Supreme Court to hear petitions challenging the Finance Act

Supreme Court to hear petitions challenging the Finance Act

The petitioners had approached the Madras High Court and the Bombay High Court without receiving any favorable response

The Supreme Court will hear a batch of appeals and a fresh plea against the verdicts of the Madras High Court and the Bombay High Court. These courts had dismissed the challenges to the decision of the Government of India to trade 5 percent of its shareholding in Life Insurance Corporation (LIC) through an Initial Public Offering (IPO).

One of the petitioners, a LIC policyholder, had approached the Madras High Court challenging the provisions of the Finance Act, 2021, and the Life Insurance Corporation (LIC) Act, 1956.

The petitioner maintained that the Acts were introduced by way of a Money Bill under the Constitution of India, even though the amendment did not fall in the category of a Money Bill.

But the Madras High Court dismissed the petition. It held, "It directly impacts the economic growth of the country and interference therein may have far reaching consequences because the receipt of money into the Consolidated Fund of India is to be used for the development of the country."

The appeal in the Supreme Court will be heard by a bench comprising Justice DY Chandrachud, Justice Surya Kant, and Justice PS Narasimha.

The appeal states that the amendments being challenged effectively reduce the share of LIC's surplus, to which the petitioner is legally entitled. It caused losses to her and other participating policyholders worth Rs.4,14,919 crores.

Filed through Advocate Abhishekh Jebaraj, the petition read that the high court failed to appreciate that the amendments of the Finance Act did not fall under the Constitution of India.

It further stated, "Therefore, the Speaker's certification of the Bill as a Money Bill, and its subsequent enactment as one, is a colorable exercise and a fraud on the Constitution."

The decision of a Speaker certifying a Money Bill under the Constitution was justiciable and amenable to judicial review on the ground of illegality, the petition added.

On the amendments to the LIC Act affected by the Finance Act, the plea argued, "The high court failed to appreciate that in pith and substance the impugned amendments provide for a legislative framework for (i) creating a Board of Directors for the Corporation, (ii) issuing shares of the Corporation to the Public, (iii) allowing the Central Government to reduce its shareholding to up to 51 percent of the equity of the Corporation (but not below 75 percent in the first five years), (iv) capping voting rights of shareholders of the Corporation other than the Central Government at 5 percent, (v) and, permitting LIC to raise equity capital."

The petition added that the high court failed to consider that for the first time since the passing of the LIC Act, amendments, which had no relation to imposition, abolition, remission, alteration, and regulation of any tax or the appropriation of moneys out of the Consolidated or Contingency Fund of India were being passed through the Finance Act as a 'Money Bill'.

Recently, even the Bombay High Court refused to stay the Draft Red Herring Prospectus (DRHP) filed by LIC for the issuance of shares through its IPO.

The petitioners had contended, "Every single existing policyholder from LIC has a direct, enforceable, and realizable interest in surplus. That surplus is, therefore, the 'property' of every policyholder and of all policyholders as a class."

However, the court was not convinced that policyholders could have an enforceable estate in the surplus of LIC funds.