairman and other Members of the Tribunal appointed after the commencement of Part XI of Chapter VI of the Finance Act, 2017, shall be governed by the provisions of section 179 of that Act:…”

Section 179 of the Finance Bill is worded such that it gives the Centre the power to make rules about the qualifications, appointment, term of office, salaries and allowances, resignation, removal and the other terms and conditions of service of the various adjudicating members of the tribunal. And if this was not enough, Section 182 of the Finance Bill allows the government to similarly amend provisions pertaining to other tribunals not even mentioned in the Finance Bill.

Most of the 19 legislations that created the tribunals that remain after the Finance Bill is implemented have specific provisions on the qualifications, appointments, term of office, salaries and allowance, resignation and removal of tribunal members. So, if the government is now going to take over the task of overseeing service conditions, logically, the Finance Bill should have proposed the deletion of the clauses pertaining to this in these 19 legislations. Why retain legislative provisions that have no purpose?

The danger of not removing these clauses is that it opens the door to confusion and litigation because as any lawyer worth his salt will tell you, the phrase “notwithstanding anything contained in this Act” is the cause for many a lawsuit. Thus from a drafting viewpoint, this scheme of amendments is ill-advised.

Power grab

The more malicious aspect of Section 179 of the Finance Bill is its intention to transfer enormous powers from Parliament to the Centre. Most of the 19 tribunals targeted by this Bill are manned by a mix of judicial and technical members and the qualification and appointment criteria for these bodies has been laid down by Parliament. In several cases, Bar Associations have challenged both the qualification and appointment criteria on the grounds of constitutionality – either because the executive had too much control over the appointment process or the qualification criteria opened the doors to bureaucrats with no real legal experience to sit on tribunals.

In the case of the National Company Law Tribunal and the National Tax Tribunal, the Supreme Court considered these issues so important that it set up constitutional benches to hear the challenges.

The Finance Bill effectively gives bureaucrats of the central government the power to draft the qualification and appointment criteria for a multitude of tribunals and Parliament is not required to vote on these rules. The danger of this setup from a policy perspective is that once power is delegated to the Centre, each ministry is free to amend the rules for the tribunals under it as per its convenience and no permission is required from Parliament.

Such a setup is almost certainly unconstitutional and illegal as the Supreme Court has made it clear that essential legislative functions cannot be delegated to the executive. Issues of appointment, qualification, removal and resignation criteria go to the heart of judicial independence and certainly constitute essential legislative function of law-making. It would thus be unconstitutional for Parliament to yield these powers to the central government.

Firing of judges

One of the more shocking provisions of the Finance Bill is Section 180, which PRS Legislative Research has summarised as follows:

The Chairpersons, Vice-Chairpersons, Chairmen, or other members who are currently occupying posts with Tribunals to be merged, will be entitled to receive up to three months’ pay and allowances for premature termination of their office term. Officers and other authorities of Tribunals that will cease to exist after the merger will stand reverted to their parent cadre, ministry or department.

This provision effectively fires judges from nine existing tribunals with three months’ pay and allowances. While there are provisions for the support staff to be absorbed into existing tribunals, there is no safety net for the tribunal judges. Some tribunals that will be dissolved with the enactment of the Finance Bill, like the Copyright Board and the Cyber-Appellate Tribunal, have not been staffed for several years now, but some of others are still functioning.

The consolidation of tribunals would have inevitably led to someone losing their job, but the government should have at least honoured the judges’ contracts by offering to pay them for the rest of the term for which they were appointed. It should have also clarified whether these judges are entitled to their pensions, retirement benefits and their right to practice law before the same tribunals.

Legally speaking most of the legislation appointing judges to tribunals prohibit their service conditions from being changed after their appointments – the idea is to save the judge from being punished by the government for an adverse order. Yet, the government has chosen to go ahead and fire the judges on these tribunals. The long-term consequences of these firings is that it will shake the faith of potential appointees to these tribunals. If the government can simply terminate their contracts one fine day through legislation, why will a competent person accept an appointment to such a tribunal in the future?

Expect challenges

If history has taught us anything, it is that India’s lawyers are unlikely to keep quiet when the government tries to meddle with judicial independence. For instance, the constitutionality of almost every new tribunal setup by the government over the last two decades has been challenged before a High Court or the Supreme Court. Almost all these challenges have been mounted by Bar Associations for the simple reason that the bread and butter of lawyers depends on the impartiality of the judicial system, especially when the government is the biggest litigant. Given the near and total collapse of the political opposition and mainstream media, will lawyers be the last hope for opposition against this belligerent government?

Prashant Reddy Thikkavarapu is a Research Associate at the School of Law, Singapore Management University