GVK INDS. LTD. & ANR. v. THE INCOME TAX OFFICER & ANR.

The Judgment of the Court was delivered by B.SUDERSHAN REDDY,J: 1. In any federal or quasi federal nation-state, legislative powers are distributed territorially, and legislative competence is often delineated in terms of matters or fields. The latter may be thought of as comprising of aspects or causes that exist independently in the world, such as events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like, that occur, arise or exist or may be expected to do so, naturally or on account of some human agency, in the social, political, economic, cultural, biological, environmental or physical spheres. The purpose of legislation would be to seek the exertion of the State power to control, modulate, transform, eliminate or engender such aspects or causes or the effects or consequences of such aspects or causes. While the purpose of legislation could be seen narrowly or purely in terms of intended effects on such aspects or causes, obviously the powers have to be exercised in order to enhance or protect the

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 389 ANR. [B. SUDERSHAN REDDY, J.]

interests of, the welfare of, the well-being of, or the security of the territory, and the inhabitants therein, for which the legislature has been charged with the responsibility of making laws. Paraphrasing President Abraham Lincoln, we can say that State and its government, though of the people, and constituted by the people, has to always function "for" the people, indicating that the mere fact that the state is organized as a democracy does not necessarily mean that its government would always act "for" the people. Many instances of, and vast potentialities for, the flouting of that norm can be easily visualized. In Constitutions that establish nation-states as sovereign democratic republics, those expectations are also transformed into limitations as to how, in what manner, and for what purposes the collective powers of th; people are to be used.

2Copy pinpoint2. The central constitutional themes before us relate to whether the Parliament's powers to legislate, pursuant to Article 245, include legislative competence with respect to aspects or causes that occur, arise or exist or may be expected to do so, outside the territory of India. It is obvious that legislative powers . of the Parliament incorporate legislative competence to enact laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within India, subject to the division of legislative powers as set forth in the Constitution. It is also equally obvious and accepted that only Parliament may have the legislative competence, and not the state legislatures, to enact laws with respect to matters that implicate the use of state power to effectuate some impact or effect on aspects or causes that occur, arise or exist or may be expected to do so, outside the territory of India. '

3Copy pinpoint3. Two divergent, and dichotomous, views present themselves before us. ihe first one arises from a rigid reading of the ratio in Electronics Corporation of India Ltd., v. Commissioner of Income Tax & An'r., 1 ("ECIL") and suggests that Parliaments powers to legislate incorporate only a

1. (1989) (2) sec 642-646. H

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A competence to enact laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, solely within India. A slightly weaker form of the foregoing strict territorial nexus restriction would be that the Parliament's competence to legislate with respect to extra-territorial aspects B or causes would be constitutionally permissible if and only if they have or are expected to have significant or sufficient impact on or effect in or consequence for litfla. An even weaker form of the territorial nexus restriction wouftl be that as long as some impact or nexus with India is established or expected, then the c Parliament would be empowered to. enact legislation with respect to such extra-territorial aspects or causes. The polar opposite of the territorial nexus theory, which emerges also as a logical consequence of the propositions of the learned Attorney General, specifies that the Parliament has inherent 0 powers to l~'gislate "for" any territory, including territories beyond India, and that no court in India may question or invalidate such laws on the ground that they are extra-territorial laws. Such a position incorporates the views that Parliament may enact legislation even with respect to extra-territorial aspects or causes that have no impact on, effect in or E consequence for India, any part of it, its inhabitants or Indians, their interests, welfare, or security, and further that the purpose of such legislation need not in any manner or form be intended to benefit India.

4Copy pinpoint4. Juxtaposing the two divergent views outlined above. we have framed the following questions: (1) Is the Parliament constitutionally restricted from enacting legislation with respe::t to extra-territorial aspects or causes that do not have, nor expected to have any, direct G or indirect, tangible or intangible impact(s) on, or effect(s} in, or consequences for: (a} the territory of India, or any part of India; or (b} the interests of, welfare of, wellbeing of, or security of inhabitants of India, and Indians? H (2) Does the Parliament have the powers to legislate "for"

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 391 ANR. [B. SUDERSHAN REDDY, J.)

any territory, other than the territory of India or any part of it?

5Copy pinpoint5. It is necessary to note the text of Article 245 and Article 1 at this stage itself:

"Article 245. Extent of laws made by Parliament and by the Legislatures of States - (1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. C

(2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation."

"Article 1. Name and territory of the Union:- (1) India, D that is Bharat, shall be a Union of States. (2) The States and the territories thereof shall be as specified in the First Schedule. (3) The territory of India shall comprise -

(a) The territories of the States; E

(b) the Union territories specified in tile First Schedule; and

{c) such other territories as may be acquired.~

II F Meanings of some phrases and expressions used hereinafter:

6Copy pinpoint6. Many expressions and phrases, that are used contextually in the flow of language, involving words such as "interest", "benefit", ''welfare", "security" and the like in order to G specify the purposes of laws, and their consequences can, have a range of meanings. In as much as some of those expressions will be used in this judgment, we are setting forth below a range of meanings that may be ascribable to such expressions and phrases: H

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A "aspects or causes" "aspects and causes":

events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like, in the social, political, economic, cultural, biological, environmental or physical spheres, that occur, arise, exist 8 or may be expected to do so, naturally or on account of some human agency. ' "extra-territorial aspects or causes•:"'

c aspects or causes that occur, arise, or exist, or may be expected to do so, outside the territory of India.

