A Supreme Court judgement that could impact the US Fed's independence

Can Trump fire US Federal Reserve Chairman, Jerome Powell? Trump's statement that Powell's "termination can't come fast enough" has fuelled fresh speculation about the possible fate of the Fed Chair.

There is a case before the US Supreme Court that could conceivably have some bearing on the Fed Chair's position, according to some legal experts. See this report in FT and this one from Bloomberg. Here is a brief summary of the issues.

In 1933, President Franklin Roosevelt fired William Humphrey, head of the Federal Trade Commission, for opposing New Deal policies. After he died, Humphrey's Executor pursued the case in order to recoup wages. The Supreme Court ruled that Roosevelt had fired Humprhey without "cause". That phrase has been interpreted to mean inefficiency, neglect or malfeasance.  Himphrey's Executor has come to be seen as a landmark ruling. 

If the US Fed Chair differs from the President on a matter of policy, say, cutting interest rates, can that qualify as inefficiency, neglect or malfeasance? Well, it doesn't sound like it does but a President might contend that the Chair is seriously hurting the economy through gross incompetence .... and then what happens? We are in uncharted waters.

That brings us to the case now before the US Supreme Court. In January, President Trump fired two ladies, the heads of two independent agencies, the National Labor Relations Board and the Merit Systems Protection Board. The two heads moved the courts that ordered their reinstatement. The US government went on appeal to the US Federal Court of Appeals which upheld the orders of the courts. The government then moved the Supreme Court. In early April, the SC Chief Justice John Roberts issued orders asking the two ladies not to attend office until the SC ruled in the case. A ruling is expected in the coming days.

There are some who argue that the law only talks about Governors of the Fed, it doesn't say anything about the Chairman. Some legal scholars argue that the President can remove Powell as Chairman but leave him on the board as Governor- a demotion of sorts!

There are others who say that the Fed cannot be compared with other independent agencies. A ruling that favours the Trump administration in the present case cannot,therefore, be used to remove the Fed Chair. There is some support for this view in a 7-2 ruling last year in favour of the head of the Consumer Protection Bureau.Even the dissenting judges said at the time that the Fed was a unique institution that would merit different treatment.

Fed Chair Jerome Powell himself has opined that any SC ruling relating to the case that involves the two lady heads of agencies would not apply to the Fed.

What if President Trump, nevertheless, removes Powell and the case goes to the Supreme Court? Remember that, in a recent case that involved the US government's illegal deportation of a citizen, the government has said it cannot do anything to bring back the citizen....

India must fight Vodafone arbitration award

 There is jubilation in many circles over the award at the Permanent Court of Arbitration at the Hague going against India in the matter of the retrospective tax demand of Rs 22,100 crore made by India on Vodafone.

We asked for it, many seem to be saying.  Amending the law retrospectively to deal with the Supreme Court judgement, as the UPA government did, was wrong. Retrospective amendment of laws gave a jolt to foreign investors and is bad in principle.The Modi government must now accept the arbitration award: that would send the right signals to international investors.

Rubbish! As senior lawyer Biswajit Bhattacharya argues in BS today, the SC judgement was wrong, the retrospective amendment was right and India's tax demand on Vodafone is appropriate. 

The issue is capital gains on assets located in India. If the assets are transferred between parties located outside, are capital gains on such assets taxable or not? Bhattacharya points out that if the SC judgement were to be accepted, any two individuals could avoid tax by transferring assets located in India between themselves simply by acquiring non-resident status!

Bhattacharya also raises an important question about how Vodafone approached the matter of acquiring the telecom assets:   

The SC’s ruling that India’s tax authorities had no territorial jurisdiction over this transaction leaves several questions unanswered, given that Vodafone approached the FIPB in India before the transaction. Why did Vodafone await FIPB’s approval before remitting funds from Cayman Islands to Hong Kong if India had no territorial jurisdiction? The Central Board of Direct Taxes (CBDT) is also located in the same North Block where the FIPB office was. How could CBDT, and through CBDT the tax authorities, then not exercise territorial jurisdiction, if the FIPB could?

