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NTT Act Unconstitutional! Existential Crisis For Tribunals?

Published on Sat, Sep 27,2014 | 13:15, Updated at Wed, Oct 01 at 14:36Source : CNBC-TV18 |   Watch Video :

The Madras Bar Association has waged a decade long war against the Tribunalisation of justice in India. Its first big victory, albeit partial, was in the R Gandhi case. It did not succeed in striking down the creation of Company Law Tribunals but prompted the Supreme Court in laying down clear guidelines for the proper functioning of Tribunals.

SC: R Gandhi Case, 2010

Madras Bar Association challenged creation of NCLT & NCLAT
SC laid down guidelines for functioning of Tribunals

For the last decade, it has also been fighting against the National Tax Tribunal (NTT) Act of 2005. Yet again, it has won! This week the Supreme Court struck down the NTT Act saying it is unconstitutional. The third and equally landmark struggle is against the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCALT) as envisaged in the Companies Act 2013. That case is still work in progress. What will this week's victory against the National Tax Tribunal Act mean for Tribunals across the country?


- National Tax Tribunal Act challenged by Madras Bar Association
- SC declares National Tax Tribunal Act unconstitutional

Madras Bar Association vs NCLT/NCLAT

Urgent need to strike down Chapter XXVII of Companies Act, 2013
NCLT/NCLAT provisions violate principles of separation of power
Several safeguards laid down by SC in 2010 have not been followed

To discuss that, CNBC-TV18's Menaka Doshi speaks to Arvind Datar, the Senior Counsel who won the case for the Madras Bar Association and Mohan Parasaran, Former Solicitor General.

Here's what the Supreme Court had to say for NTT Decision:

- That it is not per se a violation of basic structure of the Constitution if parliament was to vest their adjudicatory functions of a High Court with a Tribunal
- That the basic structure of the Constitution would be violated if the conventions and the salient characteristics of the court that is being sought to be replaced are not incorporated in the Tribunal that will replace the court
- That several provisions of the National Tax Tribunal (NTT) are unconstitutional and hence the Supreme Court has said that the entire Act is unconstitutional and thus struck it down
- And, that neither Company Secretaries nor Chartered Accountant can appear before a National Tax Tribunal (NTT)

Doshi: The first two conclusions are common to other Supreme Court decisions from the past. It's simply a reiteration that Tribunals in themselves are not unconstitutional but their features might render them so and yet you chose to argue against the very creation of the National Tax Tribunal. Can you explain to us why because those arguments did not necessarily succeed?

Datar: We didn't attempt to argue it again. The point is the Supreme Court has laid down certain guidelines on the creation of Tribunals. Now despite these guidelines being in place, the parliament drafts laws which are contrary to these guidelines. What the Supreme Court has been saying is if you are going to take away the High Court’s power and give them to the Tribunal which is going to replace the High Court in that jurisdiction- whether it's tax or environment - those Tribunal members must have the same status, rank and competence as High Court judges. So when you start the National Tax Tribunal you must make sure that it is as close to the High Court as possible.

So this is just a formula laid down and this has been reiterated in the context of the National Tax Tribunal because here was a case where they had gone one step ahead. They have been creating company Tribunals, environment Tribunals and so on which are basically on the original side as a first body of adjudication. But in the Income Tax Act you already have hierarchy of appeals. You have got the Commissioner appeal; you got the Income Tax Appellate Tribunal, then the High Court and Supreme Court. Here what they were doing was they were removing the High Court from all tax matters - whether direct or indirect tax matters- and substituting a National Tax Tribunal to decide substantial questions of law.

Our fundamental objection was decisions on substantial questions of law are something which only the higher judiciary can do. This is part of what the American, the English and Canadian Courts have called core judicial power and such core judicial power cannot be exercised by anybody else. If you do that, it would be violation of the basic structure.
So the Supreme Court had to reiterate that principle in the context of what was being done in the National Tax Tribunal.

Doshi: There are flaws in the NTT Act and we will get to them in just a bit. Before that I just want to know on the issue of existence of Tribunals in this country and the fact that the Supreme Court has blessed them as long as they have the features that make them equal to the courts that they are substituting or supplementing; right?