"nexus with India", "impact on India", "effect in India", "effect on India", "consequence for India" or "impact on or nexus with India" D any impact(s)on, or effect(s) in, or consequences for, or expected impact(s) on, or effect(s) in, or consequence(s) for: (a) the territory of India, or any part of India; or (b)the interests of, welfare of, wellbeing of or security of inhabitants of India, and Indians in general, that arise on E account of aspects or causes.

"benefit to India" or "for the benefit of India", "to the benefit of India", "in the benefit of India" or " to benefit India" or "the interests of India", "welfare of India", "well-being of India" etc.:

F protection of and/or enhancement of the interests of, welfare of, well-being of, or the security of India (i.e., the whole territory of India), or any part of it, its inhabitants and Indians.

G Ill Factual Background as to how the matter arose before us.

7Copy pinpoint7. The Appellant by way of a writ petition filed in Andhra Pradesh High Court had challenged an order of the H

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 393 ANR. [B. SUDERSHAN REDDY, J.] Respondents which decided that the Appellant was liable to A withhold a certain portion of monies being paid to a foreign company, under either one of Sections 9(1)(i) or 9(1)(vii)(b) of the Income Tax Act (1961). The Appellant had also challenged the vires of Section 9(1)(vii)(b) of the Income Tax Act (1961) for want of legislative competence .and violation of Article 14 B of the Constitution. The High Court having upheld that Section 9(1 )(i) did not apply in the. circumstances of the facts of the case, nevertheless upheld the applicability of Section 9(1)(vii)(b) on the facts and also upheld the constitutional validity of the said provision. The High Court mainly relied on the ratio of the c judgment by a three judge bench of this court in ECIL. Hence, the appeal.

8Copy pinpoint8. The matter came up for consideration before a two judge bench of this Court. In light of the far reaching issues of great constitutional purport raised in this matter, the fact that such issues had been raised previously in ECIL, the referencing of some of those issues by the three judge bench in ECIL to a constitutional bench, and the fact that the civil appeals in the ECIL case had also been withdrawn, a two judge bench of this Court vide its order dated November 28, 2000, also referred the instant matts::r to a constitutional bench. On July 13, 2010, the matter again came up for consideration before another three judge bench of this court, and vide its order of the same date, this matter came to be placed before us. F

9Copy pinpoint9. It is necessary for purposes of clarity that a brief recounting be undertaken at this stage itself as to what was conclusively decided in ECIL, and what was referred to a constitutional bench. After conclusively determining that Clauses (1) and (2) of Article 245, read together, impose a requirement G that the laws made by the Parliament should bear a nexus with India, the three judge bench in ECIL asked that a constitutional bench be constituted to consider whether the ingredients of the impugned provision, i.e., Section 9(1 )(vii) of the Income Tax Act (1961) indicate such a nexus. In the proceedings before us, the H

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A appellant withdrew its challenge of the constitutional validity of Section 9(1)(vii)(b) of the Income Tax Act (1961), and elected to proceed only on the factual matrix as to the applicability of the said section. Nevertheless, the learned Attorney General appearing for the Respondent pressed U:JOn this Constitutional B Bench to reconsider the decision of the three judge bench in the ECIL case. In light of the constitutional importance of the ·issues we agreed to consider the validity of the requirement of a relationship to or nexus with the territory of India as a limitation on the powers of the Parliament to enact laws pursuant to c Clause (1) of Article 245 of the Constitution.

10Copy pinpoint10. A further clarification needs to be made before we proceed. The issue of whether laws that deal entirely with aspects or causes that occur, arise or exist, or may be expected to do so, within India, and yet require to be operated outside the territory of India could be invalidated on the grounds of such extra-territorial operation is not before us. The text of Clause (2/ of Article 245, when read together with Clause (1) of Article 245 makes it sufficiently clear that the laws made by the Parliament relating to aspects or causes that occur, arise or exist or may be expected to occur, arise or come into existence within the territory of India may not be invalidated on the ground that such laws require to be operated outside the territory of India. We will of course deal with this aspect to the extent that it is required for a proper appreciation of Clause (1) F of Article 245, and to the extent the permissibility of such extra- territorial operation has been sought to be, by the learned Attorney General, extrapolated into a power to make any extra- territorial laws. IV G The ratio in ECIL:

11Copy pinpoint11. The requirement of a nexus with the territory of India was first explicitly articulated in the decision by a three judge H Bench of this court in ECIL. The implication of the nexus

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 395 ANR. [B. SUDERSHAN REDDY, J.] requirement is that a law that is enacted by the Parliament, A whose "objects" or "provocations" do not arise within the territory of India, would be unconstitutional. The words "object" and "provocation", and their plural forms, may be conceived as having been used in ECIL as synonyms for the words "aspect" and "cause", and their plural forms, as used in this judgment. B .,., 12. The issue under consideration in ECIL was whether Section 9(1 )(vii)(b) of the Income Tax Act (1961) was unconstitutional on the ground that it constitutes a law with respect to objects or provocations outside the territory of India, C thereby being ultra-vires the powers granted by Clause (1) of Article 245. Interpreting Clauses (1) and (2) of·Ar:ticle 245, Chief Justice Pathak (as he then was) drew a distinction between the phrases "make laws" and "extraterritorial operation" - i.e., the acts and functions of making laws versus the acts and functions of effectuating a law already made. D

In drawing the distinction as described above, the decision in ECIL considered two analytically separable, albeit related, issues. They relate to the potential conflict between the fact that, in the international context, the "principle of Sovereignty of E States" (i.e., nation-states) ~<;>uld."normally be "that the laws made by one State can hsive no operation in another State" (i.e., they may not be enfor~able), ang the prohibition in Clause (2) of Article 245 that laws:..t!'~de .l:)y the Parliament may not be invalidated on the ground lnat they may need to be or are being operated extra-territorially.

