CASE ANALYSIS

OF
R.K. GARG VS UNION OF INDIA AND ORS

BY:-
PRITHAV BANG
1st YEAR,
NMIMS Kirit P. Mehta School of Law, MUMBAI
Mob: - 9822381114
Email: - bprithav@gmail.com

www.probono-india.com

26th APRIL 2020

 BACKGROUND OF THE ISSUE

In 1981, the Government of India came up with the Special Bearer Bonds Act (Immunities
and Exchanges) Act 1981. This act, on paper, was aimed at removing and reducing black
money but there were several loopholes in it. The method in which the said act worked was
that a person having black money would invest in these bonds by buying them from the
government. Through this the government though that all the black money would come back
into the market as people would invest in these as after ten years on maturity they would get
back five percent more than what they had invested. According to the petitioners, this
legislation was flawed and baseless on several grounds. This Act was immoral as it violated
Article 14 (Right to Equality) of the Indian Constitution as visibly differentiated between Tax
payees and Tax Evaders. The second ground was questioning the ordinance making power of
the President in the matters related to taxation and money as a Money Bill ban only be
introduced in the Lok Sabha. The Petitioners questioned the morality of the law as it gave tax
exemptions to people who were hoarding black money as in comparison those who paid their
taxes and earned money legally. In contrast, the Defendants said that this was the only way to
bring the black money back into the currency flow, as the hoarding of black money had an
impeding effect on the development of the country. The defendants said “for effective
economic and social planning it is necessary to canalize for productive purposes black money
which has become a serious threat to the national economy. To prove this argument they
introduced the theory of ‘Bare minimum immunity’. Hence in the case of R.k. Garg vs Union
of India and ors, the Supreme Court entertained a plea questioning the validity and morality
of Special Bearer Bonds Act (Immunities and Exchanges) Act 1981.

INTERNATIONAL LAW RELATED TO RIGHT TO EQUALITY

Right to Equality is mentioned in the Universal Declaration of Human Rights and is
particularly the First Article of this declaration. This right is also mentioned in the
International Covenant on Civil and Political Rights. These universal and international
declarations state that everyone can claim their rights regardless of sex, race, language,
religion, social standing etc. Furthermore, no distinction shall be made on the basis of the
political, jurisdictional or international status of the country or territory to which a person
belongs, whether it be the independent, trust, non-self-governing or under any other
limitation of sovereignty.
 FACTS IN ISSUE
Several Writ Petitions were filed challenging the Constitutionality of the newly passed
Special Bearer Bonds (Immunities and Exchanges) Ordinance, 1981 and Special Bearer
Bonds Act, 1981. The principle ground on which the constitutional validity of the Ordinance
and the Act is challenged is that they are violative of the equality clause contained I Article
14 of the Indian Constitution. The Petitioners argued that this law was immoral as it was
biased towards the people who were hoarding black money and also that any law related to
taxation was a money bill and hence can only be introduced in the Lok Sabha and is ultra
Vires of the powers vested in the hand of the President.

PETITIONER’S ARGUMENTS

1. President had no power under article 123 to issue an Ordinance amending the tax
laws, as a Money Bill can be only introduced in the Lok Sabha.
2. The Provisions of Special Bearer Bonds (Immunities and Exchanges) Act, 1981 were
violative of Article 14 of the Indian Constitution.
3. The provisions under this act are against the concept of morality as it gives certain
benefits to a specific class of the society, thereby defeating the provisions of
intelligible differentia.

RESPONDENT’S ARGUMENTS

1. The Respondents contended that this Law was very essential as hoarding of the Black
Money was very severe and affected the economy.
2. It supported the arguments by explaining the concept of ‘Bare Minimum Immunity’ to
the subscribers of the bond as an incentive to buy it which means that they would not
be subjected to pay any tax.
3. Further, they commented that we should view a law not by its moral values but by its
legal provisions as a Law should not be construed as moral code but a legal and
practical code.
THE SPECIAL BEARER BONDS [IMMUNITIES AND EXEXMPTIONS]
ACT, 1981

1.The First Section of the Act deals with the Short Title, extent and commencement. -

 This act may be called the Special Bearer Bonds [Immunities and Exemptions] Act,
1981.
 It extends to the whole of India.
 It shall be deemed to have come into force on the 12th day of January, 1981.

