Explained: How SC Applies the Doctrine of Proportionality in Its Judgments

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Doctrine of Proportionality :The implication of the principle of proportionality is that the court will weigh for itself, the advantages and disadvantages of an administrative action. Only if the balance is advantageous, will the court uphold the administrative action.

Panchkula (Association of Judicial Reforms India): Doctrine of Proportionality : The Supreme Court of India has passed to two different judgments on the doctrine of proportionality, Firstly on November 23, 2021 the Apex Court decided the Civil Appeal No. 6764 of 2021 titled, State of Tamil Nadu & Another Vs National South Indian River Interlinking Agriculturist Association, and further on December 06, 2021 the Supreme Court also dealt with the doctrine of proportionality in Civil Appeal No. 6522 of 2021 titled Akshay N Patel Vs Reserve Bank of India & Another.

It is pertinent to mention here that both the above judgments were authored by Justice D.Y.Chandrachud, that too within the span of two weeks.

Know what is the doctrine of proportionality?

Doctrine of Proportionality

The doctrine of proportionality is of European origin. The principle of proportionality has been  characterized  as  the  most  important  general  legal  principle  in  the  European Administrative Law. The principle of proportionality envisages that a public authority ought to maintain a sense of proportion between his particular goals and the means he employs to achieve those goals, so that his action impinges on the individual rights to the minimum extent to preserve the public interest. This means that administrative action ought to bear a reasonable relationship to the general purpose for which the power has been conferred.

The implication of the principle of proportionality is that the court will weigh for itself, the advantages and disadvantages of an administrative action.  Only if the balance is advantageous, will the court uphold the administrative action. The Administration must draw a balance—sheet of the pros and cons involved in any decision of consequence to the public and to individuals.

The principle of proportionality envisages that an administrative action could be quashed if it was disproportionate to the mischief at which it was aimed.  The measures adopted by the Administration must be proportionate to the pursued objective. An administrative authority while exercising a discretionary power should maintain a proper balance between any adverse effects which its decision may have on the rights, liberties or interests of persons and the purpose which it pursues. All in all, it means that the decision-maker must have a sense of proportion.

Evolution of Doctrine of Proportionality 

ln  many  cases  in  Britain,  proportionality  has  been  treated  merely  as  an  aspect  of the Wednesbury unreasonableness.  The  main  reason  for  judicial  reticence  in  Britain  in adopting proportionality as a distinct head of judicial review is that it may involve the courts in assessing the merits of a discretionary decision taken by the Administration, and for long, the courts have been advocating the proposition that the courts do not probe into the merits of discretionary decision but see if there is any flaw in the decision—making process and that this places the courts in the role of a secondary reviewer and not a primary reviewer.

This point was specifically made clear by LORD ACKNER in Brind. He reasoned that if proportionality were to add something to our existing law, then it must be by imposing a more intensive standard of review than the traditional Wednesbury unreasonableness. This would mean “that an inquiry into and a decision upon the merits cannot be avoided, in the sense that the court would have to balance”. 

The principle of proportionality in its broad European sense has not so far been accepted in India. Only a very restrictive version thereof has so far come into play. The reason is that the broad principle does not accord with the traditions of common-law judicial review.  The European  version  of  proportionality  makes  the  courts  as  the  primary  reviewer  of administrative action, whereas in common-law, the courts have so far played the role of the secondary  reviewer. 

In European Droit Administratif review of administrative action is entrusted to administrative tribunals and not to ordinary courts and, therefore, the broad concept of proportionality can be followed.

In common-law, the tradition so far has been that the courts do not probe into the merits of an administrative action. This approach comes in the way of a full-fledged acceptance of the principle of proportionality, for, if accepted, it will turn the courts into primary reviewer of administrative action.

Accordingly, in India, the courts apply the principle of proportionality in a very limited sense. The  principle  is  applied  not  as  an  independent  principle  by  itself  as  in  European Administrative Law, but as an aspect of Article 14 of the Constitution, viz., an arbitrary administrative action is hit by Article 14.Therefore, where administrative action is challenged as ‘arbitrary’ under Art. 14, the question will be whether the administrative order is ‘rational or ‘reasonable’ as the test to apply is the Wednesbury test.

As has been stated by the Supreme Court in E. Royappa v. State of Tamil Nadu, if the administrative action is arbitrary, it could be struck down under Art. 14. Arbitrary action by an administrator is described as one that is irrational and unreasonable. Accordingly, a very restrictive version of proportionality is applied in the area of punishments imposed by administrative authorities.

The first proposition in this regard is that the quantum of punishment imposed by a disciplinary authority on a civil servant for his misconduct in service is a matter of discretion of the disciplinary authority.

The second proposition is that the punishment has to be reasonable because of the constraints of Art. 14. This means that if the punishment imposed is unreasonable, Art. 14 is infringed.