Bhattacharya also dismisses the contention that retrospective amendment of laws is an evil that governments must avoid:

Critical comments about retrospective amendment are misplaced. It is a settled law that Parliament can legislate prospectively as well as retrospectively, even in fiscal statutes. Many such amendments have been carried out before. Retrospective amendment to FCRA (Foreign Contribution Regulation Act) was carried out by Parliament only to bail out the Bharatiya Janata Party and the Congress, to nullify a judgment of Delhi High Court, which held both political parties guilty of violating the FCRA norms. Why this hue and cry only for Vodafone?

The so-called impact on foreign investor sentiment is bunkum. In the decade since the initial High Court judgement favouring the government, FDI and FII flows have kept rising. It's not as if the retrospective amendment has had foreign investors running away from India.

Bhattacharya seems to suggest that the government was wrong to accept international arbitration. One option appears to be to go on appeal in Singapore. It's for legal experts to suggest other options.

However, we need to be clear that if we are to retain respect as a sovereign nation, the retrospective amendment to the law done by Parliament must be upheld. It's worth recalling that the late Justice JS Verma  had said of the Vodafone judgement that it is one of three judgements "which are best forgotten or allowed to pass" (the other two being the Habeas Corpus case judgement during the emergency and the judgement in the JMM bribery case).  

See also the hard-hitting interview with academic Surajit Mazumdar. 

Last minute justice

There has been comment on the recently retired Chief Justice of the Supreme Court Altamas Kabir's delivering judgement on the NEET, the common entrance test for medical colleges, on his last day in office. The eminent lawyer, Raju Ramachandran, writes in the Hindu that this is by no means novel. There are several instances of judgements being delivered on the last day or close to the retirement of a judge.

The issue is not somebody delivering judgement on the last day or close to the date of retirement. When a judge takes up a case or is part of a bench that admits a case, he has no means of knowing when the case will conclude. The actual writing of the judgement, one would imagine, takes a few days and, therefore, the fact that a judgement is delivered on the last day need not detract from its merits.

The key issue, as Ramachandran points out, is whether judges have had adequate time to share views with each other. A judgement delivered on the last day of a judge's tenure would not be a problem if it has been preceded by adequate consultations amongst judges on a bench. That this does not happen very often is the real cause of concern. Ramachandran cites examples:

Kesavananda Bharati (1973) is the most celebrated case in Indian constitutional law. It is the majority opinion in this case which laid down the basic structure doctrine (that the power of Parliament to amend the Constitution did not extend to destroying its essential features). In his judgment, Justice Chandrachud (a ‘minority’ judge) wrote that the impending retirement of Chief Justice Sikri did not leave enough time after the conclusion of arguments for an exchange of draft judgments. Of the 13 judges who constituted the bench, he said that he had the benefit of fully knowing the views of only four of them.

.....Many years later, a nine judge Bench of the Supreme Court decided by a majority that primacy in the matter of appointments to the superior judiciary vests with the Judiciary and not the Executive (Supreme Court Advocates on Record Association, 1993). M.M. Punchhi, a dissenting judge, wrote in his judgment that he had hoped that some “meaningful meetings” would be held, so that the court could strive to reach a unanimous decision. He complained that he was “overtaken” when he received the draft opinion of Justice J.S. Verma for himself and on behalf of four others.

Ramachandran proposes some remedies. One, a permanent Constitution bench whose  composition would remain fixed for a full court term. Another is that, from about three months before their terms are ending, judges should stay away from "heavy" cases. Perhaps, one could also have a disclosure requirement for judgements delivered by a bench: the presiding judge must disclose whether the judgement has been preceded by exchange of views or consultations amongst the judges.

Judicial Accountability Bill

I was somehow under the impression that the proposed Judicial Standards and Accountability Bill would provide the necessary correctives to wrongdoing in the judiciary. I stand corrected after reading Pavan Varma's article in TOI recently. Varma highlights several infirmities in the proposed legislation:

First, the Oversight Committee proposed by it has no real powers except to pass on a complaint to another layer, namely the Complaints Scrutiny Panel. This scrutiny panel is to consist of three members, two of whom will be sitting judges of the same court as the judges against whom the complaints have been made, clearly an unfair and unworkable proposition.

