Legal Notes by Arvind Datar: The Supreme Court's judgment in Kusum Ingots requires reconsideration

It is not necessary that a law can be challenged only after some action has been taken under the impugned enactment, writes Senior Advocate Arvind Datar.
Arvind Datar
Arvind Datar

The main issue in the famous Kusum Ingots case is whether the seat of Parliament or the Legislature is per se relevant for determining the territorial jurisdiction of the High Court to entertain a writ petition under Article 226.

Kusum Ingots and Alloys Limited was registered in Mumbai and had borrowed a loan from the Bhopal branch of the State Bank of India. When it defaulted, the bank issued notice under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.  

The company challenged the validity of this Act before the Delhi High Court but the writ petition was dismissed on grounds of territorial jurisdiction.

While the Supreme Court could have confined itself only to cases that challenge the validity of an Act, there was extensive discussion on other cases which did not have anything to do with the validity.

The case laid down two propositions:

(i) a cause of action arises only when the provisions of the Act are implemented giving rise to civil or evil consequences to the petitioner because the writ court would not determine a constitutional question in vacuum; and 

(ii) a writ petition questioning the constitutional validity of a Parliamentary Act is not maintainable in the Delhi High Court only because the seat of the Union of India is in Delhi.

As the Supreme Court noted, the only submission on behalf of the company was that the Delhi High Court had jurisdiction to decide the constitutionality of a Parliamentary Act while the contention of the Union of India and the Bank was that no cause of action arose within the territorial jurisdiction of the Delhi High Court. 

It was submitted that both the propositions laid down by the Supreme Court are incorrect and the decision in Kusum Ingots requires reconsideration.

Indeed, on the first point, it is per incuriam. The first principle laid down by the Supreme Court that a statute can be challenged only when the Act is implemented causing prejudice to the petitioner is incorrect. This question came up for consideration before the Supreme Court KK Kochunni v. State of Madras. In para 10 of the reported judgment of a Bench of five judges, the Supreme Court dealt with the plea that a petition under Article 32 was not maintainable until the State had taken or threatened to take action under an impugned law. Rejecting this plea, the Supreme Court held that there can be enactments where some overt acts had to be done by the State before a person was actually deprived of his right, title or interest. In such cases a petitioner could then invoke Article 32 when either the State did or threatened to do the overt act. But an enactment could immediately take away or abridge the fundamental rights of a person by its very enactment and without any overt act. In this category, a petition under Article 32 was maintainable even if no action is taken.

In the case of Article 226, it can be argued that an enactment may result in the rights of a person being deprived and even though no specific overt action is taken, the possibility of a threat or action is sufficient to challenge the statutory provision.

Thus, the National Company Law Tribunal Act was challenged as soon as the Amendment Act was passed. Similarly, the National Taxation Tribunal Ordinance was challenged even before an overt action was taken. It is therefore submitted that the view taken in Kusum Ingots that no writ petition can be filed unless the provisions of the Act are implemented is not correct and deserves to be overruled.

The second conclusion of Kusum Ingots is also contrary to the decision of a seven-judge Bench in Lt Col Khajoor Singh v. Union of India. In this decision, the majority held that the word “authority” under Article 226 would include the government as the clause “including in appropriate cases, any government” went with the preceding word “authority”. Thus, it would include the government in appropriate cases.

The second important point held in Khajoor Singh’s case was that the seat of the Government of India is in New Delhi and the fact that there was no specific provision in the Constitution made no difference. Thirdly, the jurisdiction of a High Court under Article 226 was not dependent on the residence or location of a person affected by the order. It expressly rejected introducing the concept of “cause of action” in Article 226 and followed two earlier decisions viz. Election Commission of India v. Saka Venkata Subba Rao and KS Rashid & Sons v. Income-tax Investigation Commission.

When it was pointed out that this interpretation could lead to hardship as a petitioner situated in a remote part of India may not have the wherewithal to file a writ in Delhi, it was held that this was a matter which had to be addressed only by Parliament.

The brilliant dissent by Justice Subba Rao eventually lead to the Constitution (15th Amendment) Act, whereby clause (1A) was first inserted in Article 226, enabling the High Courts to issue writs against any government or authority or person if part of the cause of action arose within the territory of that High Court.

It is submitted that this amendment led other High Courts to also exercise jurisdiction. This was amplified by the use of the expression “may also be exercised by any court”. In other words, the writ jurisdiction under Article 226 could be exercised by other High Courts even though a particular government or authority was not within its territorial jurisdiction.

It is important to note that Article 226(1A) – later renumbered as Article 226(2) – does not take away the jurisdiction of the “territorial” High Courts under Article 226(1).  The majority decision is still binding under Article 141 to the extent that it held that the seat of the Government of India is New Delhi. Article 226(1A) only got over that part of the majority view on “cause of action”.  It is submitted that Khajoor Singh makes it clear that the Delhi High Court has the jurisdiction over the Government of India as it is located within its territorial limits. 

It is possible for a petitioner in Bombay to now challenge the validity of a Parliamentary Act if part of the cause of action arises there because the Act is implemented in Maharashtra. For example, income tax provisions affecting Article 14 or 19 can be challenged in the Bombay High Court. But that does not mean that the Delhi High Court has no jurisdiction to deal with the matter. The question as to whether the Delhi High Court may decline to entertain the writ on the ground that Bombay High Court is more convenient is a different matter. Indeed, the petitioner can demonstrate that another High Court is not a convenient forum because of huge delays, lack of judges and so on. In that case, the Delhi High Court would be justified in exercising jurisdiction and deciding the validity of a Parliamentary Act even though the registered office of a company may not be in Delhi. The issue of forum non conveniens requires further consideration.

It is, therefore, submitted that Kusum Ingots is incorrect on four grounds:

(i) The Delhi High Court has “territorial jurisdiction” to entertain a challenge to a Parliamentary Act only because the seat of the Union is in Delhi;

(ii) The fact that other High Courts can decide the validity under the present Article 226(2) is because these High Courts have been conferred jurisdiction on the basis of cause of action, a part thereof arising in that state;

(iii) The Delhi High Court gets jurisdiction on the basis of the territorial location of Parliament and others may also have jurisdiction on the basis of “cause of action”; and

(iv) It is not necessary that a law can be challenged only after some action has been taken under the impugned enactment.   

Note: A five-judge bench of the Delhi High Court went into the question of jurisdiction under Article 226 and forum non conveniens but this was concerned with a challenge to a Parliamentary Act [Sterling Agro Industries Ltd. v Union of India].  Therefore, this judgment is not discussed here.

Arvind P Datar is a Senior Advocate of the Madras High Court.

The author acknowledges the help of Manoj Shirsat, Advocate at the Bombay High Court.

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