2012 (7) TMI 710 - SC - FEMA

Supreme Court upholds quashing of part-time appointments to Appellate Tribunal under Rule 5 of 2000 Rules as ultra vires FEMA 1999

SC upheld HC's decision quashing appointments of part-time Members and Chairperson of Appellate Tribunal for Foreign Exchange under Rule 5 of 2000 Rules, ... Ultra vires of delegated legislation - conformity of rules with parent statute - rule-making power and its limits - qualification for appointment to tribunal - absence of concept of part-time Member under statute - validity of actions taken by de facto office-holdersAbsence of concept of part-time Member under statute - ultra vires of delegated legislation - conformity of rules with parent statute - Validity of the first proviso to Rule 5 introducing the concept of part time Members - HELD THAT: - The Appellate Tribunal under the Act is to consist of a Chairperson and such number of Members as the Central Government may deem fit, and the Act's scheme and qualifications (including Section 21) do not contemplate a class of part time Members. A rule which introduces the concept of part time Members thereby travels beyond the enabling provision and is inconsistent with the parent statute. Applying the established principle that delegated legislation must conform to and remain within the scope of the enabling Act, the first proviso to Rule 5 introducing part time Members is ultra vires the Act. [Paras 7, 8, 21, 27, 28]The first proviso to Rule 5 (introducing part time Members) is ultra vires and invalid.Qualification for appointment to tribunal - conformity of rules with parent statute - Validity of Rule 2(1)(b) and the extent to which the second proviso to Rule 5 (appointing part time Members from Indian Legal Service) is permissible - HELD THAT: - Rule 2(1)(b) prescribing that a Member must be or have been, or be qualified to be, a District Judge is in consonance with the Act and Section 21. The second proviso to Rule 5 seeks to make part time Members from the Indian Legal Service who fulfil Rule 2(1)(b) qualifications; however, because the concept of part time Members is ultra vires, the second proviso is rendered redundant. If an officer of the Indian Legal Service satisfies the statutory qualification to be a Member (i.e., is or is qualified to be a District Judge) he may be appointed as a Member in accordance with the Act and relevant constitutional provisions; the rule cannot be used to create a separate, impermissible category of part time Members. [Paras 9, 13, 14, 29, 33]Rule 2(1)(b) is valid; the second proviso to Rule 5 (to the extent it operates to create part time Members from the Indian Legal Service) is ineffective because the concept of part time Members is ultra vires.Validity of actions taken by de facto office-holders - Effect of quashing appointments of part time Members on past orders and judgments delivered by them - HELD THAT: - Although the appointments of the part time Members and the appointment of a part time Member as acting Chairperson were quashed, the Court applied the established principle that orders and judgments delivered by persons acting in office under invalid appointments are not automatically rendered void. In the larger interest of justice and by precedent, the acts and decisions of such office-holders while they functioned are to be treated as valid and binding. [Paras 35]Orders and judgments delivered by the persons whose appointments have been quashed shall not be treated as null and void and remain valid.Appointment and removal safeguards for tribunal members - qualification for appointment to tribunal - Consequences of invalidity of part time Members for appointment of a part time Member as Chairperson - HELD THAT: - Since a part time Member is not a valid category under the Act, a person disqualified from being a Member on that ground cannot be validly appointed to act as Chairperson even as a stopgap. The High Court's quashing of the appointments of the part time Members and the appointment of a part time Member as acting Chairperson is consistent with the statutory scheme which prescribes qualifications, fixed tenure and removal safeguards for Chairperson and Members. [Paras 5, 26, 34]The quashing of the appointments of part time Members and the appointment of a part time Member as acting Chairperson is upheld.Final Conclusion: The Court affirms that delegated rules must conform to the enabling Act: the first proviso to Rule 5 (introducing part time Members) is ultra vires and invalid, the second proviso is redundant to the extent it depends on that concept though statutory qualifications under Rule 2(1)(b) remain valid, the quashed appointments (including the acting Chairperson appointed as a part time Member) are set aside, and past orders delivered by those office-holders are to be treated as valid. Issues Involved1. Ultra vires nature of Rule 5 of the Appellate Tribunal for Foreign Exchange Rules, 2000.2. Validity of appointments of part-time Members of the Appellate Tribunal.3. Eligibility of a part-time Member to act as Chairperson of the Appellate Tribunal.Detailed AnalysisUltra Vires Nature of Rule 5The primary issue was whether Rule 5 of the Appellate Tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other Conditions of Service of Chairperson and Members) Rules, 2000, was ultra vires the Foreign Exchange Management Act, 1999. The Rule allowed for the appointment of part-time Members, which was contested as being beyond the scope of the Act. The Act did not contemplate part-time Members, and thus, any rule introducing such a concept was inconsistent with the parent statute. The Supreme Court upheld the High Court's decision, declaring the first and second proviso to Rule 5 as ultra vires Section 21(1)(b) of the Act, as it introduced the concept of part-time Members which was not envisaged by the Act.Validity of Appointments of Part-Time MembersThe second issue was the validity of the appointments of part-time Members who did not meet the eligibility criteria stipulated in the Act. The High Court quashed the appointments of respondent Nos. 3 and 4 as part-time Members and also the appointment of respondent No. 3 as the acting Chairperson. The Supreme Court agreed with the High Court's decision, stating that the appointments were invalid as they were based on a rule that was ultra vires the Act. The Court emphasized that a rule must conform to the provisions of the statute under which it is framed and must not travel beyond the scope of the enabling Act.Eligibility of a Part-Time Member to Act as ChairpersonThe third issue involved the eligibility of a part-time Member to act as the Chairperson of the Appellate Tribunal. The High Court had quashed the appointment of a part-time Member as the acting Chairperson, which was upheld by the Supreme Court. The Court held that a disqualified Member could not hold the post of Chairperson, even as a stopgap arrangement, as it would be contrary to the spirit of the Act. The Court clarified that only qualified persons should be appointed as Members and Chairperson, in compliance with the Act.ConclusionThe Supreme Court upheld the High Court's decision declaring the relevant provisions of Rule 5 as ultra vires and quashing the appointments of the part-time Members and the acting Chairperson. The Court also clarified that judgments and orders passed by the Appellate Tribunal during the period when the unqualified Members and Chairperson were in office would not be treated as null and void, relying on precedents to ensure the larger interest of justice. The appeals were disposed of without any order as to costs.