2. The Second Section deals with the Definition- In this Act, “Special Bearer Bonds” means
the Special Bearer Bonds, 1991, issued by the Central Government.

3. The Third Section deals with the Immunities-

1. Notwithstanding anything contained in any other law for the time being in force,
 No person who has subscribed to or has otherwise acquired Special Bearer
Bonds shall be required to disclose, for any purpose whatsoever, the nature
and source of acquisitions of such Bonds.
 No injury or investigation shall be commenced against any person under any
such law on the ground that such person has subscribed to or has otherwise
acquired Special Bearer Bonds; and
 The fact that a person has subscribed to or has otherwise acquired Special
Bearer Bonds shall not be taken into account and shall be inadmissible as
evidence in any proceedings relating to any offence or the imposition of any
penalty under any such law.
2. Nothing in sub-section (1) shall apply in relation to prosecution for any offence
punishable under chapter IX or Chapter XVIII of the Indian Penal Code, the
Prevention of Corruption Act, 1947 or any offence which is punishable under that act
or for the purpose of enforcement of any civil liability.

4.The Fourth Section deals with the Acquisition, etc., of bonds not to be taken into account
for certain proceedings.- Without Prejudice to the generality of the provisions of Section 3,
the subscription to, or acquisition of, Special Bearer Bonds by any person shall not be taken
into account for the purpose of any proceedings under the Income- Tax Act, 1961 and in
particular, no person who has subscribed to, or has otherwise acquired, the said bonds shall
be entitled-

 To claim any set-off or relief in any assessment, re- assessment, appeal, reference or
other proceeding under the Income –Tax Act or to reopen any assessment made
under that Act in the ground that he has subscribed to or has otherwise acquired the
said bonds
 To claim, in relation to any period before the date of maturity of the said bonds, that
any asset which is includible in his net wealth for any assessment year under the
Wealth-Tax Act has been converted into the said Bonds; or
 To claim, in relation to any period before the date of maturity of the said bonds, that
any asset held by him or any sum credited in his books of account or otherwise held
by him represents the consideration received by him for the transfer of Bonds.
 LAW AND MORALITY

While giving the judgement the Majority and Minority locked horns on several issues, one of
which being the question of morality and its importance in law. The majority took the
positivist route whereas the minority took the naturalists. The positivist philosophy is one
which believes that the law is not an ideal but something which actually exists. It is not that
which ought to be, but that which is. Thus, while positivism insists on form and is wholly
inelastic, inflexible and impartial to morality, the watchword of the naturalist is justice and
morality. While the former is more concerned with remedies and on rule, the latter seeks to
convert moral duties into legal duties and places trust in reason rather than on arbitrary rule.
The majority judgment by upholding an Act which was undesirable as it offended public
morality, adopted the war cry of the positivists "law is law". What the law is, and what the
law ought to be, the positivists say, are two different questions which must not be confused
with each other. While admitting the importance of the "ought" aspect, the positivists
however insist that it is the wrong question to ask from the viewpoint of legal theory. The aim
of the legal theorist is to give a theory of law as it exists in the legal system without resorting
to any moral or extra-legal criterion for assessing its validity. Thus, for the purpose of legal
validity, the positivists are indifferent as to whether a law is iniquitous or virtuous. This
distinction between law and morals is a fundamental one and finds justification in the fact
that laws are not always enacted because they are morally desirable but because it is found
important or expedient to enact them. The approach adopted by the minority towards law and
morals is one which permits a certain amount of penetration of morals into law. It allows the
taking into consideration of moral and ethical values in deciding the concept of
reasonableness. Law and Morality are two arrows from the same bow and hence it is
impossible to keep them at two polar ends.