13Copy pinpoint13. The above is of course a well recognized problem that has been grappled with by courts across many jurisdictions in the world; and in fact, many of the cases cited by the learned Attorney General attest to the same. Relying on the ratio of G British Columbia Railway Company Limited v. King, 2 the principle that was enunciated in ECIL was that the problems of inability to enforce the laws outside the territory of a nation

2. [1946] A.C. 527. H

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A state cannot be grounds to hold such laws invalid. It was further held that the courts in the territory of the nation-state, whose legislature enacted the law, ought to nevertheless order that a law requiring extra-ferritorial operation be implemented to the extent possible with the machinery availab!~. It can of course s be clearly appreciated that the said principle falls within the . ambit of the prohibition of Clause (2) of Article 245. The same was stated by Chief Justice Pathak (as he then was} thus:

"Now it is perfectly clear that it is envisaged under our constitutional scheme that Parliament in India may make c laws which operate extra-territorially. Art. 245(1} of the Constitution prescribes the extent of laws made by the Parliament. They may be made for the whole or any part of the territory of India. Article 245(2} declares that no law made by the Parliament shall be deemed to be invalid D on the ground that it would have extra-territorial operation. Therefore, a Parliamentary statute having extra-territorial operation cannot be ruled out from contemplation. The operation of the law can extend to persons, things and acts outside the territory of lndia"3 (emph. added}. E

14Copy pinpoint14. However, the principle enunciated above does not address the question as to whether the Parliament may enact a law "for" a territory outside the boundaries of India. To enact laws "for" a foreign territory could be conceived of in two forms. F The first form would be, where the laws so enacted, would deal with or be in respect of extra-territorial aspects or causes, and the laws would seek to control, modulate or transform or in some manner direct the executive of the legislating State to act upon such extra-territorial aspects or causes because: (a) such extra- territorial aspects or causes have some impact on or nexus with G or to India; and (b) such laws are intended to benefit India. The second form would be when the extra-territorial aspects do not have, and neither are expected to have, any nexus whatsoever

H 3. Supra Note 1.

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 397 ANR. [B. SUDERSHAN REDDY, J.] with India, and the purpose of such legislation wou!d serve no A purpose or goal that would be beneficial to India.

15Copy pinpoint15. It was concluded in ECIL that the Parliament does not have the powers to make laws that bear no relationship to or nexus with India. The obvious question that springs to mind is: 8 ''what kind of nexus?" Chief Justice Pathak's words in ECIL are instructive in this regard, both as to the principle and also the reasoning:

"But the question is whether a nexus with something in India is necessary. It seems to us that unless such nexus C exists Parliament will have no competence to make the law. It will be noted that Article 245(1) empowers Parliament to enact laws for the whole or any part of the territory of India. The provocation for the Jaw must be found within India itself. Such a iaw may have extra- D territorial operation in order to subserve the object, and that object must be related to something in India. It is inconceivable that a law should be made by parliament which has no relationship with anything in lndia." 4 ·

(emphasis added). E

16Copy pinpoint16. We are of the opinion that the distinction drawn in ECIL between "make laws" and "operation" of law is a valid one, and leads to a correct assessment of the relationship between Clauses (1) and {2) of Article 245. We will have more to say about this, when we turn our attention to the propositions of the F learned Attorney General.

17Copy pinpoint17. We are, in this matter, concerned with what the implications might be, due to use of words "provocation", "objecl··, "in" and "within" in connection with Parliament's G legislative ::iowers regarding "the whole or any part of the territory of lno1" , on the understanding as to what aspects and/ or causes that the Parliament may legitimately take into consideration in exercise of its legislative powers. A particularly

4. Supra note 1. H

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A narrow reading or understanding of the words used could lead to a strict territorial nexus requirement wherein the Parliament may only make laws with respect to objects or provocations - or alternately, in terms of the words we have used "aspects and causes" - that occur, arise or exist or may be expected to B occur, arise or exist, solely within the territory of India, notwithstanding the fact that many extra-territorial objects or provocations may have an impact or nexus with India. Two other forms of the foregoing territorial nexus theory, with weaker nexus requirements, but differing as to the applicable tests for c a finding of nexus, have been noted earlier. v The Propositions of the learned Attorney General:

18Copy pinpoint18. It appeared that the learned Attorney General we.::. D concerned by the fact that the narrow reading of Article 245, pace the ratio in ECIL, could significantly incapacitate the one legislative body, the Parliament, charged with the responsibility of legislating for the entire nation, in dealing with extra-territorial aspects or causes that have an impact on or nexus with India. E India has a parliamentary system of governance, wherein the Executive, notwithstanding its own domain of exclusive operation, is a part of, and answerable to, the Parliament. Further, given that the Executive's powers are co-extensive with that of the Parliament's law making powers, such a narrow F reading of Article 245 could significantly reduce the national capacity to make laws in dealing with extra-territorial aspects that have an impact on or nexus with India. Clearly, that would be an anomalous construction.

