Supreme Court Strikes Down Finance Act, 2017 Rules on Tribunals, Refers Money Bill Issue to Larger Bench

Constitution Bench holds Finance Act’s Part XIV not a Money Bill; calls for judicial impact assessment and reforms in tribunal administration

In a landmark judgment delivered on November 13, 2019, a Constitution Bench of the Supreme Court of India, led by Chief Justice Ranjan Gogoi, struck down the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017 framed under Section 184 of the Finance Act, 2017. The Court held that these Rules are unconstitutional as they violate the independence of the judiciary and various precedents on tribunal administration.

The judgment arose from challenges to Part XIV of the Finance Act, 2017, which amended qualifications, appointment procedures, terms of office, salaries, allowances, and other service conditions for members and presiding officers of numerous statutory tribunals across India. The Act consolidated amendments relating to 25 different Tribunals into a single legislative package, introduced as a Money Bill.

The petitioners contended that Part XIV could not be a Money Bill under Article 110 of the Constitution, as it contained provisions beyond the “only” financial matters allowed for such bills, thus bypassing Rajya Sabha’s legislative role and violating the Constitution’s bicameral scheme. Further, they challenged the extensive delegation of legislative powers to the Executive under Section 184, arguing that qualifications and appointment criteria are essential legislative functions that Parliament cannot delegate without clear guidelines. The Rules framed under this section were alleged to dilute judicial independence by allowing excessive Executive control in appointments and removals, and by lowering eligibility standards.

The Union of India defended the Act and Rules, emphasizing the need for uniformity and rationalization across the diverse and fragmented tribunal system, which had suffered from inconsistencies in service conditions, appointment procedures, and administrative control. It argued that the Finance Act’s provisions were incidental to financial matters as salaries and pensions are charged on the Consolidated Fund of India, thus falling within the scope of a Money Bill. The government also highlighted practical difficulties and the burden on the Ministry of Law and Justice in serving as a single nodal agency for tribunals.

After an exhaustive analysis of the constitutional provisions, judicial precedents, and international practices, the Supreme Court rendered a nuanced verdict:

1. Money Bill Issue Referred: The Court observed that the question whether Part XIV of the Finance Act, 2017 qualifies as a Money Bill under Article 110 is complex and impacts the constitutional scheme of bicameralism. Given conflicting interpretations in prior judgments, it referred this question to a larger Bench of seven judges for authoritative determination. The Court clarified that while the Speaker’s certification of a Money Bill is final between the Houses of Parliament, it is not immune from judicial review when challenged on grounds of illegality or unconstitutionality.

2. Delegation Not Excessive, But Rules Unconstitutional: The Court held that Section 184 does not suffer from excessive delegation as Parliament retained sufficient control and laid down broad principles. However, the Rules framed under this section failed to conform to the legal and constitutional requirements. The Rules were struck down in their entirety and the Central Government was directed to reframe them in accordance with judicial guidelines ensuring judicial independence.

3. Judicial Independence and Appointment Process: The Court emphasized that tribunal members discharging judicial functions must possess qualifications and stature commensurate with the courts whose jurisdiction they replace. The Rules’ provision allowing persons without judicial or legal experience to be appointed as presiding officers was held to dilute judicial character and was unconstitutional. The dominant presence of Executive nominees in Search-cum-Selection Committees violated the doctrine of separation of powers and independence of judiciary.

4. Service Conditions and Tenure: The Court criticized the fixed short tenure of three years and provisions allowing reappointments, noting these undermine judicial independence and deter capable candidates. Uniformity in retirement age and non-discriminatory terms of service were mandated.

5. Single Nodal Agency and Financial Autonomy: Reiterating the Court’s earlier directions in L. Chandra Kumar v. Union of India (1997), the Court underscored the need for a single independent nodal agency, preferably under the Ministry of Law and Justice, to oversee all tribunals. Dependency on sponsoring ministries, which may be parties before tribunals, compromises fairness. Tribunals must have adequate financial autonomy with dedicated budgetary allocations.

6. Judicial Impact Assessment: The Court mandated the Ministry of Law and Justice to conduct a ‘Judicial Impact Assessment’ of all tribunals affected by the Finance Act, 2017 to evaluate ramifications of structural changes and resource needs, and submit reports to the competent legislative authority. This assessment is crucial to prevent overburdening the judiciary and ensure access to justice.

7. Direct Appeals to Supreme Court: Highlighting the adverse impact of direct statutory appeals from tribunals to the Supreme Court on its docket and constitutional role, the Court directed the Union government to review and propose measures to divert such appeals to High Courts, thereby preserving the Supreme Court’s focus on substantial constitutional questions.

8. Amalgamation and Benches of Tribunals: The Court noted the uneven distribution of cases and resources among tribunals, with some overburdened and others underutilized. It directed rationalization and amalgamation of tribunals based on case-load and subject matter homogeneity, and establishment of benches at convenient locations to enhance accessibility.

Interim relief was granted allowing appointments made under earlier statutes or interim orders to continue, but the Central Government was barred from implementing the struck down Rules pending fresh framing.

Justice Dhananjaya Y. Chandrachud concurred with the majority on all points and elaborated on the need for judicial review of the Speaker’s certification of Money Bills. Justice Deepak Gupta, while agreeing broadly with the judgment, dissented on the issue of delegation, holding that qualifications for tribunal appointments are essential legislative functions that cannot be delegated.

The judgment is seen as a critical step toward safeguarding judicial independence in the expanding tribunal system and reasserting the role of the Rajya Sabha in legislative processes. It also calls for urgent reforms in tribunal administration, appointment processes, and judicial impact assessments to ensure speedy, specialized, and impartial justice.

Statutory provisions

Constitution of India, 1950 Articles 110(1), 110(3), 109, 122, 323A, 323B, 226, 227, 136, 311; Finance Act, 2017 Sections 158-184; Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017

Rojer Mathew v. South Indian Bank Ltd., (SC)(Constitution Bench) : Law Finder Doc Id # 1621428