Judgment VARADARAJAN, J.:- These appeals by special leave are against the common judgment of a Division Bench of the Himachal Pradesh High Court rendered in Writ Petitions Nos. 2 of 1980 and 288 of 1979. They were heard together by us in view of this Courts Order dated 6-11-1980. Writ Petition No. 288 of 1979 was filed by Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur against the State, of Himachal Pradesh. Dr. S. P. Kapoor, Dr. R. M. Bali and Dr. K. Pandeya. Writ Petition No. 2 of 1980, was filed by Dr. R. M. Bali against the State of Himachal Pradesh and eight others including Dr. Jiwan Lal, Dr. (Mrs.) Damyanti Kapur, Dr. S. P. Kapoor and Dr. K. Pandeya, who were respondents Nos. 8, 9, 6 and 7 respectively in the Writ Petition. Dr. S. P. Kapoor, the appellant in C. A. No. 2104 of 1980 is the second respondent in writ Petition No. 288 of 1979 and 6th respondent in W. P. No. 2 of 1980. Dr. Jiwan Lal, the appellant in C. A. No. 2384 of 1980 is the first petitioner in W. P. Number 288 of 1979 and 8th respondent in W. P. No, 2 of 1980. 2. Writ Petition No, 288 of, 1979, challenged the reversion of Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur, the petitioners therein from the post of Deputy Directors of Health Services, as illegal and violative of the conditions of service as also the provisions of the Constitution of India, In Writ Petition No. 2 of 1980 Dr. R. M. Bali prayed for quashing the seniority of specialists indicated in the Office Memo dated 2-11-1979 and Annexure PX-1 containing the list and for assignment of Serial No. 1 in the seniority list to him. Dr. R. M. Bali prayed for certain other reliefs also including declaration of the appointment of Dr. S. P. Kapoor as Director of Health Services as null and void and for his case being considered for appointment to that post on the basis of the seniority prayed for in his writ Petition. 3. The case of Jiwan Lal and Dr. (Mrs.) Damyanti Kapur, the Writ Petitioners in W. P. No. 288 of 1979, was that they were appointed as Deputy Directors of Health Services on a regular basis. The post of Deputy Director, Health Service was held by Dr. 3. The case of Jiwan Lal and Dr. (Mrs.) Damyanti Kapur, the Writ Petitioners in W. P. No. 288 of 1979, was that they were appointed as Deputy Directors of Health Services on a regular basis. The post of Deputy Director, Health Service was held by Dr. Jiwan Lal for 4 1/2 years and by Dr. (Mrs.) Damyanti Kapur for about 3 1/2 years. The appointment of Dr. S. P. Kapoor, the appellant in C. A. No. 2104 of 1980 and Dr. R. M. Bali and Dr. K. Pandeya (respondents 2 and 4 in W. P. No. 288 of 1979) as Deputy Directors of Health Services, is contrary to the provisions of the Himachal Pradesh Health Service Rules, 1974 (hereinafter referred to as the Rules). They were appointed in disregard of the rights of Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur. The Departmental Promotion Committee constituted for making the appointment was not properly constituted as one of the members of the Committee, namely, the Principal Secretary to the then Chief Minister was unauthorisedly inducted into the Committee in the place of the Secretary to Government, Health and Family Welfare Department, Himachal Pradesh. Therefore, the proceedings of the Committee are vitiated. The annual confidential reports of the petitioners Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur were initiated by an officer who was not only junior to them but also an aspirant for promotion to the higher post along with them. Therefore, those confidential reports should not have been taken into consideration for further promotion by the Departmental Promotion Committee. The appointment of Dr. S. P. Kapoor, the appellant in C. A. No. 2104 of 1980, Dr. R. M. Bali and Dr. K. Pandeya, respondents 2 and 4 in that Writ Petition was made in haste on 3-11-1979, immediately after the final seniority list was issued on 2-11-1979. The appointment of Dr. S. P. Kapoor, the second respondent in W. P. No. 288 of 1979 and appellant in C. A, No. 2104 of 1980 as Director of Health Services on the same day is illegal as he did not satisfy the conditions prescribed in the Rules and he did not have even the requisite qualifying service. Further the post of Director of Health Services must have been filled up from amongst the Health Services Grade-I Officers and not from amongst Specialists, The reversion of Dr. Jiwan Lal and Dr. Further the post of Director of Health Services must have been filled up from amongst the Health Services Grade-I Officers and not from amongst Specialists, The reversion of Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur from the posts of Deputy Directors is illegal :and violative of the conditions of their service as also the provisions of the Constitution of India. 4. The case of Dr. R. M. Bali, the petitioner in W. P. No. 2 of 1980 was that he was appointed as T. B. Officer, T. B. Sanatorium, Mandodhar, a Gazetted Class II post, with effect from 9-4-1955 and he continued to work as such till 28-5-1962. He was, thereafter, appointed as Superintendent in that Sanatorium, a Class I post, and after joining the post he was selected for appointment on a regular basis through the Public Service Commission and he was confirmed in that post, categorised as Category D post and Class I post in the Central Health Services, in 1966. The Medical and Health Department of Himachal Pradesh Government appointed him as Director of Health (T. B.), a Category D post by a Notification dated 1-7-1963. He was inducted into the Central Health Services with effect from 9-9-1966 and included in the initial constitution of that Service and confirmed in that Service on 9-9-1968. But Dr. Grover, who has since retired, and Dr. S. P. Kapoor, who were, respondents 5 and 6 respectively in Writ Petition No. 2 of 1980, were appointed merely on a temporary basis to the Central Health Services with effect from 1-11-1966. The inter se seniority of Dr. R. M. Bali, the petitioner in W. P. No. 2 of 1980 and Dr. Grover and Dr. S. P. Kapoor in the Central Health Services (Specialists Grade) had to be preserved and could not be disturbed at the time of absorption in the -Himachal Pradesh Health Services having regard to the Punjab Reorganisation Act and the protection given to the members of the Punjab Service. In these circumstances, Dr. R. M. Bali prayed for quashing of the seniority list of the cadre of Specialists indicated in the Office Memorandum dated 2-11-1979 (Annexure PX-I containing in the list) and assigning to him Serial No. 1 in the seniority list. He also prayed for other reliefs including declaration of the appointment of Dr. S. P. Kapoor as Director of Health Services. R. M. Bali prayed for quashing of the seniority list of the cadre of Specialists indicated in the Office Memorandum dated 2-11-1979 (Annexure PX-I containing in the list) and assigning to him Serial No. 1 in the seniority list. He also prayed for other reliefs including declaration of the appointment of Dr. S. P. Kapoor as Director of Health Services. as null and void and for his appointment to that post on the basis of the revised seniority claimed by him. 5. The contention of the Himachal Pradesh Government, the first respondent in W. P. No. 288 of 1979, was that Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur were appointed as Deputy Directors of Health Services on ad hoc basis. The Deputy Directors post is a selection post which cannot be claimed as of right by persons appointed on ad hoc basis by way of stop-gap arrangement. The incumbent to the post of Secretary to Government, Health and Family Welfare was on leave from 3rd to 9th November, 1979 and the Principal Secretary to then Chief Minister was appointed to function in his place as Secretary to Government in the Departmental Promotion Committee by order dated 3-11-1979. The constitution of the Departmental Promotion Committee was, therefore, perfectly valid. The annual confidential reports written by Dr. Grover, who was working on ad hoc basis, were not the only reports taken into account by the Departmental Promotion Committee. That Committee did not take into account the reports of Dr. J. C. Sharma about the work and conduct of Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur. The post of