Administrative Law:
Policy decision – Power of judicial review – Exercise of – Government order granting waiver of loan to small and marginal farmers – Challenge to – High Court held the grant of loan waiver as arbitrary and directed the State to grant the same benefit to all farmers irrespective of the extent of land holding – On appeal, held: Loan waiver scheme is in pursuance of the Directive Principles of State Policy – Objective of promoting the welfare of the farmers as a class to secure economic and social justice is well recognized by Art. 38 – Scheme cannot be held to breach Art. 14 since it does not impose a burden but affords a benefit – Loan waiver scheme is introduced with an endeavor to bring substantive equality in society by using affirmative action to uplift the socially and economically weaker sections – Application of the Scheme to only the small and the marginal farmers is justified due to the climate crisis such as drought and flood causes large scale damages to small holdings as compared to the large holdings due to the absence of capital and technology; and the small and marginal farmers belong to the economically weaker section of society – Thus, the classification based on the extent of landholding is not arbitrary – Since the classification in the Scheme is based neither on the grounds in Art.
15 nor on the ‘innate and core trait’ of an individual, it cannot be struck down on the alleged grounds of under-inclusiveness and overinclusiveness – Scheme propounded by the State passes muster against the constitutional challenge – Thus, the order passed by the High Court is set aside – Constitution of India – Art 14. Policy decision – Judicial review of – Ambit and extent of – Held: Court cannot interfere with the soundness and wisdom of a policy – Policy is subject to judicial review on the limited grounds of compliance with the fundamental rights and other provisions of the Constitution – Courts would show a higher degree of deference to matters concerning economic policy, compared to other matters of civil and political rights – State and its agencies often endeavor to make economically feasible decisions – On facts, loan waiver scheme is, in essence, a social policy in pursuance of the Directive Principles of State Policy, introduced with an object to eliminate inequality in status, income, and facilities.
Term policy – Meaning of – Held: Policy is the reasoning and object that guides the decision of the authority – Statutes, notifications, ordinances, or Government orders are means for the implementation of the policy of the State – To appreciate a legislation, reference to the policy behind the law is required – Judicially evolved two-pronged test to determine the validity of the law vis-à-vis Art.
14 refers to the objective of the law because the ‘policy’ behind the law is never completely insulated from judicial attention – Constitution of India – Art. 14 – Words and phrases. Constitution of India:
Art. 14 – Classification per se, if violative of Art. 14 – Held: Classification per se is not discriminatory and violative of Art.14 – Art. 14 only forbids class legislation and not reasonable classification – Classification is reasonable, when based on an intelligible differentia; and the differentia must have a rational relationship to the object sought to be achieved by the statute – There must be some yardstick to differentiate the class included and the others excluded from the group – Differentia used for the classification in the Loan Waiver scheme is the total extent of landholding by every individual – Thus, there is a yardstick used for constituting the class for the purpose of the scheme. Art. 14 – Under-inclusive and over-inclusive classification – Meaning and ambit of – Held: A statute is ‘under-inclusive’ if it fails to regulate all actors who are part of the problem – It is ‘overinclusive’ if it regulates actors who are not a part of the problem that the statute seeks to address - Determination of under-inclusiveness and over- inclusiveness, and degree of deference to it is dependent on the relationship prong (‘rational nexus’ or ‘proportional’) of the test – Degree of proof under the test would impact the judgment of this Court on whether the law is under-inclusive or over- inclusive – Nexus test, unlike the proportionality test, is not tailored to narrow down the means or to find the best means to achieve the object – It is sufficient if the means have a ‘rational nexus’ to the object – Thus, the courts show a greater degree of deference to cases where the rational nexus test is applied – A greater degree of deference is shown to classification because the legislature can classify based on the degrees of harm to further the principle of substantive equality, and such classification does not require mathematical precision.