19Copy pinpoint19. In attacking such a construction, the learned Attorney General appeared to have moved to another extreme. The ·1ritten propositions of the learned Attorney General, with respect to the meaning, purport and ambit of Article 245, quoted verbatim, were the following:

H 1. "There is clear distinction between a Sovereign

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 399 ANR. [B. SUDERSHAN REDDY, J.] Legislature and a Subordinate Legislature. A

2. It cannot be disputed that a Sovereign Legislature has full power to make extra-territorial laws.

3. The fact that it may not do so or that it will exercise restraint in this behalf arises not from a B Constitutional limitation on its powers but from a consideration of applicability.

4. This does not detract from its inherent rights to make extra-territorial laws. c

5. In any case, the domestic Courts of the country cannot set aside the legislation passed by a Sovereign Legislature on the ground that it has extra-territorial effect or that it would offend some principle of international law. D

6. The theory of nexus was evolved essentially from Australia to rebut a challenge to Income Tax laws on the ground of extra-territoriality. E

7. The principle of nexus was urged as a matter of construction to show that the law in fact was not extra-territorial because it had a nexus with the territory of the legislating State.

8. The theory of nexus and the necessity to show the nexus arose with regard to State Legislature under the Constitution since the power to make extra- territorial laws is reserved only for the Parliamenr.

21Copy pinpoint21. 11. as much as the issues with regard to operation of laws enactea '1y the various state legislatures are not before us, we decline to .......press our opinion with respect to historical antecedents of nexus theory in the context of division of powers between a federation and the federal provinces. Given the fact that the learned Attorney General has not further refined or H

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A explicated the propositions as set forth above, we are compelled to assume that he intended us to take it that the Parliament should be deemed to have the powers and competence as set forth below, which arise out of a rigorous analysis of his propositions, and consequently examine them 8 in light of the text of Article 245.

22Copy pinpoint22. The main propositions are that the Parliament is a "sovereign legislature", and that such a "sovereign legislature has full power to make extra-territorial laws." They can be analysed in the following two ways: c (i) As a matter of first level of assessment, the phrase "full power to make extra-territorial laws" wo1.ild implicate the competence to legislate with respect to extra-territorial aspects or causes that haw· ~n D impact on or nexus with India, wherein the State machinery is directed to achieve the goals of such legislation by exerting force on such extra-territorial aspects or causes to modulate, change, transform, eliminate or engender them or their effects. At the next level, such powers would also implicate legislative competence to make laws that direct the state machinery, in order to achieve the goals of such legislation, to exert force on extra-territorial aspects or causes that do not have any impact on or nexus with India to modulate, change, transform, eliminate or engender them or their effects. We take it that the learned Attorney General has proposed that both the forms outlined above are within the constitutionally permissible limits of legislative powers and competence of the G Parliament. (ii) The same proposition can also be viewed from the perspective of the goals that such •extra-territorial laws" seek to accomplish, and the relationship of H such goals to the territory for which such laws are

-- GVK INDS, LTD. & ANR. v. INCOME TAX OFFICER & 401 ANR. [B. SUDERSHAN REDDY, J.]

intended to affect, as well as India. Modern A jurisprudence, and not just international law. or international ethics, does not support the view that legislative commands that are devoid of justice can be given the status of being "law". The extent of abuse of the theory of "rule of law'', in its absolutist · B sense, in history, and particularly in the 20th Century, has effectively undermined the legitimacy . of the notion that whatever the purpose that law ·seeks to achieve is justice. Consequently, we will assume that the learned Attorney General did not mean that Parliament would have powers to enact extra-territorial laws with respect to foreign territories that are devoid of justice i.e., they serve no benefits to the denizens of such foreign territories. Arguably India, as a nation-state, has not been established, nor has it developed, with an intent to be an expansionary or an imperialist power . on the international stage; consequently we will also not be examining the proposition that the extra- territorial laws enacted the Parliament, and hence E "for" that foreign territory, could be exploitative of the denizens of another territory, and yet be beneficial to India in its narrow sense. A valid argument can also be made that such an exploitative situation would be harmful to India's moral stature on the international plane, and also possibly deleterious to . international peace, and consequently damaging to' India's long run interests. To the extent that extra- territorial laws enacted have to be beneficial to the denizens of another territory, three implications arise. The first one is when such laws do benefit the foreign territory, and benefit India too. The second one is that they benefit the denizens of that foreign territory, but do not adversely affect India's interests. The third one would be when such extra-territorial \; laws benefit the denizens of the foreign territory, but H

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A are damaging to the interests of India. We take it that the learned Attorney General has proposed that all three possibilities are within constitutionally permissible limits of legislative powers and competence of the Parliament. B

23Copy pinpoint23. The further proposition of the learned Attorney General, is that courts in India do not have the powers to declare the "extra-territorial laws" enacted by the Parliament invalid, on the ground that they have an "extra-territorial effect", notwithstanding C the fact: (a) that such extra-territorial laws are with respect to extra-territorial aspects or causes that have no impact on or nexus with India; (b) that such extra-territorial laws do not in any manner or form work to, or intended to be or hew to the benefit of India; and (c) that such extra-territorial laws might even be detrimental to India. The word "extra-territorial-effect" is of a D much wider purport than "extra-territorial operation", and would also be expected to include within itself all the meanings of "extra-territorial law" as explained above. The implication of the prop6sed disability is not merely that the judiciary, under our constitution, is limited from exercising the powers of judicial review, on specific grounds, over a clearly defined set of laws, with a limited number of enactments; rather, it would be that the judiciary would be so disabled with regard to an entire universe of laws, that are undefined, and unspecified. Further, the implication would also be that the judiciary has been stripped of its essential role even where such extra-territorial laws may be damaging to the interests of India.