Director of Health Services was manned on an ad hoc basis since the retirement of Dr. Krishan Swarup in December 1973. The posts of Deputy Director also were manned on an ad hoc basis. These ad hoc appointments were necessitated by the absence of the final seniority list which was prepared only on 2-11-1979 and since that impediment was over on 2-11-1979, the Departmental Promotion Committee met on 3-11-1979 and orders of appointment to those selected by that Committee on that date were issued on the same day. The promptness in making the regular appointments was necessitated by the intention to make the regular appointment as quickly as possible after the preparation of the final seniority list on 2-11-1979. Specialists are necessarily officers possessing post-graduate qualifications while G. D. Os. The promptness in making the regular appointments was necessitated by the intention to make the regular appointment as quickly as possible after the preparation of the final seniority list on 2-11-1979. Specialists are necessarily officers possessing post-graduate qualifications while G. D. Os. Class I are, as a rule, only graduates. Therefore, the rule making authority divided the higher posts equally amongst the Officers of the two categories taking all factors into consideration. The appointment of Dr. S. P. Kapoor, the second respondent in W. P. No. 288 of 1979, as Director of Health Services is valid. Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur were not Deputy Directors of Health Services on the date of selection of Dr. S. P. Kapoor as Director of Health Services and, therefore, their claim for being considered for promotion to that post is wholly untenable having regard to Rule 9 (3) of the Rules, according to which only Deputy Directors could be considered for promotion to the post of Director of Health Services. 6. The contention of the Himachal Pradesh Government, the first respondent in W. P. No. 2 of 1980 was that the post of Superintendent, T. B. Sanatorium held by Dr. R. M. Bali, the petitioner in that Petition, was a junior Class I post until he was appointed to the Specialists grade in the Central Health Services with effect from 9-9-1966, Dr. Grover and Dr. S. P. Kapoor, respondents 5 and 6 respectively in W. P. No. 2 of 1980, were appointed to the Specialists grade in the Central Health Services with effect from 1-11-1966, though the Central Government kept the question of seniority open. Dr. R. M. Bali exercised his option to join the Himachal Pradesh Health Service after a copy of the Rules was supplied to him. The final seniority of Dr. R. M. Bali and others was fixed under the provisions of the Rules issued on 10-1-1974. Seniority assigned to Dr. R. M. Bali is strictly in accordance with the provisions of Rule 10 (a) (iii) of the Rules. The words "whichever is earlier" which occurred in the original Rules 10 (a) (i) and 10 (a) (iii) were deleted by the Amendment Rules, 1966. The claim of Dr. R. M. Bali for seniority on the basis of his ad hoc appointment is not tenable. 7. The Central Government and Dr. The words "whichever is earlier" which occurred in the original Rules 10 (a) (i) and 10 (a) (iii) were deleted by the Amendment Rules, 1966. The claim of Dr. R. M. Bali for seniority on the basis of his ad hoc appointment is not tenable. 7. The Central Government and Dr. S. P. Kapoor, respondents 2 and 6 in W. P. No. 2 of 1980 had also filed counter-affidavits opposing the Writ Petition. In the Central Governments counter-affidavit it is stated that Dr. R. M. Bali has been in the Specialists grade only from 9-9-1966 and that Dr. Grover and Dr. S. P. Kapoor were appointed to the Specialists grade on 1-11-1966, leaving the question of seniority open. In the counter-affidavit of Dr. S. P. Kapoor reference is made to Government of Indias letter dated 9-7-1971, which deals with the fixation of seniority of Medical Officers of the Punjab Government absorbed in the Central Health Services in the Himachal Pradesh Union Territory and states as follows:- "The Central Health Services was constituted with effect from 9-9-1966 and the seniority of the Medical Officers appointed to the Service with effect from that date has been determined in accordance with the principles laid down in this Ministrys letter dated 27-7-1967. In accordance with sub-para 1 of this memoranda Officers appointed to a grade of the Central Health Services under Rule 7-A of the Central Health Services Rules, as amended by Central Health Services Amendment Rules, 1966, will rank en bloc senior in that grade to those who may be appointed to that grade under Rule 8 of the Central Health Services Rules, 1963. 2. The Officers of the Punjab Government were appointed to the Central Health Services with effect from 1-11-1966, under Rule 8 (A) of the Central Health Services Rules, 1963. Those officers have come to the Central Health Service only after the initial constitution of that Service was over. In accordance with the principles laid down for the Central Health Services it is not permissible to assign them seniority in the Central Health Services over the Officers appointed to the Central Health Services at the initial constitution of the Service. 3. However, as the Government of Himachal Pradesh have proposed to formulate their own Health Services and the Medical Officers. 3. However, as the Government of Himachal Pradesh have proposed to formulate their own Health Services and the Medical Officers. who opt from the Central Health Services are to be included in that Service, those Officers may be asked to exercise their option. In case they chose to remain as members of the Central Health Services their seniority will be reckoned only at the maintenance stage of the Central Health Services and they cannot get seniority in the Central Health Service on the basis of their prior service under the Punjab Government. Those Officers who opt to join the proposed Himachal Pradesh Health Service may, however, be given the benefit of their past continuous service while fixing their seniority in the Himachal Pradesh Health Service. At the time of formation of that Service these persons can be considered for inclusion in the initial constitution of that Service and their seniority fixed bearing in mind the principles mentioned in Shri A. D. Pandes D. O. Letter No. 22/5/67-SR (S) dated 14th February, 1967". 8. The learned Judges of the Himachal Pradesh High Court who heard these two Writ Petitions and other Writ Petitions jointly found that Dr. Jiwan Lal, Dr. S. P. Kapoor and Dr. (Mrs.) Damyanti Kapur were appointed as Deputy Directors of Health Services on ad hoc basis in July 1975, and January 1976, respectively after the Rules came into force on 19-1-1974, that it has not been contended by them that they had been appointed in accordance with the Rules or after relaxation of the Rules, that Dr. Jiwan Lal, Dr. (Mrs.) Damyanti Kapur and Dr. S. P. Kapoor were specifically appointed on ad hoc basis and that, therefore, Dr. Jiwan Lal and Dr. (Mrs.), Damyanti Kapur cannot claim right to the post of Deputy Directors of Health Services or to seniority on the basis of their ad hoc appointments though they can add the period of such appointment in the matter of experience for promotion and confirmation in view of the addition of notes to Rule 9 of the Rules. 9. (Mrs.), Damyanti Kapur cannot claim right to the post of Deputy Directors of Health Services or to seniority on the basis of their ad hoc appointments though they can add the period of such appointment in the matter of experience for promotion and confirmation in view of the addition of notes to Rule 9 of the Rules. 