Law struck down for violating Article 14: special bearer bonds immunity arbitrarily protected holders of unaccounted black money

SC struck down the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 and Act, 1981 as violative of Article 14, holding the statutory classification arbitrary and irrational. The immunities uniquely benefited holders who acquired bonds with unaccounted (black) money by barring disclosure, investigation and admissibility of such acquisition, and thus failed the test of reasonable classification. Having found the legislation unconstitutional under Article 14, the Court did not decide whether the Ordinance exceeded the President's power under Article 123 or whether it was a Money Bill requiring the procedure of Arts. 109-110.

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Issues Involved:
1. Constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981, and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981.
2. Violation of Article 14 of the Constitution.
3. President's power under Article 123 of the Constitution to issue the Ordinance.

Analysis:

1. Constitutional Validity of the Ordinance and the Act:
The writ petitions challenged the constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981, and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981, primarily on the grounds of violating the equality clause in Article 14 of the Constitution. The Act and the Ordinance were intended to canalize black money for productive purposes by providing certain immunities and exemptions to the holders of Special Bearer Bonds, 1991. The Act replaced the Ordinance and was brought into force retrospectively from January 12, 1981.

2. Violation of Article 14 of the Constitution:
The principal ground of challenge was that the Act and the Ordinance were violative of Article 14, which ensures equality before the law. The petitioners argued that the Act discriminated between honest taxpayers and tax-evaders by providing immunities and exemptions to those who invested black money in Special Bearer Bonds. The court examined whether the classification made by the Act was rational and had a reasonable relation to the object sought to be achieved by the legislation.

The court noted that Article 14 does not forbid reasonable classification but requires that the classification must be based on an intelligible differentia and must have a rational relation to the object of the Act. The court found that the classification made by the Act was rational and intelligible, as it aimed to unearth black money and channel it into productive uses. The immunities and exemptions were necessary to induce those holding black money to disclose it and invest it in the bonds.

3. President's Power Under Article 123:
The petitioners also argued that the President had no power under Article 123 of the Constitution to issue the Ordinance, as it effectively amended tax laws and was in the nature of a Money Bill, which could only be introduced in the House of the People. The court rejected this argument, stating that the President's legislative power under Article 123 is co-extensive with the power of Parliament to make laws. The court held that the President could issue an Ordinance amending or altering tax laws, and such an Ordinance would have the same force and effect as an Act of Parliament.

Separate Judgment by Gupta J.:
Justice Gupta dissented, holding that the Act violated Article 14 of the Constitution. He argued that the classification between honest taxpayers and tax-evaders was arbitrary and had no rational relation to the object of the Act. He emphasized that the Act provided undue benefits to tax-evaders, which was unfair to honest taxpayers. He also noted that the Act did not effectively address the problem of black money and could lead to further generation of black money.

Conclusion:
The majority judgment upheld the constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981, and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981, rejecting the challenge based on Article 14 and the President's power under Article 123. Justice Gupta, however, dissented, finding the Act violative of Article 14 due to its arbitrary classification and undue benefits to tax-evaders.

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