24Copy pinpoint24. In addition the learned Attorney General has also placed reliance on the fact that the Cl~use 179 of the Draft G Constitution, was split up into .two separate clauses, Clause 179(1) and Clause 179(2), by the Constitution Drafting Committee, and adopted as Clauses (1) and (2) of Article 245 in the Constitution. It seemed to us that the learned Attorney General was seeking to draw two inferences from this. The first one seemed to be that the Drafting Committee intended Clause 179(2), and hence Clause (2) of Article 245, to be an

Constitutional Interpretation: E

25Copy pinpoint25. We are acutely aware that what we are interpreting is a provision of the Constitution. Indeed the Constitution is law,

6. [1906) 8 F (J.) 93. F

7. [1933) A.C. 156. - 8. (1946) A.C. 527.

9. [1944] 12 ITR 265.

11. [1949) 17 ITR 63. G

12. AIR 1958 Bom 63.

13. AIR 1953 394.

15. (1994) 5 sec 459. · 16. c2002) 5 sec 203. H

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-- A in its ordinary sense too; however, it is also a law made by the people as a nation, through its Constituent Assembly, in a foundational and a constitutive moment. Written constitutions seek to delineate the spheres of actions of, with more or less strictness, and the extent of powers exercisable therein by, B various organs of the state. Such institutional arrangements, though political at the time they were made, are also legal once made. They are legal, inter-alia, in the sense that they are susceptible to judicial review with regard to determination of vires of any of the actions of the organs of the State constituted. c The actions of such organs are also justiciable, in appropriate cases, where the values or the scheme of the Constitution may have been transgressed. Hence clarity is necessary with respect to the extent of powers granted and the limits on them, so that the organs of the State charged with the working of the mandate of the Constitution can proceed with some degree of 0 certitude.

26Copy pinpoint26. In such exercises we are of the opinion that a liberal and more extensive interpretative analysis be undertaken to ensure that the court does not, inadvertently and as a E consequence of not considering as many relevant issues as possible, unnecessarily restrict the powers of another coordinate organ of the State. Moreover, the essential features of such arrangements, that give the Constitution its identity, cannot be changed by the amending powers of the very organs that are constituted by it. Under our Constitution, while some features are capable of being amended by Parliament, pursuant to the amending power granted by Article 368, the essential features - the basic structure - of the Constitution is beyond such powers of Parliament. The power to make changes to the basic structure of the Constitution vests only in the people sitting, as a nation, through its representatives in a Constituent Assembly. (See Keshavanadna Bharati v. State of Kerala 11 and l.R. Coelho v. State of Tamil Nadu18). One of

11. (1973) 4 sec 22s. H 1a. c2001) 2 sec 1.

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER &405 ANR. [B. SUDERSHAN REDDY, J.]

the foundational elements of the concept of basic structure is A it would give the stability of purpose, and machinery of government to be able to pursue the constitutional vision in to the indeterminate and unforeseeable future.

27Copy pinpoint27. Our Constitution charges the various organs of the 8 state with affirmative responsibilities of protecting the interests of, the welfare of and the security of the nation. Legislative powers are granted to enable the accomplishment of the goals of the nation. The powers of judicial review are granted in order to ensure that legislative and executive powers are used within the bounds specified in the Constitution. Consequently, it is imperative that the powers so granted to various organs of the state are not restricted impermissibly by judicial fiat such that it leads to inabilities of the organs of the State in discharging their constitutional responsibilities. Powers that have been granted, and implied by, and borne by the Constitutional text have to be perforce admitted. Nevertheless, the very essence of constitutionalism is also that no organ of the state may arrogate to itself powers beyond what is specified in the Constitution. Walking on that razors edge is the duty of the judiciary. Judicial restraint is necessary in dealing with the powers of another coordinate branch of the government; but restraint cannot imply abdication of the responsibility of walking on that edge.

28Copy pinpoint28. In interpreting any law, including the Constitution, the text of the provision under consideration would be the primary source for discerning the meanings that inhere in the enactment. However, in light of the serious issues it would always be prudent, as a matter of constitutional necessity, to widen the search for the true meaning, purport and ambit of the provision under consideration. No provision, and indeed no word or expression, of the Constitution exists in isolation - they are necessarily related to, transforming and in turn being transformed by, other provisions, words and phrases in the Constitution. Our Constitution is both long and also an intricate matrix of meanings, purposes and structures. It is only by

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A locating a particular constitutional provision under consideration within that constitutional matrix could one hope to be able to discern its true meaning, purport and ambit. As Prof. Laurence Tribe points out:

"[T)o understand the Constitution as a legal text, it is B essential to recognize the ... sort of text it is: a constitutive text that purports, in the name of the people ..... , to bring into being a number of distinct but inter-related institutions and practices, at once legal and political, and to define the rules governing those institutions and practices." (See: c Reflections on Free-Form Method in Constitutional Interpretation)19

29Copy pinpoint29. It has been repeatedly appreciated by this Court that our Constitution is one of the most carefully drafted ones, where every situation conceivable, within the vast experience, expertise and knowledge of our framers, was considered, deliberate~ upon, and appropriate features and text chosen to enable the organs of the State in discharging their roles. While indeed dynamic interpretation is necessary, if the meaning necessary to fit the changed circumstances could be found in the text itself, we would always be better served by treading a path as close as possible to the text, by gathering the plain ordinary meaning, and by sweeping our vision and comprehension across the entire document to see whether that meaning is validated by constitutional values and scheme.