The court can thus decide upon the proportionality of the punishment when it is strikingly disproportionate.  The  court  would  not  interfere  with  the  matter  of  punishment  on compassionate ground, or because it considers the punishment disproportionate. The court would  interfere  only  in  such  extreme  cases  which  on  their  face  show  perversity  or irrationality. The Wednesbury test is to be applied in such a case.

The Supreme Court has laid down the principle in Om Kumar v. Union of India in these words: “...When an administrative decision relating to punishment in disciplinary cases is questioned as ‘arbitrary’ under Art. 14, the court is confined to Wednesbury principles as a secondary reviewing authority. The court will not apply proportionality as a primary reviewing court. .

.”

The court would thus intervene in the matter of punishment only when it is satisfied that Wednesbury principle has been violated. Below are given a few examples as to how this proposition is applied to specific factual situations.

In Union of India V. R.K. Sharma, the Supreme Court has again laid down the principle as follows:  The court cannot while exercising power under Art.  32/226 interferes with the punishment because the court considers it to be disproportionate. "It is only in extreme cases, which on their face show perversity or irrationality that there can be judicial review. Merely on compassionate grounds a court should not interfere".

The court thus interferes when the quantum of punishment is “shockingly disproportionate”, or it shocks the conscience of the court. The following cases illustrate the point:

(i) The appellant was removed from government service on the ground of misconduct. Taking the kind of misconduct in view, the Supreme Court characterized the punishment of removal from service as arbitrary and quashed the order in question.

(ii) The Supreme Court has observed in Bhagat Ram V. State of Himachal Pradesh “It is equally true that the penalty imposed must be commensurate with the gravity of the misconduct, and that any penalty disproportionate to the gravity of the misconduct would be violative of Art. 14 of the Constitution.” Prima  facie,  this  was  a  broad  statement  which  seemed  to  accept  the  principle  of proportionality as such. But since then the Supreme Court has qualified the statement. Instead of  the  ‘disproportionate’,  the  expression  ‘shockingly  disproportionate’  has  come  to  be substituted.

(iii) In the context of “unfair labour practice” under Labour Law, the Supreme Court has observed: 9 "But, where the punishment is shockingly disproportionate, regard being had to the particular conduct and the past record or is such, as no reasonable employer would ever impose in like circumstances, the Tribunal may treat the imposition of such punishment as itself showing victimization or unfair labour practice".

Accordingly, in several cases, the punishment of dismissal imposed on workmen by their employers have been quashed on the ground that the same is grossly disproportionate to the nature of the charges held proved against the workman concerned.

In  a  number  of cases,  the  Supreme  Court  has refused  to  intervene  with  the  punishment imposed by the disciplinary authority as it was not found to be shockingly disproportionate to the offence in question.10 For example, in B.C. Chaturvedi v. Union of India, a government servant was dismissed from service because he was found to have assets disproportionate to his known sources of income. The Tribunal taking in view his brilliant academic record and 30 years of service substituted the punishment of dismissal with compulsory retirement.

The Supreme Court, on appeal, set aside the Tribunal order and restored the order of dismissal imposed on him by the disciplinary authority; The Court maintained that the disciplinary authority is invested with discretion to impose appropriate punishment keeping in view the magnitude or gravity of misconduct. The Court observed further in this connection: “The High Court/Tribunal, while exercising the power of judicial review, cannot normally substitute its own conclusion on penalty and impose some other penalty. lf the punishment imposed by the disciplinary authority or the appellate authority shocks the conscience of the High  Court/Tribunal,  it  would  appropriately  mould  the  relief  either  directing  the disciplinary/appellate authority to reconsider the penalty imposed, or  to shorten litigation, it may itself, in exceptional and rare cases, impose appropriate punishment with cogent reasons in support thereof.”

In a concurring judgment, HANSARIA, J., emphasized that not only the Supreme Court, but even  a  High  Court  in  a  writ  petition  can  apply  its  judicial  mind  to  the  question  of proportionality of punishment. “But then, while seized with this question as a writ court interference is permissible only when the punishment/penalty is shockingly disproportionate.

While researching on the concept of the doctrine of proportionality for Association of Judicial Reforms India (AJRI), I found an article written by Gautam Bhatia in his Indian Constitutional Law and Philosophy ,and in the interest of justice same is inscribed here with sole aim if judicial reforms.

State of Tamil Nadu v National South Indian River Interlinking Agriculturist Association (November 23), and Akshay N Patel v Reserve Bank of India (December 6) are two recent judgments of the Supreme Court that have applied the doctrine of proportionality to adjudicate constitutional challenges to State action.

