VALIDITY OF NATIONAL TAX TRIBUNAL (NTT)- is different from case of NCLT.

[C.A. DEV KUMAR KOTHARI]

Challenge before Supreme Court:

The matter relating to validity of constitution of NTT is pending before the Supreme Court. When the matter of validity of National Company Law Tribunal (NCLT) was considered, the matter or NTT was also tagged with the issue of NCLT on request of petitioners on assumption that both matters are similar.

NCLT- held valid:

On peculiar issues raised , attack only on provisions of Part IB & IC of the Companies Act and seeking support from Article 323B and other facts and circumstances the constitution of NCLT and appellate Tribunal were held valid by the Supreme Court recently. In this case support of Article 323B was sought and relevant clauses of this article were not challenged as against basic structure of our constitution.

Challenge in case of NTT:

On the other hand in case of NTT, the provisions of Article 323B of Indian Constitutions are also challenged. Thus ,before considering other issues the Supreme court is required to consider the validity of relevant clauses of Article 323B itself. After earlier hearings, the Union Of India (UOI) has agreed to remove or modify some of provisions of NTT, which are also under challenge in the petition. Therefore, before consideration of provisions of NTT the provisions of Article 323B need to be examined.

NTT matter is different:

In view of the different approaches in petitions challenging NTT and NCLT, the Supreme Court has held that the matter of NTT is different and it cannot be considered as similar to that of NCLT. In other words it cannot also be said that the matter of NTT is now covered by the decision in the case of NCLT.

Decision in case of NCLT can be affected by decision in case of NTT:

As noted above, the case of NCLT proceeded on the basis that provisions of Article 323B are valid and they support constitution of NCLT. However, suppose the provisions of Article 323B itself are held invalid, then a situation may again arise giving reasons for reconsideration of the provisions relating to NCLT and the judgment of the Supreme Court in the case of NCLT.

Madras Bar Association Vs. Union of India"

The case being TC (Civil) No. 150 of 2006 decided on May 11, 2010 is reported by webhosting as [2010] 5 taxmann.com 29 (SC) is analyzed and summarized below:

Besides the constitutional validity of the National Tax Tribunal Act, 2005 (NTT) in TC No.150/2006, there is also a challenge to section 46 of the Constitution (Forty- second Amendment) Act, 1976 and Article 323B of Constitution of India. These have been challenged as ultra vires the basic structure of the Constitution as they enables proliferation of Tribunal system and makes serious inroads into the independence of the judiciary by providing a parallel system of administration of justice.

As per those provisions the executive has retained extensive control over matters such as appointment, jurisdiction, procedure etc.

That Article 323B violates the basic structure of the Constitution by taking away the jurisdiction of the High Courts and vests them in the National Tax Tribunal.

Tribunals are vested with power to trial of offences and adjudication of pure questions of law, which have always been in the exclusive domain of the judiciary.

In hearing on 9.1.2007 by a three Judge Bench, the following challenge were noticed and at the time of the hearing auurances were made by UOI to amend or clarify provisions :

Section 13 which permitted "any person" duly authorized to appear before the National Tax Tribunal. UOI assured that the appropriate amendment will be made to ensure that only lawyers, Chartered Accountants and parties in person will be permitted to appear before the National Tax Tribunal.

Section 5(5) about transfers of members of NTT was challenged on the ground that the CJI or a Judge of Supreme Court nominated by him can be rendered into minority by two secretaries (one from MOF and another from MOL & J ) of ministries of GOI. In this regard UOI submitted that the expression "consultation with the Chairperson" occurring in section 5(5) of the Act should be read and construed as "concurrence of the Chairperson". This was to ensure that the Chairperson (who can be CJI or any judge nominated by him) is not overtaken by the two secretaries.

Similarly section 7 is also challenged which provided for a Selection Committee comprising of the Chief Justice of India or a Judge of the Supreme Court nominated by him, and two secretaries one from the Ministry of Law & Justice, and another from 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. In this regard also It was stated on behalf of the UOI 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.

About certain other defects in the Act, pointed out by the petitioners, the UOI assured that they will be examined and wherever necessary, suitable amendments will be made. In view of these submissions, on 9.1.2007, the Supreme Court by an order allowed liberty to the UOI for listing after the appropriate amendments were made in the NTT Act.

On 21.1.2009, the Constitution Bench directed these cases to be listed with cases related with NCLT as 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.

Cases relating to NCLT were subsequently heard at length and were reserved for judgment. The matters of NTT were tagged and were also reserved for judgment.

Supreme Court disposed of cases relating to NCLT on same day (11.05.2010) by a separate order. However the case relating to NTT being different, the matter is not disposed off because:

It 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. 

Contentions urged also include 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, because 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 follow their own summary procedure, are not bound by the strict rules of evidence and the members will not be legally trained.

Dealing by NTT may lead to convictions of persons on evidence which is not sufficient in probative value or on the basis of inadmissible evidence- a retrograde step.

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.

Supreme Court also considered that in L. Chandra Kumar v. Union of India (1997) 3 SCC 261, the court considered the validity of only Clause 3(d) of Article 323B but did not consider the validity of other provisions of Article 323B.

The appeals relating to constitutional validity of NCLT 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.

Thus the Supreme Court found that 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.

Whereas the challenge to NTT Act is based on the challenge to Article 323B itself.

Therefore, finding 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 relating to NCLT, Supreme Court held that these cases of NTT cannot be disposed of in terms of the decision in the civil appeals but requires to be heard separately.

The Supreme Court accordingly directed that these matters be delinked and listed separately for hearing.

Conclusion:

The Constitution of NTT is therefore hanging over as the provisions of Article 323B itself are under challenge. In case these provisions are held invalid, constitution of any Tribunal which is constituted on the strength of Article 323B( including NCLT) may require reconsideration.

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Decision of Supreme Court on constitutional validity of National Company Law Tribunals under Companies Act not applicable to National Tax Tribunal Act

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.

SUPREME COURT OF INDIA

Madras Bar Association

Versus

Union of India

TC (Civil) No. 150 of 2006

May 11, 2010

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 (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.