9. Recording the attack on the constitution of the Departmental Promotion Committee, the learned Judges found that when the regular Secretary to the Government, Health and Family Welfare Department, was on leave, the Principal Secretary to the then Chief Minister was appointed to function additionally as Secretary to Government, Health and Family Welfare Department, as per Office Order dated 2-11-1979 and, therefore, the Departmental Promotion Committee has been properly constituted. Regarding the question whether seniority, in the Himachal Pradesh Health Service is to be determined with reference to the date of joining the Central Health Service or with reference to the date of joining the Punjab Civil Medical Service, Grade I (in short PCMS (I)) with Post-Graduate qualifications on the date of appointment as Deputy Medical Superintendent Resident Medical Officer/Surgical Specialists, Ripon Hospital from the date on which they were given the PCMS scale, the learned Judges of the High Court found that the Central Health Service was constituted by the Central Government and the Health Service Rules, hereinafter referred to as the "Central Rules", framed by the President of India, in exercise of the powers conferred by Article 309 of the Constitution of India, came into force with effect from 15-5-1963 and that the Central Rules were amended by the Central Health Services (Amendment) Rules, 1966. Before the Punjab Reorganisation Act came into force the State of Punjab had its own Health Service known as the PCMS with two grades, Grade I and Grade II. After the Punjab Reorganisation Act came into force, and the Central Health Service was formed, some persons belonging to the PCMS and some persons working as Medical Officers in hospitals run by Local Bodies were inducted into that Service after they had exercised their option to be inducted therein. The Writ Petitioners and contesting employees respondents had been inducted into the Central Health Service after they had exercised their option. When the Himachal Pradesh Union Territory was in existence, its Health Department was manned by Officers of the Central Health Service. The Writ Petitioners and contesting employees respondents had been inducted into the Central Health Service after they had exercised their option. When the Himachal Pradesh Union Territory was in existence, its Health Department was manned by Officers of the Central Health Service. But after Himachal Pradesh became a full-fledged State, the Himachal Health Service was constituted on 24-1-1974, under the Himachal Pradesh Health Service Rules, which come into force on 19-1-1974 and the members of the Central Health Service serving in the erstwhile Himachal Pradesh Union Territory were asked to exercise their option to continue in the new Himachal Pradesh Health Service. The writ petitioners and the contesting employees-respondents exercised their option to continue in the Himachal Pradesh Health Service. The question for consideration was the basis on, which seniority in the Himachal Pradesh Health Service is to be determined, namely, whether it is with reference to the date of entry into the Central Health Service or into the PCMS (I) with post-graduate qualifications or the date of appointment as Deputy Medical Officer Surgical Specialists, Ripon Hospital from the date on which they were given PCMS scales. According to Rule 4 of the Himachal Pradesh Health Service Rules, which relates to classification, categories and scales of pay, there are two wings in the Himachal Pradesh Health Service, namely, the General Wing and the Teaching Wing, which are independent and not inter-changeable except in regard to certain posts. The writ petitions had nothing to do with any of the Officers in the Teaching Wing. The General Wing has six categories, each having grades as specified in the table annexed to the Rules. We are concerned in these appeals with Specialists and Grade I Officers. The Officers who were concerned with the writ petitions were Specialists on the one hand and Himachal Pradesh Health Service Grade I Officers on the other in respect of whom seniority is to be fixed on a separate basis. We are concerned in these appeals with Specialists and Grade I Officers. The Officers who were concerned with the writ petitions were Specialists on the one hand and Himachal Pradesh Health Service Grade I Officers on the other in respect of whom seniority is to be fixed on a separate basis. Under the Himachal Pradesh Health Service R. 10 relating to fixation of seniority, inter se seniority of departmental candidates absorbed under Rules 7 and 8 shall be determined under Rule 10 (a) (ii) as regards (i) Himachal Health Service Grade I Officers from the date of regular appointment having been duly selected by the Union Public Service (Commission?), Punjab Public Service Commission and Himachal Pradesh Public Service Commission and/or by a regular Departmental Promotion Committee in the grades of (i) PCMS (1) and (ii) G.D.O. Grade I, and under R. 10 (a) (iii) as regards (ii) Specialists from the date of regular appointment having selected by the Union Public Service Commission, Punjab Public Service Commission and Himachal Pradesh Public Service Commission and/or by a regular Departmental Promotion Committee in following grades, namely (i) Specialists (Central Health Service), (ii) PCMS (I) with post-graduate qualification and (iii) Deputy Medical Superintendent/Resident Medical Officer/Surgical Specialists, Ripon Hospital from the date on which, the scale of PCMS (I) was given to them. It was admitted that as alleged in W. P. No. 2 of 1980, Dr. R. M. Bali was inducted into the Central Health Service no a regular basis only on 9-9-1966 and Dr. Grover and Dr. S. P. Kapoor, respondents 5 and 6 in that Writ Petition, were inducted into the Central Health Service only with effect from 1-11-1966 and, therefore, Dr. R. M. Bali was senior to Dr. Grover and Dr. S. P. Kapoor in the Central Health Service. Dr. R. M. Bali and Dr. S. P. Kapoor were both Specialists. Dr. S. P. Kapoor contended before the High Court that he had been selected by the Punjab Public Service Commission on 29-1-1965 and had post-graduate qualifications when he was induced into the Central Health Service. But Dr. R. M. Bali contended that he was entitled to seniority frown 1-6-62 when he was appointed as T. B. Specialist at Mandodhar on an ad hoc basis or at least from 31-3-1964, when he was regularly appointed aftar selection by the Union Public Service Commission. But Dr. R. M. Bali contended that he was entitled to seniority frown 1-6-62 when he was appointed as T. B. Specialist at Mandodhar on an ad hoc basis or at least from 31-3-1964, when he was regularly appointed aftar selection by the Union Public Service Commission. In Rule 10 (a) (iii) the words "whichever is earlier" which were originally found have been deleted retrospectively by an amendment as stated earlier. The learned Judges of the High Court held that seniority has to be determined on the basis of the date of inducation into the Central Health Service, and not on the basis of the earlier service, if any, in the PCMS though they have observed that the words "whichever is earlier which occurred in the, Himachal Pradesh Health Service Rule 10 (a) (iii) were omitted retrospectively in order to do "justice in the matter of seniority to these doctors who came into the Himachal Pradesh Health Service from any local authority or PCMS and not from the Central Health Service. They have fixed the seniority of Dr. R. M. Bali above Dr. S. P. Kapoor an the basis that the former was inducted on 9-9-1966 and the latter was inducted an 1-11-1966 into the Central Health Service and held that Dr, D. S. Chauhans seniority is rightly reflected in the Specialists grade and they directed modification of the seniority of Doctors in the Specialists grade in accordance with their decision, namely, on the basis of date of induction into the Central Health Service. 10. Regarding writing of the annual confidential reports by Dr. Grover and Dr. J. C. Sharma, the contention of the, Himachal Pradesh Government in W. P. No. 2 of 1980 was that Dr. Sharmas reports were not taken into consideration, that Dr. Grovers reports were revised, sometimes with additional remarks in favour or against the incumbents, by the higher authorities and that his reports were not the only reports which were taken into consideration by the Departmental Promotion Committee in November, 1979. The learned Judges of the High Court accepted that. contention of the first respondent and held that no prejudice has been caused to the writ petitioners while the annual confidential reports were considered by the Departmental Promotion Committee on 3-11-1979. They quashed the seniority list of Specialists prepared on 2-11-1979 as well as the notification D/- 3-11-1979 appointing Dr. The learned Judges of the High Court accepted that. contention of the first respondent and held that no prejudice has been caused to the writ petitioners while the annual confidential reports were considered by the Departmental Promotion Committee on 3-11-1979. They quashed the seniority list of Specialists prepared on 2-11-1979 as well as the notification D/- 3-11-1979 appointing Dr. S. P. Kapoor, the appellant in C. A- No. 2104 of 1980, Dr. K. Pandeya and Dr. R. M. Bali as Deputy Directors (super-time Grade-II-General) and Dr. S. P. Kapoor as Director, Health Services (Super-time Grade I- General) and directed the State Government to make the appointments to these posts on the basis of the modified seniority list to be prepared in accordance with the directions given in their judgment. They disposed of Writ Petitions No. 288 of 1979 and 2 of 1980 as indicated above and directed the parties to bear their respective costs. 