Proportionality within Article 14

State of TN v NSIRIAN involved a challenge to the Tamil Nadu government’s granting a loan waiver to “small and marginal farmers” (i.e., farmers holding five acres of land or less). The scheme was challenged on the basis of arbitrariness and under-inclusiveness, for failing to grant loan waivers to farmers who held more than five acres of land.

Relying upon the previous judgment in Subramaniam Balaji v State of TN, the Supreme Court began by noting that the principle of equal protection could not be applied to instances of State largesse (as opposed to the State imposing a burden upon an individual or group) (paragraph 13). It is submitted that this proposition may require reconsideration. There is no principled distinction between “largesse” and “burden”, when it comes to the equal protection of law: the State singling out an individual or a group for a benefit over the claims of other groups raises equality concerns, much like the State singling out an individual or a group for a penalty does: in fact, given that the former case involves the distribution of scarce resources, there are good reasons why such policies should be subjected to Article 14. Indeed, in paragraph 17, the Court itself noted that one of the justifications offered up by the Tamil Nadu government was the need to provide maximum benefits with minimum funds (and also noted how this, in itself, could not be an answer to an Article 14 challenge).

In any event, the Court did not dwell too long on this point, and went to substantively review the policy. Noting the State’s justifications that the purpose of the policy was the uplift of poorer and more vulnerable farmers, the Court observed that would have to be put “to the test of reason through the submission of cogent material.” (Paragraph 21) Here, data provided by the State showed that small and marginal farmers had a significant capital deficit, were resource deficient, and needed access to larger holdings to avail of land, water, and so on (paragraph 22 – 25). For this reason, they were more vulnerable to crises (such as the impact of climate shocks), and were also economically more vulnerable, as a class (paragraph 25). The government scheme, therefore, was best understood as a form of constitutionally justified affirmative action.

It remained, of course, to deal with the argument from under-inclusiveness and over-inclusiveness: that is, the bright line of five acres would not map on precisely to the markers of precarity and vulnerability identified above. In his judgment, Chandrachud J identified the question to be primarily a “means-ends problem”, which could be adequately addressed by deploying the two-pronged test (intelligible differentia and rational nexus). Chandrachud J then went on to note that the degree of deference to under-inclusivity or over-inclusivity in a statute (i.e., how much leeway the Court would accord before striking down a statute for being over or under-inclusive) would depend upon the “relationship prong (‘rational nexus or proportional’) of the test.” (Paragraph 31) In this case, the classification in question was not based on either an innate or core trait of an individual, or one of the prohibited non-discrimination grounds under Article 15(1) – and consequently, the correct test to apply was that of rational nexus. This, the Court held, had been adequately satisfied by the State through data.

While the decision is undoubtedly correct, it is respectfully submitted that the Court’s observation that classificatory arbitrariness is subjected to the two-pronged test while non-classificatory arbitrariness is subjected to the proportionality test, may need reconsideration. Indeed, the Court itself stated the correct position later in the judgment, when it held that where under or over-inclusiveness was predicated upon either a core individual trait or upon one of the grounds set out in Article 15 the more rigorous proportionality test would apply. It is submitted that the two-tiered standard of review within Article 14 – that is, rational nexus (lower scrutiny) and proportionality (higher scrutiny) is not dependent on whether the policy is classificatory or non-classificatory, but simply on whether the unequal or arbitrary treatment being complained of can be traced back to a core individual trait (and which, it may be added, has been a site of structural or historical disadvantage – not every core trait, such as eye colour or height, for example, should be subjected to proportionality review). And this – as pointed out above – was ultimately affirmed by the Court, in the operative part of its judgment.

The States of the Proportionality Test

Akshay N Patel v Reserve Ban of India was a slightly more complicated case, that involved a challenge to Clause 2(iii) of the Reserved Guidelines on Merchanting Trade Transactions (MTTs), issued by the Reserve Bank of India. Put simply, the impugned guidelines states that MTTs would be allowed only with respect to those goods that were permitted for export and import under the Foreign Trade Policy of the Government of India. An MTT, for our purposes, is a transaction where an Indian firm acts as an intermediary between two foreign firms, without the goods in question actually being imported into, or exported out of, Indian territory (in other words, the only link with India is that the intermediary firm is Indian).

The challenge arose when, during the Covid-19 pandemic, the Indian government banned the export of PPE products, in order to ensure that the domestic stock was not depleted. Accordingly, MTTs in PPE were also banned, following Clause 2(iii). The appellant firm wanted to engage in an MTT involving an American buyer and a Chinese seller, but found itself stymied. The primary ground of challenge was that under an MTT, there was no actual export of the good from India, and consequently, the question of depleting Indian stock of PPE did not arise.