Introduction of Loan Waiver Scheme in pursuance of an electoral promise, if constitutionally suspect – Held: A scheme cannot be held to be constitutionally suspect merely because it was based on an electoral promise – Scheme can be held suspect only within the contours of the Constitution, irrespective of the intent with which the scheme was introduced.
Allowing the appeal, the Court
HELD: 1.1 A policy is the reasoning and object that guides the decision of the authority, which in this case is the State of Tamil Nadu. Statutes, notifications, ordinances, or Government orders are means for the implementation of the policy of the State. Therefore, it is not possible to completely appreciate the law without reference to the policy behind the law. The judicially evolved two-pronged test to determine the validity of the law vis-à-vis Article 14 of the Constitution, refers to the objective of the law because the ‘policy’ behind the law is never completely insulated from judicial attention. However, it is settled law that the Court cannot interfere with the soundness and wisdom of a policy. A policy is subject to judicial review on the limited grounds of compliance with the fundamental rights and other provisions of the Constitution. It is also settled that the Courts would show a higher degree of deference to matters concerning economic policy, compared to other matters of civil and political rights. [Paras 9, 10][491-H; 492-A-C]
1.2 Economic policies broadly comprise of policies on taxation, expenditure, and allocation. The State and its agencies often endeavor to make economically feasible decisions. The implementation of every policy of the State involves expenditure. Merely because the policy involves the expenditure of funds, it cannot be termed as an economic policy. The core feature of the policy and the targeted area needs to be determined to identify the nature of the policy. The impugned loan waiver scheme is, in essence, a social policy in pursuance of the Directive Principles of State Policy, introduced with an object to eliminate inequality in status, income, and facilities. [Para 12][493-H; 494-A-B]
1.3 The loan waiver scheme is also in pursuance of the Directive Principles of State Policy. The scheme cannot be held to breach Article 14 since it does not impose a burden but affords a benefit. [Para 13][495-A-B]
Subramaniam Balaji v. State of TN (2013) 9 SCC 659 : [2013] 13 SCR 668 – relied on.
1.4 The equality code in Article 14 of the Constitution prescribes substantive and not formal equality. It is now a settled position that classification per se is not discriminatory and violative of Article 14. Article 14 only forbids class legislation and not reasonable classification. A classification is reasonable, when it is based on an intelligible differentia which distinguishes persons or things that are grouped, from others left out of the group; and the differentia must have a rational relationship to the object sought to be achieved by the statute. There must be some yardstick to differentiate the class included and the others excluded from the group. The differentia used for the classification in the scheme is the total extent of landholding by every individual. Therefore, there is a yardstick used for constituting the class for the purpose of the scheme. [Paras 14, 15][495-B-E] State of W.B v. Anwar Ali Sarkar [1952] SCR 284 – relied on.
1.5 The reasons that seem to have guided the State of Tamil Nadu for the formulation of this scheme are two- fold: the small and marginal farmers have faced greater harm due to the erratic climate conditions in view of the limited technology and capital that they possess and the State seeks to provide maximum benefits with the minimum fund. The State submitted that providing the benefit of the scheme only to marginal and small farmers leads to maximum utility for minimum investment. However, this cannot be the objective of a scheme introduced by the State. Every scheme which involves monetary or material disbursement aims at providing maximum benefit with minimum expenditure. Classification cannot thus be tested on the fiscal objective that guides every scheme. [Paras 17, 18][496-B-C, DE]
1.6 It is judicially recognized that the legislature is free to recognize degrees of harm and may confine its restrictions or benefits to those cases where the need is the clearest. This Court cannot accept that degrees of harm could be recognized based on the general consensus of the majority of the population. The law or the scheme of the Government cannot be tested on the anvil of majoritarian morality but only on constitutional morality. However, the claims made by the State cannot be accepted without putting it to the test of reason through the submission of cogent material. A lesser degree of burden would substantially weaken the rights protection. [Para 21][497-C, E-F]
1.7 The fact that 16,94,145 small and marginal farmers have availed of agricultural loans as compared to 3,01,926 farmers belonging to the ‘other category’ testifies that the small and marginal farmers have a significant capital deficit when compared to the rest of the farmers. A huge capital deficit, combined with a reduction in the agricultural income due to water scarcity and crop inundation due to floods has led to financial distress. [Para 22][497-G; 498-A-B]
