MANU/SC/0074/1981

Equivalent/Neutral Citation: AIR1981SC 2138, (1981)25C TR(SC )406, [1982]133ITR239(SC ), 1981(3)SC ALE1743, (1981)4SC C 675,
[1981]1SC R947, 1982(14)UJ12

IN THE SUPREME COURT OF INDIA

JUDGMENT
P.N. Bhagwati, J.
1 . These writ petitions raise a common question of law relating to the constitutional
validity of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981
(hereinafter referred to as the Ordinance) and the Special Bearer Bonds (Immunities
and Exemptions) Act 1981 (hereinafter referred to as the Act). The principal ground on
which the constitutional validity of the Ordinance and the Act is challenged is that they
are violative of the equality clause contained in Article 14 of the Constitution. There is
also one other ground on which the Ordinance is assailed as constitutionally invalid and
it is that the President had no power under Article 123 of the Constitution to issue the
Ordinance and the Ordinance is therefore ultra vires and void. We shall first deal with
the latter ground since it can be disposed of briefly, but before we do so, it would be
convenient to refer to the relevant provisions of the Act. It is not necessary to make any
specific reference to the provisions of the Ordinance since the provisions of the Act are
substantially a reproduction of the provisions of the Ordinance.
2. On 12th January 1981, both Houses of Parliament not being in session, the President
issued the Ordinance in exercise of the power conferred upon him under Article 123 of
the Constitution. The Ordinance was later replaced by the Act which received the assent
of the President on 27th March 1981, but which was brought into force with
retrospective effect from 12th January 1981 being the date of promulgation of the
Ordinance. The Act is a brief piece of legislation with only a few sections but the
ascertainment of their true meaning and legal effect has given rise to considerable
controversy between the parties and hence it is necessary to examine the provisions of
the Act in some detail. The long title of the Act describes it as an Act "to provide for
certain immunities to holders of Special Bearer Bonds 1991 and for certain exemptions
from direct taxes in relation to such Bonds and for matters connected therewith" and the
provisions enacted in the Act are preceded by a Preamble which indicates the object and
purpose of the Act in the following words:
Whereas for effective economic and social planning it is necessary to canalise
for productive purposes black money which has become a serious threat to the
22-01-2025 (Page 1 of 28) www.manupatra.com Dr. B.R. Ambedkar National Law University,
 national economy;
And whereas with a view to such canalisation the Central Government has
decided to issue at par certain bearer bonds to be known as the Special Bearer
Bonds, 1991, of the face value of ten thousand rupees and redemption value,
after ten years, of twelve thousand rupees;
And whereas it is expedient to provide for certain immunities and exemptions to
render it possible for persons in possession of black money to invest the same
in the said Bonds;
Sections 3 and 4 are extremely material since on their true interpretation depends to a
large extent the determination of the question relating to the constitutional validity of
the Act and they may be reproduced as follows:
3. (1) Notwithstanding anything contained in any other law for the time being
in force:
(a) no person who has subscribed to or has otherwise acquired Special
Bearer Bonds shall be required to disclose, for any purpose
whatsoever, the nature and source of acquisition of such Bonds;
(b) no inquiry or investigation shall be commenced against any person
under any such law on the ground that such person has subscribed to
or has otherwise acquired Special Bearer Bonds; and
(c) the fact that a person has subscribed to or has otherwise acquired
Special Bearer Bonds shall not be taken into account and shall be
inadmissible as evidence in any proceedings relating to any offence or
the imposition of any penalty under any such law.
(2) Nothing in Sub-section (1) shall apply in relation to prosecution for any
offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code,
the Prevention of Corruption Act, 1947 or any offence which is punishable
under any other law and which is similar to an offence punishable under either
of those Chapters or under that Act or for the purpose of enforcement of any
civil liability.
Explanation: For the purposes of this sub-section "civil liability" does not
include liability by way of tax under any law for the time being in force.