30Copy pinpoint30. However, it can also be appreciated that given the complexity and the length of our Constitution, the above task would be gargantuan. One method that may be adopted would be to view the Constitution as composed of constitutional topological spaces. Each Part of the Constitution deals with certain core functions and purposes, though aspects outside such a core, which are contextually necessary to be included, also find place in such Parts. In the instant case Chapter 1, Part XI, in which Article 245 is located, is one such constitutional

H 19. 108 Harv. L. Rev. 1221, 1235 (1995).

-- GVK INDS. LTD .. & ANR. v. INCOME TAX OFFICER & 407 ANR. [B. SUDERSHAN REDDY, J.J topological space. Within such a constitutional topological space, one would expect each provision therein to be intimately related to, gathering meaning from, and in turn transforming the meaning of, other provisions therein. By locating the· transformative effects within such constitutional topological space, we would then be able to gather what the core, and untransformed features are. However, this method needs to be carefully used - constitutional topological spaces are not to be taken as water tight compartments, which when studied in isolation would return necessarily unerring truths about the Constitution. The potential that a transformative, or even a c confirniative, understanding can emerge directly from any other part of the Constitution is something that we must always be cognizant of. Nevertheless, to the extent that the Constitution has been arranged in a particular manner by our framers, thereby giving us some guide posts for navigation of the text 0 and its implications for our socio-political lives, such constitutional topological spaces, when primarily u5-ed for validation of unambiguous textual meanings, would eas& our . epistemological burdens.

VII E

Textual Analysis of Article 245:

31Copy pinpoint31. Prior to embarking upon a textual analysis of Clauses (1) and (2) of Article 245, it is also imperative that we bear in mind that a construction of provisions in a manner that renders F words or phrases therein to the status of mere surplussage ought to be avoided. ·

32Copy pinpoint32. The subject in focus in the first part of Clause (1) of Article 245 is "the whole or any part of the territory of India", · G and the object is to specify that it is the Parliament which is empowered to make laws in respect of the same. The second part of Clause (1) of Article 245 deals with the legislative powers of State legislatures. H

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33Copy pinpoint33. The word that links the subject, "the whole or any part of the territory of India" with the phrase that grants legislative powers to the Parliament, is "for". It is used as a preposition. The word "for'', when ordinarily used as a preposition, can signify a range of meanings between the subject, that it is a preposition B for, and that which preceded it:

"-prep 1 in the interest or to the benefit of; intended to go to; 2 in defence, support or favour of 3 suitable or appropriate to 4 in respect of or with reference to 5 representing or in place of.. ... 14. conducive or conducively to; in order to achieve ... " (See: Concise Oxford English Dictionary)20

34Copy pinpoint34. Consequently, the range of senses in which the word "for" is ordinarily used would suggest that, pursuant to Clause D (1) of Article 245, the Parliament is empowered to enact those laws that are in the interest of, to the benefit of, in defence of, in support or favour of, suitable or appropriate to, in respect of or with reference to "the whole or any part of the territory of India". E

35Copy pinpoint35. The above understanding comports with the contemporary understanding, that emerged in the 20th Century, after hundreds of years of struggle of humanity in general, and nearly a century long struggle for freedom in India, that the State is charged with the responsibility to always act in the interest of the people at large. In as much as many extra-territorial aspects or causes may have an impact on or nexus with the nation-state, they would legitimately, and indeed necessarily, be within the domain of legislative competence of the national parliament, so long as the purpose or object of such legislation is to benefit the people of that nation state.

36Copy pinpoint36. The problem with the manner in which Article 245 has been explained in the ratio of ECIL relates to the use of the words "provocation", and "object" as the principal qualifiers of

H 20. 8111 Ed., OUP (Oxford, 1990).

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 409 ANR. [B. SUDERSHAN REDDY, J.] "laws,· and then specifying that they need to arise "in" or "within" A India. The word "provocation" generally implies a cause - i.e., an inciting or a motivating factor - for an action or a reaction that seeks to control, eliminate, mitigate, modulate or otherwise transform both the independently existing aspects in the world and also their effects which had provoked or provokes the B action or reaction. "Provocation" may also be used, in a proactive sense, to signify the end or goal sought to be achieved rather than in the reactive sense - as a response to independently occurring aspects in the world. Similarly, the word "object" can mean any aspect that exists independently in the c world, of which a human agency takes cognizance of, and then • . decides to take some action. In this sense the word "object" would carry the same meaning as "provocation" in the first 'sense of that word delineated above. The word "object" can also mean the end goal or purpose to be achieved by an action or D a reaction to an independent aspect or cause in the world. In legal discourse, particularly in the task of interpreting statutes, and the law, the said words could be used in both the senses. The tools of "purposive interpretation" and the "mischief rule" ought to come to mind. E