Second, the composition or the modalities of the investigation team is undefined. Thirdly, the penalties are merely in the form of advisories or warnings or, at best, a recommendation of removal to the president. Fourthly, the Oversight Committee consists of the Attorney General (how can someone who regularly appears before judges, including possibly the one being investigated, take an objective stance on the accusations made). Fifthly, the Bill has no mention of a vital area of reform, viz, the procedure for the appointment of judges. Sixthly, the entire lower judiciary is kept out of the ambit of the Bill. And seventhly, the Bill evokes an atmosphere of total secrecy to proceedings, going so far as to exclude the operation of even the RTI.

There is, of course, the separate issue of appointment of judges. On this, a consensus seems to be emerging within the government and parliament that the matter cannot be left entirely to judges- nowhere in the world do judges appoint themselves.

Indian judiciary's finest hour

More than one newspaper has thought fit to recall, on its fortieth anniversary, the historic Kesavananda Bharati judgement delivered by the honourable Supreme Court. An article in the Hindu gives the background:

The Kesavananda Bharati case was the culmination of a serious conflict between the judiciary and the government, then headed by Mrs Indira Gandhi. In 1967, the Supreme Court took an extreme view, in the Golak Nath case, that Parliament could not amend or alter any fundamental right. Two years later, Indira Gandhi nationalised 14 major banks and the paltry compensation was made payable in bonds that matured after 10 years! This was struck down by the Supreme Court, although it upheld the right of Parliament to nationalise banks and other industries. A year later, in 1970, Mrs Gandhi abolished the Privy Purses. This was a constitutional betrayal of the solemn assurance given by Sardar Patel to all the erstwhile rulers. This was also struck down by the Supreme Court. Ironically, the abolition of the Privy Purses was challenged by the late Madhavrao Scindia, who later joined the Congress Party.

Smarting under three successive adverse rulings, which had all been argued by N.A. Palkhivala, Indira Gandhi was determined to cut the Supreme Court and the High Courts to size and she introduced a series of constitutional amendments that nullified the Golak Nath, Bank Nationalisation and Privy Purses judgments. In a nutshell, these amendments gave Parliament uncontrolled power to alter or even abolish any fundamental right.

The judgement in the Kesavananda Bharati case put the brakes on the amendment spree that parliament had embarked on . The Court ruled, by a narrow 7-5 verdict,  that parliament's amending power was limited by the "basic structure" the constitution. Different judges articulated what they meant by the "basic structure". However, in the very nature of things, this cannot be exhaustively defined. It is left to the Supreme Court to judge whether, in a given instance, the "basic structure" is disturbed.

As several legal experts have noted, there is, in the Constitution, no explicit bar on parliament's amending power: Article 368, which deals with parliaments' powers on this subject, does not impose any limitation. What, then, is the rationale for imposing a limitation? As I recall, the essence of the argument is that parliament itself is a creature of the Constitution and hence subordinate to it. Parliament cannot, therefore, act in ways that erode or undermine the "basic structure" of the Constitution.

Despite this judgement, the Supreme Court, during the emergency, did not strike down the suspension of the right to habeas corpus, which many would regard as fundamental to basic liberties of the citizen. It required a Constitutional amendment by parliament later to ensure that this right is not taken away during an emergency. One shudders to think of what might have been had the "basic structure" doctrine not been propounded by the Supreme Court. The author of the Hindu article is right in saying that this judgement saved Indian democracy.

CJI not exempt from RTI

A three member bench of the Central Information Commission has ruled that the Chief Justice of India is not exempt from the purview of RTI, TOI reports.

An RTI activist has asked to know whether SC judges had been regularly declaring their assets to the CJI since 1997, as rquired by an apex bench resolution at that time. The SC had taken the position that the information was not with the registry but with the CJI's office and the CJI himself was exempt from RTI, hence the information could not be provided. The CIC has rejected this contention as well. It has ruled:

“If any information is available with one section of the department, it shall be deemed to available with the public authority as one single entity.”

This is a valuable ruling indeed because no government institution can now withhold information on the ground that the particular department or official from which information is sought does not have keep the information- if information is available anywhere within the institution, it has to be provided.