4 . Without prejudice to the generality of the provisions of Section 3, the subscription
to, or acquisition of, Special Bearer Bonds by any person shall not be taken into account
for the purpose of. any proceedings under the Income-tax Act, 1961 (hereinafter
referred to as the Income-tax Act), the Wealth-tax Act 1957 (hereinafter referred to as
the Wealth-tax Act), or the Gift-tax Act, 1958 (hereinafter referred to as the Gift-tax
Act) and, in particular, no person who has subscribed to, or has otherwise acquired, the
said Bonds shall be entitled-
(a) to claim any set-off or relief in any assessment, reassessment appeal,
reference or other proceeding under the Income-lax Act or to reopen any
assessment or reassessment made under that Act on the ground that he has
subscribed to or has otherwise acquired the said Bonds;
(b) to claim, in relation to any period before the date of maturity of the said
22-01-2025 (Page 2 of 28) www.manupatra.com Dr. B.R. Ambedkar National Law University,
 Bonds, that any asset which is includible in his net wealth for any assessment
year under the Wealth-tax Act has been converted into the said Bonds; or
(c) to claim, in relation to any period before the date of maturity of the said
Bonds, that any asset held by him or any sum credited in his books of account
or otherwise held by him represents the consideration received by him for the
transfer of the said Bonds.
We shall analyse the provisions of these two sections when we deal with the arguments
advanced on behalf of the parties and that will largely decide the fate of the challenge
against the constitutional validity of the Act, but in the meanwhile we may proceed to
summarise the remaining provisions of the Act. Section 5 amends the Income-tax Act
1961 by providing that the definition of "capital asset" in Section 2 Clause (14) shall
not include that Special Bearer Bonds issued under the Act so that any profit arising on
sale of the Special Bearer Bonds would not be liable to capital gains tax and it also
excludes from the computation of the total income of the assessee, premium on
redemption of the Special Bearer Bonds by introducing a new sub-clause in Section 10
Clause (15). Section 5 Sub-section (1) of the Wealth Tax Act 1957 is also amended by
Section 6 so as to exclude the Special Bearer Bonds from the net wealth of the assessee
liable to wealth tax. Section 7, by amending Section 5 Sub-section (1) of the Gift-tax
Act 1958 exempts gifts of Special Bearer Bonds from the incidence of gift tax. Section 8
confers powers on the Central Government to make order removing any difficulty which
may arise in giving effect to the provisions of the Act and Section 9 Sub-section (1)
repeals the Ordinance, but since the Act is brought into force with effect from the date
of promulgation of the Ordinance, Sub-section (2) of Section 9 provides that
notwithstanding the repeal of the Ordinance, anything done or any action taken under
the Ordinance shall be deemed to have been done or taken under the corresponding
provisions of the Act.
5. Having set out the provision of the Act-and be it noted again that the provisions of
the Ordinance were substantially in the same terms as the provisions of the Act-we may
now proceed to consider the challenge against the constitutional validity of the
Ordinance on the ground that the President had no power to issue the Ordinance under
Article 123 of the Constitution. There were two limbs of the argument under this head
of challenge; one was that since the Ordinance had the effect of amending the tax laws,
it was outside the competence of the President under Article 123 and the other was that
the subject matter of the Ordinance was in the nature of a Money Bill which could be
introduced only in the House of the People and passed according to the procedure
provided in Articles 109 and 110 and the President had therefore no power under Article
123 to issue the Ordinance by-passing the special procedure provided in Articles 109
and 110 for the passing of a Money Bill. There is, as we shall presently point out, no
force in either of these two contentions, but we may point out straightaway that both
these contentions are academic, since the Act has been brought into force with effect
from the date of promulgation of the Ordinance and Sub-section (2) of Section 9
provides that anything done or any action taken under the Ordinance shall be deemed to
have been done or taken under the corresponding provisions of the Act and the validity
of anything done or any action taken under the Ordinance is therefore required to be
judged not with reference to the Ordinance under which it was done or taken, but with
reference to the Act which was, by reason of its retrospective enactment, in force right
from the date of promulgation of the Ordinance and under which the thing or action was
deemed to have been done or taken. It is in these circumstances wholly unnecessary to
consider the constitutional validity of the Ordinance, because even if the Ordinance be
unconstitutional, the validity of anything done or any action taken under the Ordinance,
22-01-2025 (Page 3 of 28) www.manupatra.com Dr. B.R. Ambedkar National Law University,
could still be justified with reference to the provisions of the Act. This would seem to be
clear on first principle as a matter of pure construction and no authority is needed in
support of it, but if any were needed, it may be found in the decision of this Court in
Gujarat Pottery Works v. B.P. Sood, Controller of Mining Leases for India and Ors. There
the question was whether the Mining Leases (Modification of Terms) Rules, 1956
(hereinafter referred to as the 1956 Rules) made under Mines and Minerals (Regulation
and Development) Act, 1948 (referred to shortly as 1948 Act) were void as being
inconsistent with the provisions of the 1948 Act and if they were void, they could be
said to be continued by reason of Section 29 of the Mines and Minerals (Regulation and
Development) Act, 1957 (hereinafter called the 1957 Act). This Court sitting in a
Constitution Bench held that the 1956 Rules were not inconsistent with the provisions of
the 1948 Act and were therefore valid, but proceeded to observe that even if the 1956
rules were void as being inconsistent with the provisions of the 1949 Act, they must by
reason of Section 29 of the 1957 Act be deemed to have been made under that Act and
their validity and continuity must therefore be determined with reference to the
provisions of the 1957 Act and not the provisions of the 1948 Act and since there was
no inconsistency between the 1956 Rules and the provisions of the 1957 Act, the 1956
Rules could not be faulted as being outside the power of the Central Government.