JUDGEMENT IN A GLANCE

The Supreme Court dismissed the writ petition filed by the Petitioners stating that there was
no violation of Article 14 [Right to Equality] and the ordinance making power of the
President on issues related to taxation was not Ultra Vires of the Indian constitution. The
Bench upheld the legislation drafted by the Parliament stating that this was the need of the
hour as there was rampant circulation of black money in the economy which was acting as an
impediment in the development of the Country.
 OVERVIEW OF THE JUDGEMENT

The Bench in this case comprised of Justice V.Y. Chandrachud, Justice A. Gupta, Justice A.
Sen, Justice P. Bhagwati and Justice S.M. Ali. The majority judgement was delivered by P.N.
Bhagwati whereas Justice Gupta had a dissenting view.

The Majority in this case took the help of the Positivist theory of Philosophy wherein they
refrained from mixing morals with law. The emphasized on the fact that laws relating to
economic activities should be viewed with greater latitude than laws touching basic civil
rights like freedom of speech, religion etc. Also, as it is of common knowledge that there is
always a presumption in favor of the constitutionality of a statute and the burden is upon him
who attacks it to show that there has been a transgression of the constitutional principles. In
the Morey v. Dond, and Secretary of Agriculture v. Central Roig Refining Company 1 it is
clearly mentioned that immorality by itself cannot be a ground of constitutional challenge.
The Supreme Court in these regards held that a statute might not offend public order and
morality unless and until clauses in it are arbitrary and irrational to the present circumstances.
The Judgement also says that immunities and exemptions have been given "to render it
possible for persons in possession of black money to invest the same in the said (Special
Bearer) Bonds". Section 3 deals with immunities. Clause (a) of the section protects a person
who has acquired a bond from being required to disclose the nature and source of acquisition.
Clause (b) prohibits the commencement of any inquiry on the ground of his having acquired a
bond. Clause (c) makes the acquisition of a bond entirely inadmissible as evidence in any
proceeding relating to any offence and imposition of penalty. Section 4 places certain
limitations on persons who have subscribed to or acquired special bearer bonds. It, however,
does not affect the generality of the immunity granted by section 3. The marginal notes
against sections 5, 6 and 7 indicate that these sections are amendments respectively of the
Income-tax Act, Wealth Tax Act and Gift-tax Act. Section 5 excludes Special Bearer Bonds
1981 from the capital assets of an assesee and exempts the premium payable on the
redemption of the bonds from income-tax. Sections 6 and 7 exempt the bonds from wealth
tax and gift tax, respectively. Lastly. P.N Bhagwati while concluding his part said that the
Court must be forward-looking, not static and not verbal. It must defer to legislative in
matters relating to social and economic policies, unless the exercise of legislative judgement
appears to be palpably arbitrary. According to the majority, the immunity granted in respect
of subscription to or an acquisition of the Special Bearer Bonds is a severely restricted
1
Morey v. Dond, [1950] US 604
immunity and this a ‘bare minimum immunity necessary’ in order to induce the holders of
Black Money. 2The whole object of the act it to induce those having black money to convert
it into white money by making it available for the country. The further restrictions provided
in Section 4 are calculated to pre-empt any possible abuse of the immunity in respect of
subscription to or acquisition of Special Bearer Bonds. According to Justice Chandrachud,
this act cannot be said to be unconstitutional as it offends against morality according to
dishonest assesses who have evaded taxation. The present case is concerned with the
constitutional validity of the act and not with its morality. Hence, it should be completely left
to the legislature to decide what immunities and exemptions would be sufficient for the
purpose. Also, the object of the act being to unearth black money for being utilized for
productive purposes with a view of effective social and economic planning, the de facto
classification is clearly based on intelligible differentia having rational relation with the
objective of the act and is therefore not arbitrary. In adopting this “hands-off” attitude, the
majority parted company with notions of morality in even ascertaining the reasonableness of
the legislation from the ethical point of view namely what the law ought to be. Also, the
President’s legislative power under Article 123 to promulgate an ordinance is coextensive
with the power of the Parliament to make laws and is invested only in order to enable the
executive to tide over an emergent situation which may arise whilst the Houses of Parliament
are not in session. The conferment of such power is not undemocratic because the executive
is clearly answerable to the legislature and if the President, on the aid and advice of the
executive, promulgates an Ordinance in misuse or abuse of this power, the legislature can not
only pass a resolution disapproving the ordinance but can also pass a vote of no confidence in
the executive. Now once it is accepted that the president has legislative power under Article
123 to promulgate an ordinance and this legislative power is co-extensive with the power of
the Parliament to make laws, it is difficult to see how any limitation can be read into this
legislative power of the President so as to make it ineffective to alter or amend tax laws. If
Parliament can, by enacting legislature power of the President so as to make it ineffective to
alter or amend tax laws.3 If Parliament can by enacting legislation alter or amend tax laws,
equally can the president do so under Article 123. There have been, in fact, numerous
instances where the president has issued an ordinance replacing a retrospective effect a tax
law declared void by the High Court or this Court. 4 Even offences have been created by