1.8 The Situation Assessment of Agricultural Households and Land and Holdings of Households in Rural India, 2019 13 undertakes an extensive discussion on the Average Monthly Income per Agricultural Household. The report depicts that India’s small and marginal farmers have essentially become wage earners. The report also tabulates the total amount of outstanding loans held by each category of farmers. The computation shows that households that have lands less than 0.01 hectare, use 93.1% of the agricultural loans for a non- agricultural purpose. In sharp contrast, a household that owns 10 hectares of land only uses
17.1 percentage of the agricultural loan for non- agricultural purposes. This depicts the poverty that envelops the class of small and marginal farmers. [Paras 23, 24][498-D-E; 499-D]
1.9 The application of the impugned scheme to only the small and the marginal farmers is justified for two reasons: a climate crisis such as drought and flood causes large scale damages to small holdings as compared to the large holdings due to the absence of capital and technology; and the small and marginal farmers belong to the economically weaker section of society. Therefore, the loan waiver scheme in effect targets the economically weaker section of the rural population. The scheme is introduced with an endeavor to bring substantive equality in society by using affirmative action to uplift the socially and economically weaker sections. Due to the distinct degree of harm suffered by the small and marginal farmers as compared to other farmers, it is justifiable that the benefit of the scheme is only provided to a specified class as small and marginal farmers constitute a class in themselves. Therefore, the classification based on the extent of landholding is not arbitrary since owing to the inherent disadvantaged status of the small and marginal farmers, the impact of climate change or other external forces is unequal. [Para 25][500-A-D]
1.10 The determination of whether the classification is under-inclusive is closely related to the test that is undertaken by the Court while determining the relationship of the means to the end. This Court follows the two-pronged test to determine if there has been a violation of Article 14. The test requires the court to determine if there is a rational nexus with the object sought to be achieved. The Courts have used the proportionality standard to determine non-classificatory arbitrariness, and have used the twin test to determine if the classification is arbitrary. [Para 28][502-A-B; F]
1.11 While non-classification arbitrariness is tested based on the proportionality test, where the means are required to be proportional to the object, classification arbitrariness is tested on the rational nexus test, where it is sufficient if the means share a ‘nexus’ with the object. The degree of proof under the test would impact the judgment of this Court on whether the law is under-inclusive or over-inclusive. A statute is ‘under-inclusive’ if it fails to regulate all actors who are part of the problem. It is ‘over-inclusive’ if it regulates actors who are not a part of the problem that the statute seeks to address. The determination of under- inclusiveness and over-inclusiveness, and degree of deference to it is dependent on the relationship prong (‘rational nexus’ or ‘proportional’) of the test. [Para 31][503-F-H; 504-A]
1.12 The nexus test, unlike the proportionality test, is not tailored to narrow down the means or to find the best means to achieve the object. It is sufficient if the means have a ‘rational nexus’ to the object. Therefore, the courts show a greater degree of deference to cases where the rational nexus test is applied. A greater degree of deference is shown to classification because the legislature can classify based on the degrees of harm to further the principle of substantive equality, and such classification does not require mathematical precision. The Indian Courts do not apply the proportionality standard to classificatory provisions. Since the classification in the impugned scheme is based neither on the grounds in Article 15 nor on the ‘innate and core trait’ of an individual, it cannot be struck down on the alleged grounds of under- inclusiveness and over-inclusiveness. [Para 32][504-BC; D]
1.13 The Scheme in issue was introduced in pursuance of an electoral promise made by the then party in power in Tamil Nadu. The High Court seems to have been of the view that because the scheme was in pursuance of an electoral promise, it is constitutionally suspect. This view was made on an assumption that no study must have been conducted before the electoral promise was made. It is settled law that a scheme cannot be held to be constitutionally suspect merely because it was based on an electoral promise. A scheme can be held suspect only within the contours of the Constitution, irrespective of the intent with which the scheme was introduced. The scheme propounded by the State of Tamil Nadu passes muster against the constitutional challenge. The High Court erred in holding otherwise. During the pendency of the proceedings the State has granted a broader coverage, based on its assessment of the situation. The judgment of the High Court is set aside. [Para 33, 34][504-E-G; 505-A] Subramaniam Balaji v. State of TN (2013) 9 SCC 659 : [2013] 13 SCR 668 – relied on.