Significantly, the application to the SC had not sought copies of declarations of the assets themselves. This is a more thorny issue. On this, TOI reports, the CJI has taken the position that this is information obtained by the CJI in a "fiduciary relationship" and that it was "personal information", hence details of judges' assets need not be made available to the public.

Accountability of the judiciary

How to make the judiciary accountable is undoubtedly one of the most important questions in governance today. Whether it is the media or the IIMs or the medical fraternity or the judiciary, one key principle should be upheld: self-regulation is simply not the answer. The merchant bankers used to say the same thing: leave it to us, we will set standards. Stock exchanges used to say that. Accountants in the US claimed it worked for them. Every body of professionals would rather not have somebody from outside looking closely into what they are upto. Sorry, this cannot be permitted.

In an article in EPW, Prashant Bhushan lays out the case for judicial accountability. Today, the only recourse against an errant judge is the process of impeachment. To initiate this requires the signature of 50 MPs. For this, in turn, to happen, there must be conclusive evidence against a judge; and the evidence must be published so that it assumes the proportions of a scandal. But because the media is afraid of publicising charges against a judge and politicians do not wish to invite the wrath of the judiciary, these conditions are almost impossible to satisfy. Bhushan adds that it is virtually impossible to register an FIR against a sitting judge because, under a 1991 Supreme Court judgement, no judge can be prosecuted without the written consent of the CJI.


On top of this, Bhushant points out, courts have been trying to insulate themselves from the Right to Information Act. The application fee in many courts is Rs 500 instead of the Rs 10 that is normally required. Many courts have framed rules that prohibit the disclosure of information on administrative and financial matters. They have done this in the knowledge that any petition that challenges these rules will have to come up before the judges themselves!

The response to the rising clamour for accountability is the Judges Inquiry Act Amendment Bill 2006 under which an in-house procedure will be created for taking cognisance of charges against errant judges. Bhushan argues this won't work because it requires complainants to disclose the source of information for charges and it also provides for action against complaints that the judges believe are mala fide.

Bhushan argues in favour of a National Judicial Commission. The chairman will be selected by the judges of the Supreme Court. Other members will be selected by each of several groups: judges of high courts; the cabinet; a committee comprising the speaker of the Lok Sabha and the leaders of the Opposition in the two houses of parliament; and a fifth member selected by the chairman of the National Human Rights Commission, the CVC and the CAG.

Mid-day contempt of court case

Mid-Day's three journalists and one publisher have been sentenced to four months in jail by the Delhi High Court for contempt of court. They were sentenced in the case relating to the reports the daily had carried about Y K Sabharwal, former Chief Justice of the Supreme Court, and the Delhi sealing drive. The Delhi High Court had taken suo moto cognizance of the Mid-Day stories.
The media is understandably incensed. It believes that this is an attempt on the part of the judiciary to shield itself from scrutiny and accountability. Senior journalists have said that the Delhi High Court should have gone into the veracity of the allegations made by Mid-Day against the former CJ. This view has been echoed by some eminent lawyers- TOI quoted Prasant Bhushan as saying that the judgement was an "attempt to muzzle the media".

The SC will now decide on the contempt issue. It is important, however, not to miss the nuances to the Delhi HC ruling, whatever opinion one may have about the actions of former CJ Y K Sabharwal. I caught some of the nuances only in one report, that in the TOI of September 22.

The Delhi HC was not pronouncing on the merits of the Mid-Day story. The HC bench headed by Justice R S Sodhi is quoted in TOI as saying:

"The nature of the revelations and the context in which they appear, though purporting to single out former Chief Justice of India, tarnishes the image of the Supreme Court."

How so? Because "by imputing motive to its presiding member, (it) automatically sends a signal that the other members were dummies or were party to fulfil the ulterior design (of Justice Sabharwal)." Besides, Soli Sorabjee, among others, has expressed the view that the cartoon carried by the paper was contemptuous.

In other words, the report had the effect of casting asperions on the SC as a collective, hence the veracity of the report was irrelevant to the issue of contempt of court.

Ordinary people may find it difficult to digest such nuances but those with a nodding acquaintance with the law will know that technicalities such as these can have a crucial bearing on the outcome of a case.

The question then arises: how does a paper report on the actions of a judge or former judge that raise doubts in the minds of the public without in any way appearing to cast aspersions on the Court as a whole? Does it merely highlight the actions of a judge without in any way questioning a given judgement, especially where other judges are involved?

