The Finance Bill, 2017 is being discussed in Lok Sabha today.  Generally, the Finance Bill is passed as a Money Bill since it gives effect to tax changes proposed in the Union Budget.  A Money Bill is defined in Article 110 of the Constitution as one which only contains provisions related to taxation, borrowings by the government, or expenditure from Consolidated Fund of India.  A Money Bill only needs the approval of Lok Sabha, and is sent to Rajya Sabha for its recommendations.  It is deemed to be passed by Rajya Sabha if it does not pass the Bill within 14 calendar days.

In addition to tax changes, the Finance Bill, 2017 proposes to amend several laws such the Securities Exchange Board of India Act, 1992 and the Payment and Settlements Act, 2007 to make structural changes such as creating a payments regulator and changing the composition of the Securities Appellate Tribunal.  This week, some amendments to the Finance Bill were circulated.  We discuss the provisions of the Bill, and the proposed amendments.

Certain Tribunals to be replaced

Amendments to the Finance Bill seek to replace certain Tribunals and transfer their functions to existing Tribunals.  The rationale behind replacing these Tribunals is unclear.  For example, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) will replace the Airports Economic Regulatory Authority Appellate Tribunal.  It is unclear if TDSAT, which primarily deals with issues related to telecom disputes, will have the expertise to adjudicate matters related to the pricing of airport services.  Similarly, it is unclear if the National Company Law Appellate Tribunal, which will replace the Competition Appellate Tribunal, will have the expertise to deal with matters related to anti-competitive practices.

Terms of service of Tribunal members to be determined by central government

The amendments propose that the central government may make rules to provide for the terms of service including appointments, term of office, salaries and allowances, and removal for Chairpersons and other members of Tribunals, Appellate Tribunals and other authorities.  The amendments also cap the age of retirement for Chairpersons and Vice-Chairpersons.  Currently, these terms are specified in the laws establishing these Tribunals.

One may argue that allowing the government to determine the appointment, reappointment and removal of members could affect the independent functioning of the Tribunals.  There could be conflict of interest if the government were to be a litigant before a Tribunal as well as determine the appointment of its members and presiding officers.

The Supreme Court in 2014, while examining a case related to the National Tax Tribunal, had held that Appellate Tribunals have similar powers and functions as that of High Courts, and hence matters related to their members’ appointment and reappointment must be free from executive involvement.[i]  The list of Tribunals under this amendment includes several Tribunals before which the central government could be a party to disputes, such as those related to income tax, railways, administrative matters, and the armed forces Tribunal.

Note that a Bill to establish uniform conditions of service for the chairpersons and members of some Tribunals has been pending in Parliament since 2014.

Inclusion of technical members in the Securities Appellate Tribunal 

The composition of the Securities Appellate Tribunal established under the SEBI Act is being changed by the Finance Bill.  Currently, the Tribunal consists of a Presiding Officer and two other members appointed by the central government.  This composition is to be changed to: a Presiding Officer, and a number of judicial and technical members, as notified by the central government.

Creation of a Payments Regulatory Board

Recently, the Ratan Watal Committee under the Finance Ministry had recommended creating a statutory Payments Regulatory Board to oversee the payments systems in light of increase in digital payments.  The Finance Bill, 2017 seeks to give effect to this recommendation by creating a Payments Regulatory Board chaired by the RBI Governor and including members nominated by the central government.  This Board will replace the existing Board for Regulation and Supervision of Payment and Settlement Systems.

Political funding

The Finance Bill, 2017 proposes to make changes related to how donations may be made to political parties, and maintaining the anonymity of donors.

Currently, for donations below Rs 20,000, details of donors do not have to be disclosed by political parties.  Further, there are no restrictions on the amount of cash donations that may be received by political parties from a person.  The Finance Bill has proposed to set this limit at Rs 2,000.  The Bill also introduces a new mode of donating to political parties, i.e. through electoral bonds.  These bonds will be issued by banks, which may be bought through cheque or electronic means.  The only difference between cheque payment (above Rs 20,000) and electoral bonds may be that the identity of the donor will be anonymous in the case of electoral bonds.