37Copy pinpoint37. Consequently, the ratio of ECIL could wrongly be read to mean that both the "provocations" and "objects" - in terms _ of independent aspects or causes in the world - of the law enacted by Parliament. pursuant to Article 245, must arise · solely "in" or "within" the territory of India. Such a narrowing of F the ambit of Clause (1) of Article 245 would arise by substituting "in" or "within", as prepositions, in the place of "for" in the text ·of Article 245. The word "in", used as a preposition, has a much narrower meaning, expressing inclusion or position within limits · of space, time or circumstance, than the word "for". The G consequence of such a substitution would be that Parliament could be deemed· to not have the powers to enact laws with respect to extra-territorial aspects or causes, even though such aspects or causes may be expected to have an impact on or nexus with India, and laws with respect to such aspects or H causes would be beneficial to India ..

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38Copy pinpoint38. The notion that a nation-state, including its organs of governance such as the national legislature, must be concerned only with respect to persons, property, things, phenomenon, acts or events within its own territory emerged in the context of development of nation-states in an era when external aspects B and causes were thought to be only of marginal significance, if at all. This also relates to early versions of sovereignty that emerged along with early forms of nation-states, in which internal sovereignty was conceived of as being absolute and vested in one or some organs of governance, and external c sovereignty was conceived of in terms of co-equal status and absolute non-interference with respect to aspects or causes that occur, arise or exist, or may be expected to do so, in other territories. Oppenheim's International Law21 states as follows:

"The concept of sovereignty was introduced and developed in political theory in the context of the power of the ruler of the state over everything within the state. Sovereignty was, in other words, primarily a matter of internal constitutional power .... The 20th century has seen the attempt, particularly through the emergence in some instances of extreme nationalism, to transpose this essentially internal concept of sovereignty on to the international plane. In its extreme forms such a transposition is inimical to the normal functioning and development of international law and organization. It is als~ F inappropriate ..... no state has supreme legal power a ,d authority over other states in general, nor are statHt. generally subservient to the legal power and authority C'f other states. Thus the relationship of states on the international plane is characterized by their equality, G independence, and in fact, by their interdependence."

39Copy pinpoint39. On account of scientific and technological developments the magnitude of cross border travel and transactions has increased tremendously. Moreover, existence

H 21. Vol 1, "PEACE' 9th ed., page 125, 9 (Longman Group, UK, 1992).

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 411 ANR. [B. SUDERSHAN REDDY, J.] of economic, business, social and political organizations and · A forms, of more or less determinate structure, and both recognized and unrecognized, that operate across borders, implies that their activities, even though conducted in one territory may have an impact on or in another territory. Externalities arising from economic activities, including but not B limited to large scale exploitation of natural resources, and consequent pressure on delicate global environmental balance, are being recognized to be global in scope and impact. Global criminal and terror networks are also examples of how events and activities in a territory outside one's owri borders could c affect the interests, welfare, well-being and secu•ity within. Many other examples could also· be adduced. For instance, the enablement, by law, of participation of the State in many joint, multilateral or bilateral efforts at coordination of economic, fiscal, monetary, trade, social, law enforcement activities, 0 reduction of carbon emissions, prevention or mitigation of war in another region or maintenance of peace and security, etc., may be cited as additional examples of such inter-territorial dependence.

40Copy pinpoint40. Within international law, the principles of strict territorial E jurisdiction hcde been relaxed, in light of greater interdependencies, and acknowledgement of the necessity of. taking cognizance and acting upon extra-territorial aspects or causes, by principles such as subjective territorial principle, objective territorial principle, the effects doctrine that the United F States uses, active personality principle, protective principle etc. However, one singular aspect of territoriality remains, and it was best stated by Justice H.V. Evatt: "The extent of extra- territorial jurisdiction permitted, or rather not forbidden, by international law cannot always be stated with precision. But G certainly no State attempts to exercise jurisdiction over matters, persons, or things with which it has absolutely no concern." (See Trustees Executors & Agency Co Ltd v. Federal Commissioner of Taxation22). The reasons are not too far to

22. (1933) 49 CLR. 220 at 239. H

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A grasp. To claim the power to legislate with respect to extra- territorial aspects or causes, that have no nexus with the territory for which the national legislature is responsible for, would be to claim dominion over such a foreign territory, and negation of the principle of self-determination of the people who are B nationals of such foreign territory, peaceful co-existence of nations, and co-equal sovereignty of nation-states. Such claims have, and invariably lead to, shattering of international peace, and consequently detrimental to the interests, welfare and security of the very nation-state, and its people, that the national c legislature is charged with the responsibility for.

41Copy pinpoint41. Because of interdependencies and the fact that many extra-territorial aspects or causes have an impact on or nexus with the territory of the nation-state, it would be impossible to conceive legislative powers and competence of national D · parliaments as being limited only to aspects or causes that arise, occur or exist or may be expected to do so, within the territory of its own nation-state. Our Constitution has to be necessarily understood as imposing affirmative obligations on all the organs of the State to protect the interests, welfare and security of India. Consequently, we have to understand that the Parliament has been constituted, and empowered to, and that its core role would be to, enact laws that serve such purposes. Hence even those extra-territorial aspects or causes, provided they have a nexus with India, should be deemed to be within the domain of legislative competence of the Parliament, except to the extent the Constitution itself specifies otherwise.

