NCLT Constitutionality Case: Preliminary Thoughts

The Supreme Court’s decision dated May 11, 2010 in the case of Union of India v. R. Gandhi [MANU/SC/0378/2010] is striking for at least two reasons.

In this case, the court considered the constitutional validity of the Companies (Second Amendment) Act, 2002. In its unanimous opinion authored by Justice Raveendran, the court held that the Act which created the National Company Law Tribunal and National Company Law Appellate Tribunal has unconstitutional “defects”, which are capable of being “cured” by suitable amendment (presumably a reference to the doctrine of eclipse). However, the decision is striking for at least two reasons:

First, in emphasizing the importance of the composition of the members of the tribunal, viz. the manner of their appointment, and their qualifications, this decision continues the court’s repeated emphasis on procedural due process: i.e. not on the substance of a decision, but on the manner in which a decision is reached. The decision is founded on the philosophy that creating the appropriate procedural machinery creates the appropriate setting for substantive decisions. In its emphasis on fair process, i.e. on the institutional makeup of the tribunal, this decision emphasizes procedural due process. In this sense, this decision merely continues the traditions of “fair, just and reasonable” process, emphasized most prominently since (although the emphasis did not begin with) Maneka Gandhi’s case in 1978. The court in R Gandhi’s case articulated a “right to adjudication by an independent forum”.

Second, the court emphatically held in this case that the basic structure theory could not be applied against ordinary legislation. It was argued that principles such as rule of law, separation of powers, and independence of the judiciary were violated by the Amending Act, and that the law was therefore unconstitutional. The court rejected this argument. However, it found that principles such as rule of law, separation of powers and independence of the judiciary could nonetheless be applied against legislation, since they could as easily be sourced through provisions of the constitution, notably the “essence of equality”. This case highlights very well the expansion of “equality”, a trend which began in the late 1970s. However, since the case of S.R. Bommai, this is perhaps one of the most prominent decisions where the basic structure theory has been used in an analysis not concerning constitutional amendments, although the court refuses to term its analysis as such.

Written by
Abhinav Chandrachud
Join the discussion

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  • Abhinav,
    i think that your second doubt will be cleared if you read L. Chandra Kumar (1997). In that case, a seven judge bench had held that the decisions of the Central Administrative Tribunal (CAT) could be questioned before the High Courts under Art. 227. It was held that excluding the High Courts' from the chain of litigation would dilute judicial independence and the separation of powers, both of which are considered to be part of the basic structure doctrine. In that case as well, the court was examining the validity of a statute and not a constitutional amendment.

    The larger question of whether it is counterproductive for the High Courts' to scrutinise the decisions of tribunals is of course open to debate, and the position taken in L. Chandra Kumar could well be revised when the validity of the National Tax Tribunal is considered in the near future. As you may have noted, the questions about the validity of the NTT were segregated from those about the NCLT, by way of a separate order.

  • Thanks Sidharth, this is very helpful. Of course, if I remember correctly, Chandra Kumar's case also dealt with constitutional amendments – i.e. provisions of Articles 323A and 323B. But you're right, since a provision of an ordinary statute was also invalidated in the case.

  • Abhinav,
    With respect to the second point that you have made, I would like to point out that the Court's rejection of the argument that the legislation was violative of the principles of independence of judiciary, rule of law and separation of powers which form part of the basic structure of the Constitution is nothing new. As stated in the judgment itself, this view has been taken in various earlier cases including Indira Gandhi v. Raj Narain, 1975 Supp SCC 1 and the recent Kuldeep Nayar case. In the Kuldeep Nayar case, certain amendments were made to the Representation of People's Act which permitted a person to be appointed as a member of the Rajya Sabha even though he is not domiciled in the district from where he is being appointed. This was challenged as being violative of the principle of federalism which forms part of the basic structure. However, the Court after an elaborate discussion readily rejected the argument.

    On this above position I would like to submit that it is but obvious that ordinary legislation cannot be made subject to the basic principle doctrine. The doctrine was evolved in relation to constitutional amendments as a restraining force on the amending powers of the Parliament. In my opinion, saying that it can be applied to ordinary legislation is a misnomer. An ordinary legislation will be unconstitutional only if it is contravention of any provision of the constitution. The violation of any ingredient of the basic structure will be there only if any provision of the constitution can be identified to have been contravened by the legislation. Once that is done, it becomes unconstitutional for that reason. For example, the separation of powers doctrine is present in different forms under the Indian and the US constitution. Thus, it is inadequate to merely contend that the legislation is violative of SOP. What is required is that some specific provision be identified which is contravened by the legislation.

    Moreover,the Court appears to have used the equality guarantee under Article 14 only to derive the right to have a dispute adjudicated by an independent forum. Such is right is a concomitant of rule of law, as it is understood nowadays. With all due respect, I think the principle of separation of powers in a more general sense does not, according to the Court, stem from equality.