Union of India v. Dinesh Engineering Corporation (2001) 8 SCC 491; Om Kumar v. Union of India (2002)
2 SCC 386; Asif Hammed v. State of Jammu & Kashmir (1989) 2 Suppl. SCC 364 : [1989] 3 SCR 19; Sitaram Sugar Co Ltd. v. Union of India (1990) 3 SCC 223 : [1990] 1 SCR 909; Khoday Distilleries Ltd. v. State of Karnataka (1996) 10 SCC 304 : [1995] 6 Suppl. SCR 759; Balco Employees Union v. Union of India (2002)
2 SCC 333 : [2001] 5 Suppl. SCR 511; State of Orissa v. Gopinath Dash (2005) 13 SCC 495 : [2005] 5 Suppl. SCR 699; RK Garg v. Union of India (1981) 4 SCC
675 : [1982] 1 SCR 947; Navtej Singh Johar v. Union of India (2018) 10 SCC 1 : [2018] 7 SCR 379; Ram Krishna Dalmia v. SR Tendolkar AIR 1958 SC 538 : [1959] SCR 279; Mohd. Hanif Quareshi v. State of Bihar AIR 1958 SC 731 : [1959] SCR 629; Binoy
Viswam v. Union of India (2017) 7 SCC 59 : [2017] 7 SCR 1; State of Maharashtra v. Indian Hotel and Restaurants Association (2013) 8 SCC 519 : [2013] 7 SCR 654; State of Gujarat v. Ambica Mills (1974) 4 SCC 656 : [1974] 3 SCR 760; NP Basheer v. State of Kerala [2004] 2 SCR 224; EP Royappa v. State of Tamil Nadu 17 (1974) 4 SCC 3 : [1974] 2 SCR 348; Modern Dental College and Research Centre v. State of MP (2016) 7 SCC 353 : [2016] 3 SCR 579; Subramanian Swamy v. Union of India (2016) 7 SCC 221 : [2016] 3 SCR 865; Justice Puttaswamy (9J) v. Union of India (2017) 10 SCC 1 : [2017] 10 SCR 569; Puttaswamy (Retd.) v. Union of India (2019) 1 SCC 1 : [2018] 8 SCR 1; Anuj Garg v. Hotel Association of India (2008)
3 SCC 1 : [2007] 12 SCR 991 – referred to.
Missouri, K& T Rly v. May 194 US 267, 269 – referred to.
Aparna Chandra, ‘Proportionality in India: A Bridge to Nowhere’ (2020) Oxford Human Rights Journal; Tarunabh Khaitan, ‘Equality: Legislative Review under Article 14’ in Sujit Choudhry, Madhav Khosla, Pratap Bhanu Mehta (eds), The Oxford Handbook of the
Indian Constitution (Oxford University Press 2016) – referred to.
Parijat Gosh, Farmers Protest: Why are small and marginal farmers protesting against the farm acts?, (December 11, 2020) https://en.gaonconnection.com/farmers-protests-why-are-small-and-marginalfarmers- protesting-against-the-farm-acts/; https://www.mospi.gov.in/documents/213904/301563//
Report_587m1631267040957. pdf/3793650e-8cf17872- ae90-51470c8d211c – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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