Decoding The Supreme Court’s Verdict On Tribunalisation

Categorically declaring that “the lack of judicial dominance in the Search-cum-Selection Committee is in direct contravention of the doctrine of separation of powers and an encroachment on the judicial domain”, a five-judge bench of the Supreme Court in Rojer Mathew has unanimously quashed the ‘Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017’. Ironically, this is where the unanimity of the Lordships ends as there are dissenting opinions appended to the verdict. The majority has upheld the amendments made to 25 legislations by the Finance Act, 2017 whereby the terms for the appointment, qualifications, tenure, etc. of the members of the tribunals under the respective legislations were sought to standardised. In separate dissenting opinions, minority two judges have quashed the amendment on appointments.

The above summary essentially presents a legalistic description of the developments although the controversy at hand is complex. At the core lies a long-standing debate that rests on competing arguments relating to the tribunalisation of justice.

If allowed to be instituted, what should be the minimum standards of qualification of members manning such tribunals given expected degree of impartiality and fairness of justice, the hallmark of the Indian judiciary and the basic structure of our Constitution? Whether there can be common conditions for tribunal members ranging across diverse subjects, such as intellectual property, environment, tax, or by their very nature they must be different? These were some of the complex questions of law which were answered in this landmark verdict, albeit by the majority. It is important to note however that the issue relating to the propriety of the Finance Act amendments, in so far as these were effectuated via a ‘Money Bill’ (which effectively deprives the Upper House – Rajya Sabha of its scrutiny), has not been resolved in the decision. Instead, this issue has been referred for determination by a seven-judge bench.

The Run-Up To The Decision

The criteria for the appointment and selection of tribunal members has always been a vexed issue, ever since its introduction. Given the technical areas to be addressed, these tribunals invariably comprise of non-judicial persons. For example, environment-related experts in the National Green Tribunal, former revenue officers or Chartered Accountants in tax tribunals, etc. Furthermore, these tribunals are often last-fact finding bodies with further appeals being entertained only on intricate or substantial legal questions by constitutional courts. Since their orders have a steering impact on the rights of citizens and define Government policy, their integrity and independence, besides the subject-matter competence, etc. require a detailed appraisal process. One must also appreciate the background, in order to contextualise the background leading to the recent decision.

The mechanism for instituting expert tribunals was formally implanted four decades back in the Constitution, thereby introducing a scheme for addressing disputes by way of specialised tribunals instead of an ordinary legal system of subordinate courts. Two specific provisions were inserted in the Constitution to permit enactment of laws for instituting administrative tribunals (Article 323A) and tribunals for other matters, including tax tribunals (Article 323B) in 1977. However, it was only two decades later that in 1997, a seven-judge bench of the Supreme Court put to rest the misgivings—including those in earlier decisions of the Supreme Court—to confirm that the tribunals were indeed part of the judicial system and there was nothing inherently incorrect with an idea that complex issues be decided by subject-matter experts, even if they were not recipients of formal legal training (L Chandra Kumar: 1997).

The dispute in relation to members of the Company Law Board, for illustration, required two decisions of a five-judge bench of the Supreme Court (R Gandhi: 2010, Madras Bar Association: 2015). Tax tribunals, as another illustration, have witnessed a different species of disputes. In the context of the Customs Tribunal, the Supreme Court pointed out woeful state-of-affairs to direct, overriding the statutory scheme, that its President must be a former High Court judge (RK Jain case: 1993). The Supreme Court was again required to intervene when the Law Secretary directed the Income Tax Appellate Tribunal to undertake proceedings in a particular manner (VK Agarwal: 1998).

Noting that the composition of its members was overwhelming against judicial-disposition outlook, a five-judge bench of the Supreme Court quashed provisions relating to the institution of National Tax Tribunal (Madras Bar Association: 2014). Expounding the jurisprudence in this case, the Supreme Court in no uncertain terms pointed out primacy of judiciary in the selection of tribunal members; the head of the tribunal being a former judge of the constitutional court; freedom from executive interference in terms of service, tenure, etc. of the tribunal members are some of the inviolable tenets on which the very tribunal foundation rested to replace the courts.

Dispute Addressed In Rojer Mathew Case And The Decision

For a variety of reasons, the executive branch found greater resonance in the tribunal scheme. This led to a situation of a proliferation of tribunals reaching unmanageable proportions and possibly led the Parliament to enact a specific chapter in the Finance Act, 2017 whereby the provisions relating to tribunals under 25 central legislations were modified to ensure parity of selection and treatment.