In other words, is there a proper way of reporting such matters in the public interest without inviting action under contempt of court? One hopes that the SC ruling in the matter will shed light on this subject so that the ground rules for media reporting in such matters are clear to all concerned.

Making the judiciary accountable

Magsaysay winner Arvind Kejriwal has a hard-hitting piece in today's TOI on the absence of accountability in the Indian judiciary.

It was news to me that the Delhi High Court had initiated contempt proceedings against Mid Day journalists for publishing a story questioning the acts of former chief justice of India (CJI) Y K Sabharwal. Kejriwal is highly critical of this move:

If the inquiry concludes that Mid Day journalists were wrong, they could be proceeded against. But by gagging the media, the Delhi high court is only lending credence to the allegations against Justice Sabharwal. The Delhi high court in its judgment against Mid Day journalists said that they were guilty of lowering the dignity of Supreme Court in the eyes of the public. If the voice of the media were to be gagged, the dignity of the Supreme Court would be lowered for ever.

Exposure of corruption in any institution might seem to lower it in the eyes of the people but in the long run strengthens the institution by allowing it to take corrective action. Suppressing exposure increases suspicion and indeed the people's 'contempt' for such institutions. Complete transparency and honest efforts to bring truth out in the public domain enhance the dignity of individuals and institutions.

Kejriwal makes the point that the Campaign for Judicial Accountability called a press conference in New Delhi and "released more damaging facts against Justice Sabharwal than what appeared in Mid Day." Justices JS Verma and V R Krishna Iyer, both former Supreme Court judges, called for an independent enquiry. Why then single out Mid Day journalists for contempt proceedings, Kejriwal asks.

Kejriwal then makes the case for greater accountability in the judiciary:

The judiciary lacks accountability. One needs the CJI's permission to file an FIR against a judge, which effectively rules out an FIR. One cannot publicly discuss the conduct of judges for fear of contempt. No agency has the powers to enquire into charges against them. Of late, the judiciary has expressed its desire to be kept out of RTI.

Contempt powers of the court should be subject to scrutiny. We have a right to hold the courts accountable. If there is a prima facie case of wrongdoing against any judge, it ought to be inquired into through a fast and effective mechanism. It is time that we asserted our right to discuss the conduct of judges and courts, the way we discuss that of any other democratic institution. Only then would the dignity of the courts rise in the eyes of the people.

Defining the 'basic structure' of the Constitution

'Judicial overreach' has become a vexed issue for the political class and even those outside it will agree that the judiciary sometimes goes overboard in its activism. More than anything else, the Supreme court's ruling in 2007 ( IR Coelho vs state of Tamil Nadu) has the potential to create big waves on this subject.

In that case, the SC ruled that the power of judicial review extends to the Ninth Schedule of the Indian constitution. Under the Constitution, as amended in 1951, legislations inserted into the Ninth Schedule cannot be challenged on the ground that they violate the fundamental rights of the Constitution. In the 2007 ruling, however, the SC pronounced that it had the power to review legislations in the Ninth Schedule if they violated the 'basic structure' of the Constitution. The doctrine of 'basic structure' was propounded by the SC in the now famous Kesavananda Bharati case in 1973.

In the EPW (August 4-10), Madhav Khosla notes that following the ruling in the Coelho case in 2007, it is now open to the SC subject all legislations incorporated into the Ninth Schedule post April 24, 1973 to judicial review. One immediate implication, as others have pointed out, that the provision of quotas upto 69% in Tamil Nadu can now be challenged.

Khosla believes that, given the record of judicial activism in the recent past, such 'unbridled power of judicial review' is not desirable. He suggests that the SC clearly define what it means by 'basic structure' instead of preferring to apply the test of 'basic structure' on a case by case basis.

I am no legal expert but I doubt that it is possible or desirable for the SC to define the 'basic structure' to encompass all possibilities. Situations could arise that are incompatible with the spirit of 'basic structure' but that had not been taken into account in any definition. It is far more preferable for the courts to exercise judicial restraint and, of course, to push ahead with proposals to usher in greater accountability in the judiciary in general.