11. The Himachal Pradesh Union Territory was constituted on 1-11-1966. On and from the appointed day, which in the present case is 1-11-1966, Simla, Kangra, Kulu and Lahaul and Spiti districts and certain other areas in the original State of Punjab became parts of that Union Territory under Sec. 5 of the Punjab Reorganisation Act (Central Act) 1966. The Central Rules, 1963. came into force on the appointed day and were later amended by the Central Health Service (Amendment) Rules 1966, These Rules, as amended, are found On pages 336 to 346 of the paperbook in C. A. No. 2104 of 1980. The Central Health Service was constituted only with effect from 9-9-1966. This is clear from the letter dated 9-7-1971 from the Ministry of Health and Family Planning (Department of Health) Government of India, addressed to the Secretary to Government (Medical and Health Department), Himachal Pradesh to which detailed reference will be made later in the course of this judgment. Dr. R. M. Bali was regularly appointed in the specialists, grade of the Central Health Service on probation with effect from 9-9-1966 along with certain others, pursuant to the power conferred by Rule 7A (1) of the Central Rules, as amended in 1966, by the Presidents Order No. 1-3/67-CHS II dated 8-6-1967. At that time Dr. Dr. R. M. Bali was regularly appointed in the specialists, grade of the Central Health Service on probation with effect from 9-9-1966 along with certain others, pursuant to the power conferred by Rule 7A (1) of the Central Rules, as amended in 1966, by the Presidents Order No. 1-3/67-CHS II dated 8-6-1967. At that time Dr. R. M. Bali was working as a Specialist in the T. B. Sanatorium, Mandodhar, Himachal Pradesh Union Territory, a category D post, having been appointed on the recommendation of the Union Public Service Commission. According to the counter-affidavit filed on behalf of the Himachal Pradesh Government in W. P. No. 2 of 1980, the post of Superintendent, T. B. Sanatorium, Mandodhar was a Junior Class I post at that time. It has been upgraded subsequently. Dr. Jiwan Lal was appointed substantively on 21-12-1946 as Assistant Surgeon (Grade I) and had been promoted as the Chief Medical Officer in the Civil Surgeons grade on 1-7-1958. According to paragraph 3 of the counter affidavit filed by Dr. Jiwan Lal in S. L. P. (Civil) Number 6574 of 1980, he was appointed under R. 7A (1) (b) of the Central Rules, as amended in 1966, to a post in the category of G. D. 0. Grade I on 9-9-1966, before the constitution of Himachal Pradesh Union Territory and was confirmed in that post on 9-9-1968, after the constitution of that State. Dr. R. M. Bali and Dr. Jiwan Lal were allotted to Himachal Pradesh Union Territory on its constitution. On the, recommendation of the Punjab Public Service Commission, Dr. S. P. Kapoor was appointed by the Governor of Punjab as officiating Senior Medical Officer against the upgraded post of PCMS (Class I) by Memo No. 177-4-HBI-65 dated 7-1-1965 with a direction to join the new assignment within a forthnight, which he did on 29-1-1965, and he was put on probation for a period of two years with effect from the date of taking charge of the post. After joining the post as per that order, Dr. S. P. Kapoor was serving at. a station which was in the territory of the former Punjab State prior to the date of its reorganisation, which later became part of the Himachal Pradesh Union Territory under Section 5 of the Punjab Reorganisation Act. 1966, as mentioned above. After joining the post as per that order, Dr. S. P. Kapoor was serving at. a station which was in the territory of the former Punjab State prior to the date of its reorganisation, which later became part of the Himachal Pradesh Union Territory under Section 5 of the Punjab Reorganisation Act. 1966, as mentioned above. During the period of his probation he had to come into the Central Health Service on the constitution of Himachal Pradesh Union Territory on 1-11-1966 as he was allotted to that State and had been selected by the Union Public Service Commission in the same manner as Dr. R. M. Bali had been selected. Thus, all the three individuals, Dr. R. M. Bali Dr. Jiwan Lal and Dr. S. P. Kapoor came to be in the Central Health Service on the constitution of Himachal Pradesh Union Territory on 1-11-1966. Dr. S. P. Kapoor was appointed to the Specialists Grade in the Central Health Service along with Dr. Grover and two others under R. 8A of the Central Rules as amended in 1966, by the Presidents Order No. F. 32/48/ 65 CHS-II (V. II) dated 26-8-1970 with effect from 1-11-1966. Dr. R. M. Bali was appointed along with another to the Specialists, Grade in the Central Health Service with effect from 9-9-1968 by the Presidents Order No. F. 32-1 (6)/70-CHS III dated 27-1-1971. 12. The full-fledged Himachal Pradesh State was formed under Sec. 3, of the State of Himachal Pradesh Act 53 of 1970, a Central enactment, on and from the appointed day, 25-1-1971, and it comprised the Himachal Pradesh Union Territory. The Rules (Himachal Pradesh Health Service Rules) came into force on 19-1-1974. Consequent on the exercise of option for being absorbed in the Himachal Pradesh Health Service on the terms and conditions stipulated in the Rules and keeping in view the recommendations of the Screening Committee appointed under Rule 7 of those Rules, the Governor of Himachal Pradesh appointed Dr. Grover, Dr. S. P. Kapoor, Dr. R. M. Bali and Dr. D. S. Chauhan as Specialists on the General Side and Dr. K. Pandeya, Dr. Jiwan Lal, Dr. Jyoti Prasad and Dr. (Mrs.) Damyanti Kapur as Himachal Pradesh Grade I Officers with effect from 24-1-1974 by his order No. 1-15/75-H&FP dated 9-6-1975 in the categories to which they had been appointed prior to the commencement of the Rules as amended. D. S. Chauhan as Specialists on the General Side and Dr. K. Pandeya, Dr. Jiwan Lal, Dr. Jyoti Prasad and Dr. (Mrs.) Damyanti Kapur as Himachal Pradesh Grade I Officers with effect from 24-1-1974 by his order No. 1-15/75-H&FP dated 9-6-1975 in the categories to which they had been appointed prior to the commencement of the Rules as amended. In that order relating to seven Specialists and four Himachal Pradesh Health Service Grade I Officers, Dr. Grover, Dr. S. P. Kapoor, Dr. R. M. Bali and Dr. D. S. Chauhan are ranked as Nos. 2, 3, 6 and 7 respectively among Specialists while Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur are ranked later as Nos. 2 and 4 respectively amongst Himachal Pradesh HealthService Grade I Officers. This was after the Governor of Himachal Pradesh, in view of the Central Governments concurrence to the transfer of the Officers of the Central Health cadre to the Himachal Pradesh Health Service and on the recommendations of the Screening Committee constituted under Rule 7 of the Rules, appointed nine Doctors as Professors on the Teaching Wing, 19 Doctors as Specialists in the Teaching Wing, 10 Doctors including Dr. S. P. Kapoor and Dr. R. M. Bali as Specialists on the General Side and Dr. K. Pandeya and Dr. Jiwan Lal as Himachal Pradesh Health Service Grade I Officers by his Order No. 1/15/75-H&FP dated 9-6-1975. As stated earlier, we are not concerned in these appeals with any of the Doctors on the Teaching Wing. In that Order dated 9-6-1975 also Dr. Grover, Dr. S. P. Kapoor and Dr. R. M. Bali are ranked as Nos. 2, 3 and 6 respectively amongst the General Side Specialists while Dr. Jiwan Lal is ranked later as No. 2 and below Dr. K. Pandeya amongst the Himachal Pradesh Health Service Grade I Officers. Thus it is seen that Dr. S. P. Kapoor and Dr. R. M. Bali are Specialists on the General Side and that Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur are Himachal Pradesh Health Service Grade I Officers. 