42Copy pinpoint42. A question still remains, in light of the extreme conclusions that may arise on account of the propositions made by the learned Attorney General. Is the Parliament empowered to enact .laws in respect of extra-territorial aspects or causes that have no nexus with India, and furthermore could such laws be bereft of any benefit to India? The answer would have to be no.

43Copy pinpoint43. The word "for" again provides the clue. To legislate for

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 413 ANR. [B. SUDERSHAN REDDY, J.] a territory implies being responsible for the welfare of the people inhabiting that territory, deriving the powers to legislate from the.same people, and acting in a capacity of trust. In that sense the Parliament belongs only to India; and its chief and sole responsibility is to act as the Parliament of India and of no other territory, nation or people. There are two related limitations that flow from this. The first one is with regard to the necessity, and the absolute base line condition, that all powers vested in any organ of the State, including Parliament, may only be exercised for the benefit of India. All of its energies and focus ought to only be directed to that end. It may be the case c that an external aspect or cause, or welfare of the people elsewhere may also benefit the people of India. The laws enacted by Parliament may enhance the welfare of people in other territories too; nevertheless, the fundamental condition remains: that the benefit to or of India remain the central and D :a primary purpose. That being the case, the logical corollary, and hence the second limitation that flows thereof, would be that an exercise of legislative powers by Parliament with regard to extra-territorial aspects or causes that do not have any, or may be expected to not have nexus with India, transgress the first condition. Consequently, we must hold that the Parliament's powers to enact legislation, pursuant to Clause (1) of Article 245 may not extend to those extra-territorial aspects or causes that have no impact on or nexus with India.

44Copy pinpoint44. For a legislature to make laws for some other territory would be to act in a representative capacity of the people of such a territory. That would be an immediate transgression of the condition that the Parliament be a parliament for India. The word "for", that connects the territory of India to the legislative powers of the Parliament in Clause (1) of Article 245, when viewed from tile perspective of the people of India, implies that it is "our" Parliar.-::.-:it, a jealously possessive construct that may not be tinkered with in any manner or form. The formation of the State, and its organs, implies the vesting of the powers of the people in trust; and that trust demands, and its continued H

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A existence is predicated upon the belief, that the institutions of the State shall always act completely, and only, on behalf of the people of India. While the people of India may repose, and continue to maintain their trust in the State, notwithstanding the abysmal conditions that many live in, and notwithstanding the B differences the people may have with respect to socio-political choices being made within the country, the notion of the collective powers of the people of India being used for the benefit of some other people, including situations in which the interests of those other people may conflict with India's c interests, is of an entirely different order. It is destructive of the very essence of the reason for which Parliament has been constituted: to act as the Parliament for, and only of, India.

45Copy pinpoint45. The grant of the power to legislate, to the Parliament, in Clause (1) of Article 245 comes with a limitation that arises out of the very purpose for which it has been constituted. That purpose is to continuously, a11d forever be acting in the interests i of the people of India. It is a primordial condition and limitation. Whatever else may be the merits or demerits of the Hobbesian notion of absolute sovereignty, even the leviathan, within the scope of Hobbesian logic itself, sooner rather than later, has to realize that the legitimacy of his or her powers, and its actual continuance, is premised on such powers only being used for the welfare of the people. No organ of the Indian State can be the repository of the collective powers of the people of India, F unless that power is being used exclusively for the welfare of India. Incidentally, the said power may be used to protect, or enhance, the welfare of some other people, also; however, even that goal has to relate to, and be justified by, the fact that such an exercise of power ultimately results in a benefit - either G moral, material, spiritual or in some other tangible or intangible manner - to the people who constitute India.

46Copy pinpoint46. We also derive interpretational support for our conclusion that Parliament may not legislate for territories beyond India from Article 51, a Directive Principle of State H Policy, though not enforceable, nevertheless fundamental in the

-- GVK INDS. LTD. & ANR. v. INCOME TAX OFFICER & 415 ANR. [B. SUDERSHAN REDDY, J.) governance of the country. It is specified therein that: A

"Article 51. Promotion of international peace and security-"State shall endeavour to -

(a) to promote international peace and security; B (b) maintain just and honourable relations between nations;

(c) foster respect for international law and treaty obligations in the dealings of organized peoples with one another; and

(d) encourage settlement if international disputes by arbitration."

47Copy pinpoint47. To enact legislation with respect to extra-territorial aspects or causes, without any nexus to India, would in many measures be an abdication of the responsibility that lias been cast upon Parliament as above. International peace and security has been recognised as being vital for the interests of India. This is to be achieved by India maintaining just and honourable relations, by fostering respect for international and treaty obligations etc., as recognized in Article 51. It is one matter to say that because certain extra-territorial aspects or causes have an impact on or nexus with India, Parliament may enact laws with respect to such aspects or causes. That is clearly a role that has been set forth in the Constitution, and a power that the people of India can claim. How those laws are to be effectuated, and with what degree of force or diplomacy, may very well lie in the domain of pragmatic, and indeed ethical, statecraft that may, though not necessarily always, be left to the discretion of the Executive by Parliament. Nevertheless, that position is verv different from claiming that India has the power to interfere in matters that have no nexus with India at all. To claim such powers, would be to make such powers available. Invariably available powers are used, and in this case with a direct impact on the moral force of ,,.. ... ;a, and its interests, H

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