The Court noted that as the question involved a restriction on the Article 19(1)(g) freedom of trade, following the Modern Dental judgment, the proportionality standard would apply (paragraph 15). The Court then went on to note that the case also involved challenges on grounds of Article 14 and 21. However, since the substance of the challenges was essentially the same, they could be collectively considered (an “integrated” approach) (paragraph 27) (as the Court noted, this would not necessarily be true in all cases, where for example, the nature of the violation might be different, or where the limitations affect the rights in different ways).

Chandrachud J then went on to apply the four-pronged proportionality test. First, he noted that the aim of the ban was to ensure adequate domestic supplies of PPE during a global health pandemic. This was undoubtedly a legitimate State aim (paragraph 29).

Secondly, he noted that under international trade policy, goods under MTTs were formally regarded as “negative and positive imports” from the territory of the intermediary country (paragraph 42), as the intermediary was considered the owner while the goods were in transit (paragraph 43). Consequently, the Court held that “it was suitable for the RBI to link the permissibility of MTT in goods to the permissibility of their import/export under the FTP.” (paragraph 44)

Thirdly, Chandrachud J noted that while MTTs in PPE did not “directly” reduce the available stock of PPE in the country, they nonetheless reduced “the availability of the stock in the international market, which may have been bought by India, if so required (paragraph 47). Furthermore, this also reflected the Union government’s policy stance that such goods were “non-tradeable” during the pandemic (paragraph 47); in other words, “banning MTTs in PPE products was critical in ensuring that Indian foreign exchange reserves are not utilized to facilitate the hoarding of PPE products with wealthier nations.” (paragraph 47) On this basis, the Court held that the necessity prong was satisfied.

Finally, on the balancing prong, the Court – after making a set of observations about the importance of allowing regulatory bodies to set the terms “for operation of private economic actors” – held that the RBI had adequately demonstrated the rational nexus between the ban and the public health of Indian citizens. Consequently, “this Court is constrained to defer to the regulations imposed by RBI and the UOI, in the interests of preserving public health in a pandemic.” (paragraph 57)

Two points of critique arise with respect to this judgment. The first is that the analysis of the suitability and necessity prongs of the proportionality test is clouded by the fact that the Court moves between levels of abstraction. What the Court finds suitable is the link between prohibiting MTT and the overall foreign trade policy of the government (i.e., the actual text of Clause 2(iii)). What the Court finds necessary is the specific ban on MTTs involving PPE that logically flows from Clause 2(iii), but is not equivalent to it. Since the challenge was to Clause 2(iii) itself, it is submitted that it was incumbent upon the Court to examine the appellant’s arguments that the linking of MTT bans to export-import bans itself failed the necessity test, and – indeed – to engage with the appellant’s proposed less restrictive alternatives (which the Court records in an earlier part of its judgment). This the Court did not do; instead, within different steps of the same proportionality test, it ended up answering two different questions: was the linking of MTTs to export-import policy suitable? And was the ban on PPE MTTs necessary?

Furthermore, it is respectfully submitted that the Court’s necessity analysis raises serious questions about causation. The Court argued that even though an MTT transaction did not directly affect the stocks of PPE in India, it affected stocks on the world market that India could have bought, but would now not be able to, because they had been sold. But this is a very attenuated causal link upon which to predicate the restriction of a fundamental right: the argument surely cannot be that because any transaction involving PPE, anywhere in the world, affects India by altering the global stock, therefore – regardless of whether India intended to or had the capacity of, or the need for – said PPE, the transaction itself could be banned as long as India could enforce its ban (in this case because the intermediary was Indian). It is submitted that, without further evidence, the causal link here would fail even a rationality test (presumably, if the Indian company can’t act as an intermediary, the transaction would still go ahead with another intermediary!), let alone the stronger necessity test; in either event, this case highlights the importance having causal standards explicitly set out in proportionality judgments.

The second point of critique is with respect to the fourth prong: effectively, the Court ended up replicating its rationality argument in holding that the RBI had demonstrated a rational link, and its expertise as a regulatory body required deference. However, the balancing prong requires more: it requires that the extent of the rights restriction (in this case, a complete prohibition) is proportional – in a strict sense – to the importance of the goal (in this case, presumably, harmonising export-import and MTT transactions at the higher level of abstraction, and maintaining a global stock of PPE at a lower level of abstraction). Perhaps the Court wold still have held that proportionality stricto sensu was made out; but if so, the analysis would need to be spelt out, and not presumed.

Conclusion

The judgments in NSIRIAN and Akshay N Patel are important, in that they explicitly entrench the proportionality standard as the constitutional standard in adjudicating Articles 14, 19, and 21 claims; NSIRIAN, in particular, is helpful in further clarifying the two-tier standard of review internal to Article 14. As Akshay N Patel shows, however, the application of the four-step test continue to raise certain knotty problems which, it is hoped, future judgments will help clarify.”

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