15. K. Pandeya amongst the Himachal Pradesh Health Service Grade I Officers. Thus it is seen that Dr. S. P. Kapoor and Dr. R. M. Bali are Specialists on the General Side and that Dr. Jiwan Lal and Dr. (Mrs.) Damyanti Kapur are Himachal Pradesh Health Service Grade I Officers. 15. There was also one other abuse, said the petitioners, to which special bearer bonds might lend themselves and it was that if special bearer bonds are sold and the sale proceeds are utilised in meeting expenditure, the assessee would not be precluded by Sec. 4 (c) Clause, (c) from explaining the source of the expenditure to be the sale consideration of special bearer bonds and hence by resorting to this strategy, white money can be accumulated as capital while expenditure is met out of black money received by way of consideration for sale of special bearer bonds. We do not think there is any scope for such abuse the apprehension expressed by the petitioner is more imaginary than real. It may be noted that in order to sustain his explanation, the assessee would have to prove to the satisfaction of the tax department that be had special bearer bonds and that he sold them for a certain amount. Now if he has received black money by way of consideration, it is difficult to see how he would ever be able to establish that he sold special bearer bonds for that particular amount of black money. Would he be so foolhardy as to admit that he received the consideration in black money and even if he does, would he ever be able to prove it? Who would believe him even if he makes such an admission? And when he has bought special bearer bonds for the purpose of converting his black money into white, why should he again reconvert it into black by selling special beares bonds for black money? The entire postulate of the argument of the petitioners is theoretical and has no basis in reality. And when he has bought special bearer bonds for the purpose of converting his black money into white, why should he again reconvert it into black by selling special beares bonds for black money? The entire postulate of the argument of the petitioners is theoretical and has no basis in reality. No assessee would ever admit that he incurred expenditure out of black money received as consideration for sale of special bearer bonds because it would be impossible for him to establish receipt of black money from the purchaser and if he is unable to do so, the amount of the expenditure would, by reason of Section 69-C of the Income-tax Act, 1961, be deemed to be his concealed income liable to tax. Even if we assume that in some rare and exceptional case the assessee may be able to establish that he sold special bearer bonds against receipt of black money, the 2154 purchaser would straightway run into difficulties because the evidence furnished by the assessee would, in such a case, clearly establish that the purchaser had black money and he paid it to the assessee by way of consideration and he would in that event be rendered liable to tax and penalty in respect of such black money. This would show the utter improbability bordering almost on impossibility, of special bearer bonds being subjected to any such abuse as is apprehended by the petitioners. 16. It was then urged on behalf of the petitioners that Section 4, Clause (c) operates only in relation to a period before the date of maturity of special bearer bonds and after the date of maturity, the holder of special bearer bonds can sell such bonds, and, without running any risk, disclose the consideration received by him as his white money, because Section 4, Clause (c) being out of the way, he can account for the possession of such money by showing that he has received it as consideration for sale of special bearer bonds and so far as the purchaser is concerned, if he has paid the consideration out of his black money, he can claim the immunity granted under Section 3, sub-sec. (1) and his black money would be converted into white. (1) and his black money would be converted into white. Thus the black money of the seller which had been converted into white on his subscribing to or otherwise acquiring special bearer bonds would remain white and in addition, the black money of the purchaser would also be converted into white by reason of his purchase of special bearer bonds. This argument, plausible though it may seem, is in our opinion, fallacious and cannot be sustained. It is a highly debatable issue whether, under the provisions of the Act, special bearer bonds are at all intended to be transferable after the date of maturity, for the postulate of the legislation clearly seems to be that on the date of maturity, special bearer bonds will be encashed. It is indeed difficult to believe that any one holding special bearer bonds would keep them uncashed without earning any interest from and after the date of maturity, when they can be immediately encashed and the amount received can be invested yielding interest ranging between 18 per cent to 40 per cent. Moreover, special bearer bonds would cease to be exempt from wealth-tax from and after the date of maturity and they would therefore be incredible in the net wealth of the holder for the purpose of wealth-tax and if that be so, how would it benefit the holder to keep them as part of his net wealth and pay wealth-tax upon it without earning any interest ? It is therefore extremely unlikely that special bearer bonds would remain uncashed after the date of maturity and it would be equally improbable that anyone should want to purchase special bearer bonds after the date of maturity when they do not yield any interest but are still includible in the net wealth for the purpose of liability to wealth-tax. But let us assume for the purpose of argument that in a given case special bearer bonds are not encashed on the date of maturity and they are lawfully transferred after the date of maturity for a consideration paid by the purchaser. There are two alternatives : the consideration may be paid by the purchaser in white money or in black money. If the purchaser pays the consideration in white money, no question of conversion of further black money into white arises. It would be a straight open transaction to which no exception can be taken. There are two alternatives : the consideration may be paid by the purchaser in white money or in black money. If the purchaser pays the consideration in white money, no question of conversion of further black money into white arises. It would be a straight open transaction to which no exception can be taken. But let us consider what consequences would ensue if he pays in black money. The seller would obviously be interested in showing the consideration as his white money and there may be no difficulty so far as he is concerned, because he would be able to explain the possession of such money by claiming that he has received it by way of consideration for sale of special bearer bonds. Section 4, Clause (c) will not stand in the way of his offering that explanation. But so far as the purchaser is concerned, he will run into serious difficulties. Even if the immunity under Section 3, sub-sec. (1) were available to him after the date of maturity, he will still be in trouble, because the disclosure made by the seller would be the clearest evidence showing that the purchaser had black money which he paid by way of consideration to the seller, and this evidence, being independent of the fact of acquisition of special bearer bonds by the purchaser, would be admissible and the purchaser would be liable to tax and penalty on the amount of black money paid by him as consideration. We fail to see how transfer of special bearer bonds after the date of maturity, even if legally permissible, can be utilised for the purpose of legalising more black money into white. But we may point out that if at any time after the date of maturity or even before, it is found that there is some loopholes in the provisions of the Act or that special bearer bonds are utilised for any dishonest or nefarious purpose or are being perverted to any improper use, the legislature can always step in and amend the Act or pass other appropriate legislation with a view to preventing such abuse. It must be remembered that 2155 every legislation is an experiment in achieving certain desired ends and trial and error method is inherent in every such experiment. It must be remembered that 2155 every legislation is an experiment in achieving certain desired ends and trial and error method is inherent in every such experiment. Therefore, when experience shows that the legislation as framed has proved inadequate to achieve its purpose of mitigating an evil or there are cracks and loopholes in it which are being taken advantage of by the resourcefulness and ingenuity of those minded to benefit themselves at the cost of the State or the others, the legislature can and most certainly would intervene and change the law. But the law cannot be condemned as invalid on the ground that after a period of ten years it may lend itself to some possible abuse. 