For illustration, as the Attorney General highlighted before the Supreme Court,

• there are more than 50 functionaries enjoying the conditions of service of a Supreme Court judge and more than 150 such functionaries at par with High Court judges;
• while a person once appointed to the ITAT can continue till the age of superannuation, tenures of persons appointed to the APTEL were merely three years; etc.

The Finance Act, 2017, with an objective to instill consistency, however, delegated—to the central government—the power to effectuate these changes by formulating a common mechanism for selection of the tribunal members. It was pursuant to this mandate that the rules were framed by the central government. The statutory amendment and the rules were the subject-matter of the challenge before the five-judge bench which is examined below. What is intriguing that the judgment of the Supreme Court is unanimous on a few counts whereas the decision has been arrived at by a majority on the rest of the aspects.

1. The foremost contention was regarding the propriety of changes effectuated via the Finance Act, which is a ‘Money Bill’. In the constitutional scheme, the Rajya Sabha is virtually a bystander and the Lok Sabha has the exclusive prerogative of legislating a Money Bill. This is unlike other laws that must be passed both by the Lok Sabha and Rajya Sabha. Furthermore, the Speaker of the Lok Sabha has an exclusive prerogative to determine what qualifies as a Money Bill. The decision of the Speaker certifying Finance Act, 2017, as a Money Bill was challenged claiming that the terms of appointment of tribunal members had no bearing on the fiscal resources or obligations of the state and thus the law could not be characterised as a Money Bill. The five-judge bench agreed that the contention had merit, but it did not decide on the issue categorically as it opined that the decision required consideration by a larger bench of the Supreme Court for a categorical enunciation of the legal position. In this process, the five-judge bench also found that its earlier decision in the Aadhaar case did not exhaustively determine this aspect. Hence, this constitutional question is yet to attain finality though Rojer Mathew clearly holds that the Speaker’s certification is subject to judicial scrutiny.

2. Subject to such constitutional determination, the majority of the judges in the Rojer Mathew case concluded that the Finance Act, 2017, was a legitimate exercise of legislative power and for various policy reasons, it was justified that there must be a common scheme for tribunals. The majority held that even though there are a number of open-ended empowerments vested with the Central Government (in terms of this Finance Act, 2017), it did not amount to abdication of the legislative power as there were sufficient guidelines to circumscribe the executive government’s prerogative. The minority, however, differed opining that too much leeway was given to the government to frame the tribunal-related policies, which amounted to ‘excessive delegation’ and hence disturbed the balance of power between the two arms of the government.

3. One of the axiomatic tends of the judicial process is that justice must not only be rendered but also seem to have been rendered. It translates to mean that no man should be a judge in his own cause. It is apparent that with the government being the largest litigant, it must neither be allowed nor perceived to have a vital role in the appointment of the tribunal members via selection committees. For illustration, in the case of tax tribunals, the government is necessarily an adverse party in all cases. Thus, the selection process must ensure against the appointment of those persons who are invariably aligned to the government’s viewpoint. Being of such view, the five-judge bench unanimously opined that the search-cum-selection committees entrenched upon the enunciated guidelines in so far as the representatives of the judiciary had only a token say in these committees. Holding that the judiciary must have the final word on the appointment of the tribunal members, the appointment rules have been quashed in entirety.

4. As regards the policy framework to improve conditions of working of tribunal members, their tenure, and inter se position in the judicial system, the majority decision does not undertake a categorical enunciation. Instead, directions have been given to the central government to undertake a time-bound exercise of ‘judicial impact assessment’ to analyse ramifications of the changes in the framework of Tribunals. In parallel, the Law Commission of India has also been directed to examine whether the system of direct appeal to the Supreme Court against orders of select tribunals is conductive to the judicial system, given that inter alia it disproportionately burdens the Supreme Court.

Impact Of The Decision

The good or bad news is that there is no immediate impact except that the appointments of members would continue to be governed by the legal provisions applicable prior to the enactment of the Finance Act, 2017. The decision may, however, turn out to be the starting point for a larger shake-up in the entire scheme relating to tribunals. The four-decade experience of tribunal functioning would be referred to consciously frame a coherent policy, instead of ad hoc measures so far. The policy, which requires judicial endorsement, can certainly be expected to ensure that the process for appointment of members will be streamlined and made transparent to facilitate entry of talented experts. Lastly, based on Law Commission recommendations, orders of tribunals which were directly appealable to the final court may land before the High Courts.

Mukesh Butani is Managing Partner and Tarun Jain is Partner, at BMR Legal Advocates.

The views expressed here are those of the authors and do not necessarily represent the views of BloombergQuint or its editorial team.