Ordinance-making power and fiscal classification upheld for black money scheme under constitutional review

Article 123 was held to empower the President to promulgate an ordinance amending tax law when Parliament was not in session, and that power was not excluded merely because the subject involved taxation or a Money Bill procedure. The Special Bearer Bonds scheme was also upheld under Article 14: the majority treated it as economic legislation aimed at canalising black money, found an intelligible differentia with a rational nexus to that object, and deferred to legislative judgment in fiscal policy. A dissent considered the scheme discriminatory against honest taxpayers and invalid. The constitutional challenge therefore failed and the legislation was sustained.

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Issues: (i) Whether the President had power under Article 123 of the Constitution of India to promulgate an ordinance amending tax laws and whether the ordinance-making power could be exercised notwithstanding the special procedure for Money Bills; (ii) Whether the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 violated Article 14 of the Constitution of India by creating an arbitrary and irrational classification in favour of holders of black money.

Issue (i): Whether the President had power under Article 123 of the Constitution of India to promulgate an ordinance amending tax laws and whether the ordinance-making power could be exercised notwithstanding the special procedure for Money Bills.

Analysis: Article 123 confers legislative power on the President when both Houses are not in session, the ordinance having the same force and effect as an Act of Parliament, subject to constitutional limits. The Court held that this power is co-extensive with Parliament's legislative competence and is not excluded merely because the subject relates to taxation or could be dealt with as a Money Bill. The retrospective replacement of the Ordinance by the Act and the deeming provision meant that the validity of actions taken under the Ordinance had to be judged by reference to the Act.

Conclusion: The ordinance-making power under Article 123 extended to the subject in question and the challenge on that ground failed.

Issue (ii): Whether the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 violated Article 14 of the Constitution of India by creating an arbitrary and irrational classification in favour of holders of black money.

Analysis: The majority treated the legislation as economic legislation aimed at canalising black money for productive purposes and applied the settled test of permissible classification: intelligible differentia and rational nexus with the object of the law. It held that the Act practically operated only on persons possessing black money, because the immunities and disabilities built into sections 3 and 4 were designed to induce disclosure and investment of unaccounted money and to prevent abuse. In the majority's view, the classification was real, intelligible and related to the legislative objective, and the Court accorded deference to legislative judgment in a complex fiscal policy matter.

Conclusion: The legislation did not violate Article 14 and was upheld as constitutionally valid.

Final Conclusion: The constitutional challenge failed and the writ petitions stood dismissed, with the impugned ordinance and Act sustained as valid fiscal legislation.

Dissenting Opinion: Gupta J. held that the Act created an impermissible discrimination between tax-evaders and honest taxpayers. In his view, the benefits conferred by the scheme had no rational nexus with the object of canalising black money, and the law rewarded dishonesty in a manner inconsistent with Article 14. He would have allowed the writ petitions and declared the Ordinance and the Act invalid.

Ratio Decidendi: A fiscal or economic statute will satisfy Article 14 if it is founded on an intelligible differentia having a rational relation to the legislative object; in matters of economic policy, the Court will ordinarily defer to legislative judgment unless the classification is arbitrary.

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