17. We may now proceed to consider the constitutional validity of the Act in the light of the above discussion as regards the scope and effect of its various provisions. It is obvious that the Act makes a classification between holders of black money and the rest and provides for issue of special bearer bonds with a view to inducing persons belonging to the former class to invest their unaccounted money in purchase of special bearer bonds, so that such money which is today lying idle outside the regular economy of the country is canalised into productive purposes. The object of the Act being to unearth black money for being utilised for productive purposes with a view to effective social and economic planning, there has necessarily to be a classification between persons possessing black money and others and such classification cannot be regarded as arbitrary or irrational. It is of course true and this must be pointed out here since it was faintly touched upon in the course of the arguments - that there is no legal bar enacted in the Act against investment of white money in subscription to or acquisition of special bearer bonds. But the provisions of the Act properly construed are such that no one would even think of investing white money in special bearer bonds and from a practical point of view, they do operate as a bar against acquisition, whether by original subscription or by purchase, of special bearer bonds with white money. We do not see why anyone should want to invest his white money in subscribing to or acquiring special bearer bonds which yield only 2 per cent. We do not see why anyone should want to invest his white money in subscribing to or acquiring special bearer bonds which yield only 2 per cent. simple interest per annum and which are not encashable for a period of not less than ten years. It is true that special bearer bonds can be sold before the date of maturity but who would pay white money for them and even if in some rare and exceptional case, a purchaser could be found who would pay the consideration in white money, no one will dare to sell special bearer bonds for white money, because of the disincentive provided in Section 4, Clause (c). The investment of white money in special bearer bonds is accordingly, as a practical measure, completely ruled out and the provisions of the Act are intended to operate only qua persons in possession of black money. There is a practical and real classification made between persons having black money and persons not having such money and this de facto classification is clearly based on intelligible differentia having rational relation with the object of the Act. The petitioners disputed the validity of this proposition and contended that the classification made by the Act is discriminatory in that it excludes persons with white money from taking advantage of the provisions of the Act by subscribing to or acquiring special bearer bonds. But this contention is totally unfounded and we cannot accept the same. The validity of a classification has to be judged with reference to the object of the legislation and if that is done, there can be no doubt that the classification made by the Act is rational and intelligible and the operation of the provisions of the Act is rightly confined to persons in possession of black money. It was then contended that the Act is unconstitutional as it offends against morality by according to dishonest assessees who have evaded payment of tax, immunities and exemptions which are denied to honest tax payers. Those who have broken the law and deprived the State of its legitimate dues are given benefits and concessions placing them at an advantage over those who have observed the law and paid the taxes due from them and this, according to the petitioners, is clearly immoral and unwarranted by the Constitution. We do not think this contention can be sustained. We do not think this contention can be sustained. It is necessary to remember that we are concerned here only with the constitutional validity of the Act and not with its morality. Of course, when we say this we do not wish to suggest that morality can in no case have relevance to the constitutional validity of a legislation. There may be cases where the provisions of a statute may be so reeking with immorality that the legislation can be readily condemned as arbitrary or irrational and hence violative of Article 14. But the test in every such case would be not whether the provisions of the statute offend against morality but whether they are arbitrary and irrational having regard to all the facts and circumstances of the case. Immorality by itself is not a 2156 ground of constitutional challenge and it obviously cannot be, because morality is essentially a subjective value, except in so far as it may be reflected in any provision of the Constitution or may have crystallised into some well-accepted norm of special behaviour. Now there can be no doubt that under the provisions of the Act certain immunities and exemptions are granted with a view to inducing tax evaders to invest their undisclosed money in special bearer bonds and to that extent they are given benefits and concessions which are denied to those who honestly pay their taxes. Those who are honest and who observe the law are mulcted in paying the taxes legitimately due from them while those who have broken the law and evaded payment of taxes are allowed by the provisions of the Act to convert their black money into 'white' without payment of any tax or penalty. The provisions of the Act may thus seem to be putting premium on dishonesty and they may not, without some justification, be accused of being tinged with some immorality, but howsoever regrettable or unfortunate it may be, they had to be enacted by the legislature in order to bring out black money in the open and canalise it for productive purposes. Notwithstanding stringent laws imposing severe penalties and vigorous steps taken by the tax administration to detect black money and despite various voluntary disclosure schemes introduced by the Government from time to time, it had not been possible to unearth black money and the menace of black money had over the years assumed alarming proportions causing havoc to the economy of the country and the legislature was therefore constrained to enact the Act with a view to mopping up black money so that instead of remaining idle, such money could be utilised for productive purposes. The problem of black money was an obstinate economic problem which had been defying the Government for quite sometime and it was in order to resolve this problem that, other efforts having failed, the legislature decided to enact the Act, even though the effect of its provisions might be to confer certain undeserved advantages on tax evaders in possession of black money. The legislature had obviously only two alternatives: either to allow the black money to remain idle and unproductive or to induce those in possession of it to bring it out in the open for being utilised for productive purposes. The first alternative would have left no choice to the Government but to resort to deficit financing. or to impose a heavy dose