Regarding donations by companies to political parties, the proposed amendments to the Finance Bill remove the: (i) existing limit of contributions that a company may make to political parties which currently is 7.5% of net profit of the last three financial years, (ii) requirement of a company to disclose the name of the parties to which a contribution has been made.  In addition, the Bill also proposes that contributions to parties will have to be made only through a cheque, bank draft, electronic means, or any other instrument notified by the central government.

Aadhaar mandatory for PAN and Income Tax

Amendments to the Finance Bill, 2017 make it mandatory for every person to quote their Aadhaar number after July 1, 2017 when: (i) applying for a Permanent Account Number (PAN), or (ii) filing their Income Tax returns.  Persons who do not have an Aadhaar will be required to quote their Aadhaar enrolment number indicating that an application to obtain Aadhaar has been filed.

Every person holding a PAN on July 1, 2017 will be required to provide the authorities with his Aadhaar number by a date and in a manner notified by the central government.  Failure to provide this number would result in the PAN being invalidated.

The Finance Bill, 2017 is making structural changes to some laws.  Parliamentary committees allow for a forum for detailed scrutiny, deliberations and public consultation on proposed laws.  The opportunity to build rigour into the law-making process is lost if such legislative changes are not examined by committees

[i] Madras Bar Association vs. Union of India, Transfer Case No. 150 of 2006, Supreme Court of India, September 25, 2014 (para 89).

Parliament voted on the Demands for Grants for the Ministry of Home Affairs on May 02, 2012. During the debate, MPs expressed concern over the status of police forces in different States of the country.  They emphasised  the need to augment the capability of police forces. Though ‘Police’ and ‘Public Order’ are State subjects, the union government provides assistance to States for strengthening their forces.  For instance, the Ministry of Home Affairs has been implementing a non-plan scheme for ‘Modernization of Police Forces’ since 1969-70.  Under the scheme assistance is provided in the form of grants-in-aid towards construction of secure police stations, outposts, for purchase of vehicles, equipment etc.  (To know more about the scheme, see an earlier blog post on the issue.) At the all India level, the sanctioned strength of State Police equals 20.6 lakh personnel.  Though there exist wide variations across States, at an average this amounts to 174 police personnel per lakh population.  However, the actual ratio is much lower because of high vacancies in the police forces.  At the aggregate level, 24% positions are vacant. The table below provides data on the strength of state police forces as in Jan, 2011

State Sanctioned strength Sanctioned policemen/ lakh of population Vacancy
Andhra Pradesh 1,31,099 155 31%
Arunachal Pradesh 11,955 966 42%
Assam 62,149 200 12%
Bihar 85,939 88 27%
Chhattisgarh 50,869 207 18%
Goa 6,108 348 16%
Gujarat 87,877 151 27%
Haryana 61,307 248 28%
Himachal Pradesh 17,187 256 22%
Jammu & Kashmir 77,464 575 6%
Jharkhand 73,005 235 30%
Karnataka 91,256 155 10%
Kerala 49,394 141 7%
Madhya Pradesh 83,524 115 9%
Maharashtra 1,53,148 139 10%
Manipur 31,081 1,147 26%
Meghalaya 12,268 469 17%
Mizoram 11,246 1,112 6%
Nagaland 24,226 1,073 0%
Orissa 53,291 130 18%
Punjab 79,565 291 14%
Rajasthan 79,554 118 11%
Sikkim 5,421 886 27%
Tamil Nadu 1,20,441 178 15%
Tripura 44,310 1,224 17%
Uttar Pradesh 3,68,260 184 59%
Uttarakhand 20,775 211 24%
West Bengal 72,998 81 18%
A&N Islands 4,417 1,018 22%
Chandigarh 7,873 695 22%
D&N Haveli 325 114 13%
Daman & Diu 281 140 6%
Delhi 81,467 441 1%
Lakshadweep 349 478 36%
Puducherry 3,941 352 25%
All India 20,64,370 174 24%

Source: Lok Sabha Unstarred Question No. 90, 13th March, 2012  and Lok Sabha Unstarred Question No. 1042, March 20, 2012