Parasaran: Yes, I would like to make a distinction. The power of judicial review or Article 226 can never be taken away. You can create any number of Tribunals. You can even call it has a National Tax Tribunal or whatever it is, but even as against the judgment of a National Tax Tribunal in my humble perception the power of judicial review given to High Courts under Article 226 and under Article 32 can never be taken away.

Looking from that point of view, what really happened was they created actually a National Tax Tribunal to virtually supersede the High Court to hear statutory appeals or hear appeals from High Courts and to that extent actually they have created a body which was comprising not only of judges but also of outsiders which was against the concept of the rule of law laid down by the Supreme Court in several judgments and there I agree with Mr Datar that this was against the recommendations of several bodies and judgments and time had to come that the court had to actually interfere as this would actually be creating babudum in my view.

Doshi: I do want to get to the several Sections of the NTT Act that the Supreme Court has found unconstitutional. I will raise some of those provisions and get very quick reactions from both of you on what the impact of this striking down will be. The first one, for instance, the Supreme Court has said very clearly that Chartered Accountants and Company Secretaries cannot appear before a National Tax Tribunal (NTT). Chartered Accountants do appear before other Tribunals in the country. What will this decision by the Supreme Court mean for that situation?

Madras Bar Association vs NTT Act

Supreme Court: Unconstitutional Provisions
- Permitting CAs/ CSs to appear before NTT

Datar: This particular paragraph has attracted a lot of criticism and perhaps many Chartered Accountants will be unhappy with me and the Association for this particular point. Our basic point was this – you are now replacing the High Courts with the National Tax Tribunal. As you see the judgment, we have been able to show that many cases of Income Tax are not really Income Tax cases - they deal with Hindu law, they deal with transfer of property, they deal with transfer of shares, company law and so on and so forth.

We said that the arguments on substantial question of law is something which is the domain or the expertise of advocates. We have been trained as lawyers, we have been practicing for two-three decades and we acquire some amount of expertise in arguments of cases in dealing with substantial questions of law and we said that if it's going to be a High Court which is going to be substituted by National Tax Tribunal, then only advocates have to argue. This was the point taken by the Bombay Bar as well and certain other bar associations.

They were very particular that if you are going to take away the High Court and create a substitute in the place of the High Court, then only the lawyers must argue that case. In that sense, it’s like, for example, nobody can do tax audit but Chartered Accountants. So substantial questions of law is the expertise of lawyers. Chartered Accountants can indeed argue before the Income Tax Appellate Tribunal, they can argue before the Central Excise Tribunal, they can argue before the Company Law Board, they can argue before other Tribunals there is no problem as long as it permits but this was for the first time they created a super appellate Tribunal deciding only questions of law. They were not going to deal with facts, not going to deal with anything but questions of law.

That's why the Supreme Court agreed with our submissions that if this is the kind of Tribunal you are going to create, then only lawyers can argue the case. And mind you, there is virtually no other country in the world where substantial questions of law can be decide by anybody other than the courts of record- the higher courts- whether it is US or UK and we demonstrated that to the court.

Doshi: Do you think that this decision not to allow Chartered Accountants or Company Secretaries to appear before a National Tax Tribunal will impact their ability to appear before any other Tribunals in the country currently?

Parasaran: If an ICS could preside over as Chief Justice of Indian Supreme Court, why not a competent Chartered Accountant who also has a legal qualification. Most of the Chartered Accountants also have a legal qualification and they normally interact…(Interrupted by Anchor)

Doshi: I am just curious to know whether this will impact the ability of Chartered Accountants to appear before the other Tribunals as is the case in the country right now?

Parasaran: This would definitely affect the ability to appear before the Tribunals which have the duty to decide substantial questions of law; not necessarily the Income Tax Appellate Tribunal or the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) or the Company Law Board as the practice now goes.

Doshi: Which ones would those be? I am trying to understand the impact of this decision -which Tribunals would those be?

Parasaran: The Tribunals which are going to be created in future like the National Company Law Board etc.