of taxation. The former would have resulted in inflationary pressures affecting the vulnerable sections of the society while the latter would have increased the burden on the honest tax payer and perhaps led to greater tax evasion. The legislature therefore decided to adopt the second alternative of coaxing persons in possession of black money to disclose it and make it available to the Government for augmenting its resources for productive purposes and with that end in view, enacted the Act providing for issue of special bearer bonds. It may be pointed out that the idea of issuing special bearer bonds for the purpose of unearthing black money was not a brain wave which originated for the first time in the mind of the legislature in the year 1981. It may be pointed out that the idea of issuing special bearer bonds for the purpose of unearthing black money was not a brain wave which originated for the first time in the mind of the legislature in the year 1981. The suggestion for issue of special bearer bonds was made as far back as 1950 by some of the members of the provisional Parliament, notably those belonging to the opposition and the Government was repeatedly asked why it was not issuing special bearer bonds in order to absorb the liquidity and thereby control the inflationary pressures in the country. Though the majority of the members of the Wanchoo Committee expressed themselves against the issue of special bearer bonds, Shri Chitale, a member of that Committee wrote a dissenting note in which he suggested that special bearer bonds should be issued. We may point out that the majority members of the Wanchoo Committee were against issue of special bearer bonds for the purpose of mopping up black money, because they apprehended certain abuses to which special bearer bonds might be subjected, but as we have already pointed out while discussing the true meaning and legal effect of the provisions of the Act, we do not think that there is any scope for such abuses, for the legislature has, while enacting the provisions of the Act, taken care to see that such abuses are reduced to the minimum, if not eliminated altogether. 18. It is true that certain immunities and exemptions are granted to persons investing their unaccounted money in purchase of special bearer bonds but that is an inducement which has to be offered for unearthing black money. Those who have successfully evaded taxation and concealed their income or wealth despite the stringent tax laws and the efforts of the tax department are not likely to disclose their unaccounted money without some inducement by way of immunities and exceptions and it must necessarily be left to the legislature to decide what immunities and exemptions would be sufficient for the purpose. It would be outside the 2157 province of the Court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. It would be outside the 2157 province of the Court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. That would depend upon diverse fiscal and economic considerations based on practical necessity and administrative expediency and would also involve a certain amount of experimentation on which the Court would be least fitted to pronounce. The Court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The Court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not. There are so many imponderables that would enter into the determination that it would be wise for the Court not to hazard an opinion where even economists may differ. The Court must while examining the constitutional validity of a legislation of this kind, "be resilient, not rigid, forward looking, not static, liberal, not verbal" and the Court must always bear in mind the constitutional proposition enunciated by the SC of the United States in Munn v. Illinois 94 US 13, namely, that "Courts do not substitute their social and economic beliefs for the judgment of legislative bodiess." The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The Court should constantly remind itself of what the SC of the United States said in Metropolis Theater Co. v. City of Chicago, (1912) 57 L Ed 730. "The problems of' Government are practical ones and may justify, if they do not require, rough accommodations, illogical it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere errors of Government are not subject to our judicial review." It is true that one or the other of the immunities or exemptions granted under the provisions of the Act may be taken advantage of by resourceful persons by adopting ingenious methods and devices with a view to avoiding or saving tax. But that cannot be helped because human ingenuity is so great when it comes to tax avoidance that it would be almost impossible to frame tax legislation which cannot be abused. But that cannot be helped because human ingenuity is so great when it comes to tax avoidance that it would be almost impossible to frame tax legislation which cannot be abused. Moreover, as already pointed out above, the trial and error method is inherent in every legislative effort to deal with an obstinate social or economic issue and it it is found that any immunity or exemption granted under the Act is being utilised for tax evasion or avoidance not intended by the legislature, the Act can always be amended and the abuse terminated. We are accordingly of the view that none of the provisions of the Act is violative of Article 14 and its constitutional validity must be upheld. 19. These were the reasons for which we passed our order dated 2nd September, 1981 rejecting the challenge against the constitutional validity of the Ordinance and the Act and dismissing the writ petitions. Since these writ petitions are in the nature of public interest litigation, we directed that there should be no order as to costs. GUPTA, J. (Minority view- 13th Nov., 1981):- 20. I was unable to share the view taken by the majority in disposing of these writ petitions on Sept. 2, 1981 that "neither the Special Bearer Bonds (Immunities and Exemptions) Ordinance. 1981 nor the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 is violative of Art. 14 of the Constitution", and I made the following order on the same day:- "I have come to the conclusion that the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 violate Article 14 of the Constitution and are therefore invalid. I would allow the writ petitions with costs. I shall give my reasons later." 21. Here briefly are my reasons. 22. These five writ petitions question the constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 and Special Bearer Bonds (Immunities and Exemptions) Act, 1981. The Ordinance which was promulgated by the President on Jan. 12, 1981 was repealed and replaced by the Act. The Act received the President's assent on March 27, 1981. Section 1 (3) of the Act says that it shall be deemed to have come into force on Jan. 12, 1981. The Ordinance which was promulgated by the President on Jan. 12, 1981 was repealed and replaced by the Act. The Act received the President's assent on March 27, 1981. Section 1 (3) of the Act says that it shall be deemed to have come into force on Jan. 12, 1981. The provisions of the Ordinance and the Act are similar except that Section 4 (c) of the Act is worded slightly differently from the corresponding provision of the Ordinance but the difference is not material and I shall hereinafter refer to the provisions of the Act only. 23. As the long title of the Act shows, it isis "An Act to provide for certain immunities to holders of Special Bearer Bonds, 1991 and for certain exemption from the direct taxes in relation to such Bonds and for matters connected therewith." The purpose 2158 for which the Act was passed as appering from the preamble is :- "whereas for effective economic and social planning it is necessary to canalise for productive purposes black money which hasbecome a serious threat to the national economy; And whereas with view to such canalisation the Central Government has decided to issue at par certain bearer bonds, to be knoown as the special bearer Bonds, 1991 of the face value of ten thosuand rupees and redemption value, after ten years, of twelve thousand rupees; And whereas it is expedient to provide for certain immunities and exemptions to render it possible for persons in