Raghubar Dayal, J. speaking on behalf of the Court articulated the reason for taking this
view in the following words:
Even if the rules were not consistent with the provisions of the 1948 Act and
were therefore void, we do not agree that they could not have continued after
the enforcement of the 1957 Act. Section 29 reads:
All rules made or purporting to have been made under the Mines and
Minerals (Regulation and Development) Act, 1948, shall, in so far as
they relate to matters for which provision is made in this Act and are
not inconsistent therewith, be deemed to have been made under this
Act as if this Act had been in force on the date on which such rules
were made and shall continue in force unless and until they are
superseded by any rules made under this Act.'
The effect of this section is that the rules which were made or purported to
have been made under the 1948 Act in respect of matters for which rules could
be made under the 1957 Act would be deemed to have been made under the
1957 Act as if that Act had been in force on the date on which such rules were
made and would continue in force. The Act of 1957 in a way is deemed to have
been in force when the modification rules were framed in 1956. The 1956 rules
would be deemed to be framed under the 1957 Act and therefore their validity
and continuity depends on the provisions of the 1957 Act and not of the 1948
Act.
In this connection we may refer to the case reported as Abdul Majid v. P.R.
Nayak MANU/MH/0135/1951 : AIR1951Bom440 In that case Section58 of Act
XXXI of 1950 repealed Ordinance No. XXVII of 1949 and provided as follows:
The repeal by this Act by the Administration of Evacuee Property
Ordinance 1949 (XXVII of 1949) shall not affect the previous operation
thereof, and subject thereto, anything done or any action taken in the
exercise of any power conferred by or under that Ordinance shall be
deemed to have been done or taken in the exercise of the powers
conferred by or under this Act, as if this Act were in force on the day

22-01-2025 (Page 4 of 28) www.manupatra.com Dr. B.R. Ambedkar National Law University,
 on which such thing was done or action was taken.' Section 58 was
construed thus:
The language used in Section 58 is both striking and significant. It
does not merely provide that the orders passed under the ordinance
shall be deemed to be order passed under the Act, but it provides that
the orders passed under the Ordinance shall be deemed to be orders
under this Act as if this Act were in force on the day on which certain
things were done or action taken. Therefore the object of this section
is, as it were, to antedate this Act so as to bring it into force on the day
on which a particular order was passed which is being challenged. In
other words, the validity of an order is to be judged not with reference
to the Ordinance under which it was passed, but with reference to the
Act subsequently passed by Parliament.
The rules have not been challenged to be ultra vires the 1957 Act in the instant
case.
The same process of reasoning which appealed to this Court in upholding the validity of
the 1956 Rules must apply equally in the present case and the validity of anything done
or any action taken under the Ordinance must be judged with reference to the
provisions of the Act and not of the Ordinance. It would therefore be academic for us to
consider whether the Ordinance was within the ordinance-making power of the
President under Article 123 and ordinarily we would have resisted the temptation of
pronouncing on this issue because it is a self-restraining rule of prudence adopted by
this Court that "the court will not formulate a rule of constitutional law broader than is
required by the precise facts to which it is to be applied." But since considerable
argument was advanced before us in regard to this issue we do not think it would be
right on our part to refuse to express our view upon it.
6 . The Ordinance was issued by the President under Article 123 which is the solitary
Article in chapter III headed "Legislative Powers of the President." This Article provides
inter-alia as follows:
123 (1) If at any time, except when both Houses of Parliament are in session,
the President is satisfied that circumstances exist which render it necessary for
him to take immediate action, he may promulgate such Ordinances as the
circumstances appear to him to require.