Datar: I want to make just two points there. I want all the Chartered Accountants and Company Secretaries to rest assure that they their right to practice before all other Tribunals is not affected. For example every Act says who can appear before that Tribunal. So wherever the Income Tax Act or the Central Excise Act says that a Chartered Accountant can appear, their right of practice will not be affected.

The impact of this decision is this - if tomorrow you create a Tribunal which has to decide substantial questions of law in say field X or field Y, then to that extent in that particular Tribunal, non-lawyers cannot appear; that's the only impact.

Doshi: Let me talk about the two other provisions that the Supreme Court has found unconstitutional- these are provisions of the NTT Act that the government has the power to determine the constitution and the geographical jurisdiction of an NTT bench and transfer members. This the Supreme Court says impeaches on the independence of the National Tax Tribunal and is also against the separation of powers principal and that accountant or technical members cannot decide on constitutional matters or substantial matters of law for which the NTT is being constituted. On the second point I want to come to you Mr Datar, the fact that the Supreme Court has said that the accountant or technical members in a National Tax Tribunal is unconstitutional. Now we do have technical members in most of the Tribunals across the country. Will this decision impact those set ups?

Madras Bar Association vs NTT Act

Supreme Court: Unconstitutional Provisions
- Allowing govt to determine constitution, geographical jurisdiction of NTT bench
- Allowing Accountant or Technical members to decide substantial question of law

Datar: The answer is yes. Once again this is a hypothetical question. Now the formula is very simple- what is this Tribunal designed to do? If it is designed to do substantial questions of law then all these factors come into place, you can’t have a technical member sitting on the Tribunal.

One other point which you must note which is very important is that the National Tax Tribunal is not an ordinary Tribunal. It is a Tribunal created under Article 323B of the Constitution of India. It’s a constitutional Tribunal as opposed to the Company Law Tribunal. Now such a Tribunal can decide the validity of various enactments except that law. It’s a very peculiar provision. A member of the National Tax Tribunal cannot decide on the validity of the NTT Act itself. He can’t decide the validity of the Act under which the Tribunal is created. Such a member can decide the validity of the Income Tax Act, the Finance Act - so he can decide on the validity of various other provisions. So here is a situation where you would have technical members from the Tribunal who would come in the position of High Court judges and they would then decide the validity under whether a particular provision is ultra vires - Entry 82 of the constitution under ultra vires Article 246 of the constitution which requires a huge constitutional background.

That was also one factor which weighed with the Supreme Court saying that look if you are going to keep a Tribunal having all the extensive powers of a High Court then maybe it was a time to press the pause button and find out whether technical members can also decide this particular question.

NTT Act: Framework

- Pending indirect/direct tax cases before High Courts to be transferred to NTT
- To hear appeals from ITAT & CESTAT on substantial question of law
- All proceedings to be deemed to be judicial proceedings 
- Appeals against NTT order to lie with the Supreme Court

Article 323B: Allows legislature to provide for adjudication or trial by Tribunals of any disputes, complaints, or offences with respect to specific matters

Doshi: The more important outcome of this decision will be what impact this will have on the presence of technical members on other Tribunals and I understand you’re drawing a distinction between what the NTT is and other Tribunals in the country are? But I still want to understand whether that the other Tribunals will be impacted in any way by this decision?

Datar: No they will not.

Parasaran: We have to make a distinction between Tribunals and regulatory bodies. What you mean is Telecom Regulatory Authority of India or the Securities and Exchange Board of India (SEBI) or Securities Appellate Tribunal (SAT). They also have lots of technical members but they are not actually going into vires etc. They are not interested in the powers of a High Court and where actually as Mr Datar says, if a body is created under the Constitution and is entrusted with constitutional powers of a court or a High Court, then you can’t actually entrust powers on technical members who are not legally qualified to decide constitutional issues and vires of a statute because they don’t have that sort of expertise and the Constitution never actually vested such a power with them and pre-council calls them as layman.

Doshi: I get the rationale for why the Supreme Court has decided this. I was just trying to understand for instance like you said the Securities of Appellate Tribunal or other Tribunals that do have technical members on board - will that persist or because of this decision will that have to change.  

Parasaran: They are regulatory bodies. They are not Tribunals.