2
Abdul Majid v. P.R. Nayak [1951] 440 BOM
3
Shamsher and Anr. v. State of Punjab AIR [1974]
4
State of Punjab v. Mohar Singh AIR [1948]
Ordinance issued by the President under Article 123 and such offences committed during the
life of the Ordinance have been held to be punishable despite the expiry of the Ordinance. It
may be also noted that clause (2) of Article 123 provides in terms clear and explicit that an
Ordinance promulgated under that Article shall have the same force and effect as an Act of
Parliament. That there is no qualitative difference between an Ordinance issued by the
President and an Act passed by Parliament is also emphasized by clause (2) of Article 367
which provides that any reference to an Ordinance made by the Parliament shall be construed
as including a reference to an Ordinance made by the President. 5 We do not therefore think
there is any substance in the contention of the petitioner that the President has no power
Article 123 to issue an ordinance amending or altering the tax laws and that the Ordinance
was therefore outside the legislative power of the President under that Article.

Justice Gupta. J. had a dissenting, minority view as he said that Article 14 forbids class
legislation but permits classification, if founded on an intelligible differentia having a rational
relation to the object sought to be achieved by the act. The Presence of some characteristics
in one class which are not found in another is the difference between two classes.6 The
differentia i.e. the basis of classification is on the face of it arbitrary I the sense that it is
palpably unreasonable, it is not possible to call the differentia intelligible.

The terms like ‘reasonable’, ‘just’ or ‘fair’ derive their signification from the existing social
conditions. An action which an informed, intelligent, just minded, civilized man could
reasonably favor would be called reasonable. The concept of reasonableness does not exclude
notions of morality and ethics. In the circumstances of a given case considerations of
morality and ethics may have a bearing on the reasonableness of the law in question.7 89

Hence the Special Bearer Bonds Act was adjudged as constitutional and not violative of
Article 14 of the Indian Constitution.

REFERENCES

5
State of Rajasthan v. Union of India AIR [1977] SC (1)
6
The State of West Bengal v. Anwar AH Sarkari AIR [1952] SC 284
7
State of W.B. v. Anwar Ali Sarkar AIR [1952] SC 284
8
E.P. Royappa v.State of T.N. AIR [1974] SC 3
9
Maneka Gandhi v. Union of India. AIR [1978] SC 1
  Morey v. Dond, [1950] US 604
 Abdul Majid v. P.R. Nayak AIR [1941] BOM 440
 Shamsher and Anr. v. State of Punjab AIR [1974]
 State of Punjab v. Mohar Singh AIR [1948]
 State of Rajasthan v. Union of India AIR [1977] SC 1
 The State of West Bengal v. Anwar AH Sarkari AIR [1952] SC 284
 State of W.B. v. Anwar Ali Sarkar AIR [1952] SC 284
 E.P. Royappa v.State of T.N AIR.[1974] SC 3
 Maneka Gandhi v. Union of India. AIR [1978] SC 1

BRIEF ABOUT AUTHOR

Prithav Yogesh Bang is pursuing B.A.LLB in Kirit P. Mehta School of Law

[NMIMS Deemed-to-be University] Mumbai. He is currently interning at
ProBono India. He has published many articles and research papers in the
various legal platforms of India and recently one his articles got selected in the
International Journal for Law Management and Humanities. He has successfully
completed two internships in which he was a Content Creator and Strategist and
a researcher. He loves to play cricket and is very much interested in political
discussions. He has interests in Constitutional Law and wants to serve the
nation by being a part of the judiciary. By being a part of the team ProBono, he
is contributing to the society through legal aid.