(2) An Ordinance promulgated under this article shall have the same force and
effect as an Act of Parliament, but every such Ordinance:
(a) shall be laid before both Houses of Parliament and shall cease to
operate at the expiration of six weeks from the reassembly of
Parliament, or, if before the expiration of that period resolutions
disapproving it are passed by both Houses, upon the passing of the
second of those resolutions: and
(b) may be withdrawn at any time by the President.
(3) If and so far as an Ordinance under this article makes any provision which
Parliament would not under this Constitution be competent to enact, it shall be
void.

22-01-2025 (Page 5 of 28) www.manupatra.com Dr. B.R. Ambedkar National Law University,
It will be noticed that under this Article legislature power is conferred on the President
exercisable when both Houses of Parliament are not in session. It is possible that when
neither House of Parliament is in session, a situation may be arise which needs to be
dealt with immediately and for which there is no adequate provision in the existing law
and emergent legislation may be necessary to enable the executive to cope with the
situation. What is to be done and how is the problem to be solved in such a case ? Both
Houses of Parliament being in recess, no legislation can be immediately undertaken and
if the legislation is postponed until the House of Parliament meet damage may be
caused to public weal. Article 123 therefore confers powers on the President to
promulgate a law by issuing an Ordinance to enable the executive to deal with the
emergent situation which might well include a situation created by a law being declared
void by a Court of law. "Grave public inconvenience would be caused", points out Mr.
Seervai in his famous book on Constitutional Law, if on a statute like the Sales-tax Act
being declared void, "no machinery existed whereby a valid law could be promulgated
to take the place of the law declared void". The President is thus given legislative power
to issue an Ordinance and since under our constitutional scheme as authoritatively
expounded by this Court in Shamsher and Anr. v. State of Punjab
MANU/SC/0073/1974 : (1974)IILL J465SC the President cannot act except in
accordance with the aid and advice of his Council of Ministers, it is really the executive
which is invested with this legislative power. Now at first blush it might appear rather
unusual and that was the main thrust of the criticism of Mr. R.K. Garg on this point-that
the power to make laws should have been entrusted by the founding fathers of the
Constitution to the executive, because according to the traditional outfit of a democratic
political structure, the legislative power must belong exclusively to the elected
representatives of the people and vesting it in the executive, though responsible to the
legislature, would be undemocratic, as it might enable the executive to abuse this
power by securing the passage of an ordinary bill without risking a debate in the
legislature. But if we closely analyse this provision and consider it in all its aspects, it
does not appear to be so startling, though we may point out even if it were, the Court
would have to accept it as the expression of the collective will of the founding fathers.
It may be noted, and this was pointed out forcibly by Dr. Ambedkar while replying to
the criticism against the introduction of Article 123 in the Constituent Assembly-that the
legislative power conferred on the President under this Article is not a parallel power of
legislation. It is a power exercisable only when both Houses of Parliament are not in
session and it has been conferred ex-necessitate in order to enable the executive to
meet an emergent situation. Moreover, the law made by the President by issuing an
Ordinance is of strictly limited duration. It ceases to operate at the expiration of six
weeks from the reassembly of Parliament or if before the expiration of this period,
resolutions disapproving it are passed by both Houses, upon the passing of the second
of those resolutions. This also affords the clearest indication that the President is
invested with this legislative power only in order to enable the executive to tide over an
emergent situation which may arise whilst the Houses of Parliament are not in session.
Further more, this power to promulgate an Ordinance conferred on the President is co-
extensive with the power of Parliament to make laws and the President cannot issue an
Ordinance which Parliament cannot enact into a law. It will therefore be seen that
legislative power has been conferred on the executive by the Constitution makers for a
necessary purpose and it is hedged in by limitations and conditions. The conferment of
such power may appear to be undemocratic but it is not so, because the executive is
clearly answerable to the legislature and if the President, on the aid and advice of the
executive, promulgates an Ordinance in misuse or abuse of this power, the legislature
cannot only pass a resolution disapproving the Ordinance but can also pass a vote of no
confidence in the executive. There is in the theory of constitutional law complete control

22-01-2025 (Page 6 of 28) www.manupatra.com Dr. B.R. Ambedkar National Law University,