Doshi: They will not be impacted by this decision of the Supreme Court? I think Mr Datar seems to agree with that as well.

Datar: I wanted to mention that this judgment is not - this criticism is kind of fear psychosis - nothing is going to happen to any other Tribunals. All will function normally; only you can’t entrust substantial questions of law outside the superior court. That’s all there is; nothing else going to happen to any other Tribunal.

Doshi: Are you sure about that Sir because the other provision which the Supreme Court struck down as unconstitutional says that there was dominance of government representatives on the NTT Selection Committee and that the presence of government secretaries made the committee unconstitutional. The manner of appointment of NTT members should be the same as appointment of judges of High Courts. If the same measure is to be applied to other Tribunals in the country, they too would fall short of having in place the same appointment process as the appointment of judges in High Court. So again this is the fourth provision that I want to bring to both of you and try and understand whether this striking down will impact Tribunals anywhere else in the country.

Madras Bar Association vs NTT Act

Supreme Court: Unconstitutional Provisions
- Dominance of govt representatives on the NTT Selection Committee

Datar: As far as ordinary Tribunals are concerned I don’t mean ordinary in a pejorative sense, I mean ordinary means non-constitutional Tribunals. As far as these Tribunals are concerned, in the National Company Law Tribunal law, R Gandhi Case will apply- they have said that the selection committee should consists of two judges that is the chief justice and one more judge, two secretaries and the event of a tie there should be a casting vote for the chief justices.

SC: R Gandhi Case, 2010

Technical Members
- Only rank of Secretary or Additional Secretary

Selection Committee
- CJI (casting vote)
- Senior SC Judge/HC CJ
- Law Secretary + MCA/FinMin Secretary

In other word if you are going to replace the High Court by the National Company Tribunal then the view of the judiciary must prevail because in the National Company Law Tribunal (NCLT) Act there were two judges and three secretaries - that was the problem. The same thing was the problem with the NTT Act. So now they have made it very clear that for selection of the Tribunals the views of the judiciary should prevail because these Tribunals are going to discharge the functions of the High Courts.

As far as the NTT provision is concerned it should be the same selection as a High Court judge, this will primarily be confined to constitutional Tribunals under Article 323B. For NCLT, the formula laid down in the R Gandhi Case will continue to apply.

Doshi: Can you tell me which are the other constitutional Tribunals in the country?

Datar: You have the Central Administrative Tribunal; you have the State Administrative Tribunals under Article 323B

Doshi: So those are the ones who will have to tow the line laid down by this decision

Datar: Yes.

Doshi: I am glad that you brought up the National Company Law Tribunal Mr Datar because I want to put this question to Mr Parasaran- you were representing the government when this Companies Act, 2013 was enacted so to speak. Now interestingly there are flaws in that Act as well which the Madras Bar Association is litigating against and I am just curious to know several of those flaws are common to the flaws that have been discovered in the NTT even though the NCLT and National Company Law Appellate Tribunal (NCLAT) may not be constitutional Tribunals. Do you think NCLT and NCLAT are now doomed and that they are unlikely to see the light of day.

Parasaran: In my own perception NCLT stands on a different footing. See it's not a constitutional Tribunal therefore there the principals laid down on Gandhi's case will be more applicable then in the present ruling. Therefore I won't say it is doomed, still there is scope for argument that's why that matter wasn't clubbed with this.

Doshi: Mr Datar what is the status on the Company Law Tribunal case that you are fighting because that will be the third important Tribunal case that you will representing for the Madras Bar Association?

Datar: The status of the case is it is now posted on the October 14th for hearing and the government has moved an application to try and complete the selection process which we are objecting to. In fact the National Company Law Tribunal judgment came in May 2010, 4 years ago. There was nothing to stop the government from straightaway starting the Tribunal and what you call taking away the powers of the High Court.

However the whole difficulty was- that's our basic grouse against the whole system- that you are not creating Tribunals as a part of justice delivery system, you are creating Tribunal with a completely malafide objective. You want to make sure that a group of retired officers will get post retirement benefits.

