Money Bills, Financial Bills, and the threat to democracy in the gap between the two

The most consequential piece of news reported by newspapers Saturday morning was not that a wrestler who had won medals for the nation in international competitions had returned his Padma Shri in protest against the election of a supporter of the tainted, outgoing chief of the Wrestling Federation of India, BJP MP Brij Bhushan Sharan Singh, as his successor, effectively allowing Singh to retain control over the administration of the sport in India.

The development with the most consequence for Indian democracy is the Supreme Court notification that it would take up for hearing a case to decide on the propriety of the government classifying as “Money Bills” any piece of legislation that it suspects would face stiff opposition in the Rajya Sabha.

This might, on the surface, look like a technicality that should exercise only the pedants. However, it is a matter that affects the nature of our democracy and the very raison d’etre of the Rajya Sabha. If the government has the right to arbitrarily classify any bill as a Money Bill, we might as well disband the Rajya Sabha, because Money Bills do not require the assent of the Rajya Sabha.

A budget passed by Britain’s House of Commons in 1909 proposed expansive welfare measures and proposed taxes on landed property, including land belonging to many members of the House of Lords. Lordly wrath prevented the Upper House from giving its approval for the Budget, leading to a constitutional crisis. The lords held out till the government was voted back to office in the general elections of January 1910.

The House of Commons then passed a Parliament Bill, which explicitly made the Lords’ approval redundant for the passage of Money Bills. The Upper Chamber refused to endorse this, until the government threatened to expand the House of Lords by creating many new Liberal peers, and renewed its popular mandate in December. The Parliament Act, 1911 was duly given the King’s assent and became law. The Constitution of India incorporated the provisions of Britain’s Parliaments Act 1911, specifically in Article 109.

What is a Money Bill?

What precisely is a Money Bill? Clause 1 of Article 110 gives a definition. “A Bill shall be deemed to be a Money Bill if it contains only provisions dealing with all or any of the following matters,” it begins, and enumerates seven items, six of which, items numbered 1 (a) to 1 (f), deal with getting money into the government’s accounts or taking money out of them, whether by tax, non-tax receipts or borrowing, in the case of accrual, or by transfers, expenditure, lending or repayment, or acceptance of contingent liabilities, in the case of outgo. The seventh item, numbered 1(g), deals with any matter incidental to items 1(a) to 1(f). The word “only” is significant.

Clause (2) of Article 110 gives a vital clarification: “A Bill shall not be deemed to be a Money Bill by reason only that it provides for the imposition of fines or other pecuniary penalties, or for the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes.”

Clause (3), however, seems to give the Speaker the authority to classify a Bill as he likes: “If any question arises whether a Bill is a Money Bill or not, the decision of the Speaker of the House of the People thereon shall be final.”

The Aadhaar case

However, when the government passed the Aadhaar Bill as a Money Bill, and Aadhaar was challenged in the courts, the Supreme Court, in the order that said that Aadhaar was valid, said that what constitutes a Money Bill is justiciable, meaning that the Speaker is not the final arbiter on the subject.

The verdict that overruled the challenge to Aadhaar and upheld the right to privacy as a fundamental right restricted the use of Aadhaar to making direct benefit transfers to beneficiary bank accounts, thanks to Aadhaar being introduced as a Money Bill. Only subsequent legislation that expanded the use of Aadhaar, passed as a regular Bill in both Houses of Parliament, liberated Aadhaar from this straitjacket.

It was not just Aadhaar that the government tried to institute without the consent of the Rajya Sabha. A Bill to amend the Tribunals Act, and another to incorporate stringent provisions in the Prevention of Money Laundering Act (PMLA), were also introduced as Money Bills, leading to their challenge in the courts as well. A Supreme Court order that upheld sharp curtailment of basic rights under the PMLA Amendment, passed as a Money Bill, said, nevertheless, that it left open the question of the validity of moving such a Bill as a Money Bill, for it to be separately considered by a Constitution Bench.

Financial Bills

Article 117 brings up another category of Bills, the Financial Bills, which deal with subjects 1(a) to 1(f) of Article 110, described earlier, or otherwise entail moving money out of the Consolidated Fund of India. They can be introduced only on the recommendation of the President.