The R Gandhi case said you can appoint secretaries, additional secretaries, you can appoint chartered accountants, you can appoint company secretaries, you can appoint district judge, and you can appoint all these people as technical members but they did not take a single step in that direction. Unfortunately and if I may say so shockingly they put in a provision which is directly in the teeth of what Supreme Court said and we had no choice but to challenge it again. Similarly selection committee once again they say will be three secretaries and two judges you are just inviting another objection from the Madras Bar Association and we had no choice but to challenge it.

NCLT: Technical Members

SC, 2010
- Only rank of Secretary or Additional Secretary

Companies Act, 2013
- Rank of Joint Secretary and above

NCLT: Selection Committee

SC, 2010
- CJI (casting vote) + Senior SC Judge/HC CJ
- Law Secretary + MCA/FinMin Secretary

Companies Act, 2013
- CJI + Senior SC Judge/HC CJ
- MCA Secretary + Law Secretary + FinMin Secretary

The other very important point which has to be dealt with is from Chandra Kumar's case in 1997- for almost 20 years now, the Supreme Court has said that look if you want Tribunals to function as independent quasi judicial bodies, put them under Ministry of Law as completely independent and then start an independent nodal agency where there is uniformity of Tribunal services and these are completely free from executive interference.

SC: Chandra Kumar Case, 1997
It is desirable that all such Tribunals should be, as far as possible, under a single nodal ministry which will be in a position to oversee the working of these Tribunals. For a number of reasons that Ministry should appropriately be the Ministry of Law.

You will be surprised that the government has informed the Supreme Court that Tribunals will not be put under an independent ministry because they are meant to serve the needs of individual ministries - that was what was put in the affidavit in the Supreme Court. Apart from this particular NTT or NCLT there is a larger issue of where the Tribunals are going to go, what is their role in the justice delivery system?

Doshi: Mr Parasaran, explain this to me- we had the R Gandhi Case that has laid down several guidelines for how Tribunals should function. We had the Chandra Kumar's case that dates back even further in history which has laid down what the role of Tribunal should be. How there should be a nodal Independent Ministry that manages them. Yet government after government seems to want to flout all of these Supreme Court guidelines and they keep designing Tribunals that are in violation of what the Supreme Court has laid down, why is that Sir?

Parasaran: Recently you saw in the newspapers that there is a move to make the National Green Tribunal (NGT) as part of the Ministry of Environmental and Forest. That's why I advised that you will have to tweak the provisions with regards to the National Company Law Tribunal. I don't know where my advice went. I hope this government wakes up and does the necessary amendments; otherwise this will also go the same way.

Doshi: Mr Datar the final word to you since you have been fighting this battle not for a decade but almost two now, what do you think the future of Tribunals in the country is?

Datar: I know the Supreme Court asks the question - why the Madras Bar Association against Tribunals and we have repeatedly mentioned this that we are not against Tribunals; in fact we want the Tribunals to function because they are an essential part of the justice delivery system. Mind you many cases are such that which the High Courts cannot do effectively like Income Tax Appellate Tribunal, there is no substitute for the wonderful job they are doing; there is excise Tribunal, there is SEBI Appellate Tribunal. These are all specialised bodies which must exist.

Now what's the way ahead? There is a wonderful report by Lord Lugard and there is what famously called the Lugard Committee Report which has contained several chapters on how Tribunals can function independently. You got the UK Tribunal's Act of 2002 which has laid down very clearly how you can maintain autonomy of Tribunals, independence of Tribunal and they can function virtually as independently as courts.

Once the government makes up its mind that yes Tribunals are an essential part of the justice delivery system point number one. Point number two, they should be completely autonomous they should not be part of individual Ministries. As a first step everything must go to the law ministry- they should not look to their parent ministry for transport, help and so on and so forth, they should be completely independent. Secondly I feel that we must eventually take a step where Tribunals are not post-retirement placements for bureaucrats and other judges.

We should have Tribunal service like the district judges, a younger lawyer should be selected to go as a Tribunal member and a certain portion of the higher judiciary must be reserved for promotions of these members into the judiciary. So those are the three things which should be done in the long run. But as a first step which can be easily done is to make all Tribunals under the Law Ministry and have uniform conditions of service of recruitment and so on.

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