What is the difference between a Financial Bill and a Money Bill? Considerable confusion abounds on the subject; in fact, some people bring in the Finance Bill into the discussion as well. The Finance Bill is a Budget document that details the imposition, abolition, remission, alteration or regulation of taxes proposed in the annual Budget. It also contains other provisions relating to the Budget that could be classified as the subject matter of a Money Bill. The Finance Bill is a very special Money Bill.

The difference between a Money Bill and a Financial Bill is to be found in the qualification “only” in the definition of a Money Bill contained in Article 110. Things that relate only to accrual or outflow from the government’s funds are the subjects of Money Bills. But when a bill relates to both subjects 1(a) to 1(f) of Article 110, besides other matters, it is a Financial Bill.

Financial Bills are of two classes, A and B. Class A Financial Bills deal with accruals and outflows from government accounts plus other subjects. If the financial part of a Financial Bill entails only outflows from the Consolidated Fund of India, it constitutes a Class B Financial Bill.

Money Bills and Financial Bills of Class A can only be introduced in the Lok Sabha. Financial Bills of Class B can be introduced in either House. While the Rajya Sabha has no power to amend or vote down a Money Bill, its rights are not circumscribed in the case of Financial Bills.

Why Rajya Sabha is relevant

If the government can arbitrarily class any Bill as a Money Bill, its passage in the Lok Sabha is sufficient to make it the law. That means a government that does not have a majority in the Rajya Sabha and has to win over sufficient support outside the ruling party or coalition to get a Bill passed can, just by classifying a Bill as a Money Bill, dispense with such mobilization of support, entailing bargaining and give and take on assorted matters.

This would make the Rajya Sabha toothless, and, therefore, redundant. There is a view that the Rajya Sabha is a body filled with political has-beens and influence peddlers, who cannot get elected by the people, but wheedle their way into the good books of a state-level ruling party, and secure a nomination to be elected by state legislatures as their representatives in the Rajya Sabha. Some moneybags have openly purchased the support of MLAs to become members of the Upper House.

Why rue the decline and prospective irrelevance of such a body, and grant it the power to block the will of the people, as articulated by the majority in the Lok Sabha that gets the right to form the government of the day?

Lok Sabha election results can be skewed by a mass upsurge of emotions caused by, say, the death of an adored leader (think Indira Gandhi’s assassination and, in its wake, Rajiv Gandhi’s triumph, with an unprecedented majority, which remains unequalled since) or in the wake of external conflict (think Kargil or Balakot). Such a government would reflect a heightened, passing mood, rather than the considered opinion of the electorate. If we had such a body alone to take decisions with lasting and drastic consequences, that would lead to arbitrary governance and policies that lack genuine consensus.

We, in fact, have the Rajya Sabha as a potential check on highhandedness by the Lok Sabha majority. The Rajya Sabha member’s term is six years, and every two years, one-third of the total membership is renewed, with state legislators electing them by a single transferable vote. The composition of the Rajya Sabha changes over time, rather than all at once, and the body articulates the views of the states. This brings sober, diverse views, which collectively change only gradually, to bear on Bills passed in the Lok Sabha by a majority that reflects a transient mood rather than the deliberative consensus of the nation.

To render the Rajya Sabha powerless by empowering the Speaker to classify any Bill as a Money Bill, and strip it of the need for the Rajya Sabha’s approval, is to hand over decision-making totally to the product of a transient popular sentiment, robbing the legislative process of the benefit of the diversity and sobriety that India’s polity is capable of.

SC hearing on January 30

This is why the Supreme Court’s Constitution Bench’s hearing on January 30 on the subject of how Bills are to be classified as Money Bills is so vital.

To draw attention to this possibility, in a recent article, I drew on the example of the Telecom Bill, which, according to some news outlets, had been presented as a Money Bill. That reportage was flawed, and the text of the Bill does not reveal how it was classified on presentation. The Bill was presented as a Financial Bill and required both Houses to pass it for it to become law. In consequence, I was endowed with the dubious distinction of my article appearing, on the Press Information Bureau’s Fact Check X (Twitter) feed, with “Fake” stamped over it.

The reporter who reported the Telecom Bill as being presented as a Money Bill blundered. I blundered along. I must admit to acquiring clarity on the distinction between Money Bills and Financial Bills in the wake of that mortifying experience.

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal.)