possession of black money to invest the same in the said Bonds" : The preamble thus takes note of the fact that black money has become a serious threat to national economy and says that to make economic and social planning effective it is necessary to canalise this black money for productive purposes. The Act does not attempt to define black money. The Direct Taxes Enquiry Committee set up by the Government of India in 1970 with Shri K. N. Wanchoo, retired Chief Justice of the SC of India, as Chairman explains what the term black money means in its final report submitted in Dec., 1971 : "it (black money) is, as its name suggests, 'tainted' money - money which is not clean or which has a stigma attached to it ......... Black is a colour which is generally associated with evil. Black is a colour which is generally associated with evil. While it symbolises something which violates moral, social or legal norms, it also suggests a veil of secrecy shrouding it. The term 'black money' consequently has both these implications. It not only stands for money earned by violating legal provisions - even social conscience - but also suggests that such money is kept secret and not accounted for. Today the term 'black money' is generally used to denote unaccounted money or concealed income and/or undisclosed wealth, an well as money involved in transactions wholly or partly suppressed." The Act contains nine sections. The sections that are relevant for the present purpose are set out below. 3. "Immunities. (1) Notwithstanding anything contained in any other law for the time being in force, (a) no person who has subscribed to or has otherwise acquired Special Bearer Bonds shall be required to disclose, for any purpose whatsoever, the nature and source of acquisition of such Bonds; (b) no inquiry or investigation shall be commenced against any person under any such law on the ground that such person has subscribed to or has otherwise acquired Special Bearer Bonds; and (c) the fact that a person has subscribed to or has otherwise acquired Special Bearer Bonds shall not be taken into account and shall be inadmissible as evidence in any proceedings relating to any offence or the imposition of any penalty under any such law. (2) x x x x 4. Acquisition, etc. (2) x x x x 4. Acquisition, etc. of Bonds not to be taken into account for certain proceedings.- Without prejudice to the generality of the provisions of Section 3, the subscription to, or acquisition of, Special Bearer Bonds by any person shall not be taken into account for the purpose of any proceedings under the Income-tax Act, 1961 (hereinafter referred to as the Income-tax Act), the Wealth-tax Act, 1957 (hereinafter referred to as the Wealth-tax Act) or the Gift Tax Act, 1958 (hereinafter referred to as the Gift Tax Act) and, in particular, no person who has subscribed to, or has otherwise acquired, the said Bonds shall be entitled- (a) to claim any set-off or relief in any asessment, re-assessment, appeal, reference of other proceeding under the Income-tax Act or to reopen any assessment or re-assessment made under that Act on the ground that he has subscribed to or has otherwise acquired the said Bonds; (b) to claim, in relation to any period before the date of maturity of the said Bonds, that any asset which is includible in his net wealth for any assessment year under the Wealth-tax Act has been converted into the said Bonds; or (c) to claim, in relation to any period before the date of maturity of the said Bonds, that any asset held by him or any sum credited in his books of account or otherwise held by him represents the consideration received by him for the transfer of the said Bonds. 5. Amendment of Act 43 of 1961.- In the Income-tax Act,- (a) in section 2, in Clause (14), after sub-clause (iv), the following sub-clause shall be inserted, namely :- "(v) Special Bearer Bonds, 1991, issued by the Central Government;" (b) in Section 10, in Clause (15), after sub-clause (ia), the following sub-clause shall be inserted., namely :- "(ib) premium on the redemption of Special Bearer Bonds, 1991;" 2159 6. Amendment of Act 27 of 1957.- In Section 5 of the Wealth-tax Act, in sub-section (1), after Clause (xvia), the followingclause shall be inserted, namely :- "(xvib) Special Bearer Bonds, 1991": 7. Amendment of Act 18 of 1958.- In Section 5 of the Gift Tax Act, in sub-sec. Amendment of Act 27 of 1957.- In Section 5 of the Wealth-tax Act, in sub-section (1), after Clause (xvia), the followingclause shall be inserted, namely :- "(xvib) Special Bearer Bonds, 1991": 7. Amendment of Act 18 of 1958.- In Section 5 of the Gift Tax Act, in sub-sec. (1), after Clause (iiia), the following clause shall be inserted, namely:- "(iiib) of property in the form of Special Bearer Bonds, 1991"; The marginal notes against Sections 5,6 and 7 indicate that these sections are amendments respectively of the Income-tax Act of 1961, Wealth-tax Act of 1957 and Gift Tax Act of 1958. Section 5 excludes Special Bearer Bonds, 1991 from the capital asset of an assessee and exempts the premium payable on the redemption of the Bonds from income-tax. Section 6 exempts the Bonds from wealth-tax. Section 7 exempts from gift-tax property in the form of these Bonds. 24. The Act has been challenged mainly on the ground that it infringes Art. 14 of the Constitution. Article 14 forbids class legislation but permits classification. Permissible classification, it is well established, must satisfy two conditions which Das J. enunciated in State of West Bengal v. Anwar Ali Sarkar, 1952 SCR 284 as follows : "(1) that the classification must be founded on an intelligible differentia which distinguishes; those that are grouped together from others and, (2) that the differentia must have a rational relation to the object sought to be achieved by the Act." The immunities provided by the impugned Act are clearly for the benefit of those who have acquired the Bonds with black money. Clauses (a), (b) and (c) of Section 3 (1) provide for these immunities "notwithstanding anything contained in any other law for the time being in force." Clause (a) states that no holder of Special Bearer Bonds shall be required to disclose for any purpose the nature and source of acquisition of the Bonds. Clause (b) forbids commencement of any enquiry or investigation under any law against a person on the ground that he has subscribed to or otherwise acquired the Bonds. Under Clause (c) the fact that a person has subscribed to or otherwise acquired Special Bearer Bonds shall be inadmissible in evidence and cannot be taken into account in any proceeding relating to any offence or the imposition of any penalty under any law. Under Clause (c) the fact that a person has subscribed to or otherwise acquired Special Bearer Bonds shall be inadmissible in evidence and cannot be taken into account in any proceeding relating to any offence or the imposition of any penalty under any law. None of these immunities is required by a person who has paid 'white' money, that is, money that has been accounted for, to quire the Bonds. To a person who has disclosed the source of acquisition of the Bonds, these immunities are of no use. Section 4 makes it clear that the immunities by the Act are of use only to those who have acquired the Bonds with unaccounted money. Sec. 4 states that the fact that one has subscribed to or otherwise acquired the Bonds shall not be taken into account in any proceedings under the I.-T. Act, 1961, the W.-T. Act, 1957 and the G. T. Act, 1938 and goes on to provide specifically that no one shall be entitled to : (a) any manner of relief under the Income-tax Act on the ground that he has acquired the Bonds; or (b) claim that any asset belonging to him which formed part of his net wealth in any period before the maturity of the Bonds, has been converted into such Bonds; or (c) claim that any asset held by him or any sum of money credited in his books of account or otherwise held by him in the aforesaid period is the consideration received by him for the transfer of the Bonds. Mr. Salve appearing for the petitioners in Writ Petitions Nos. 863 and 994 of 1981 contended that Section 4 (c) did not constitute absolute bar to the assessee seeking to prove that the said sum or asset represents the sale price of Special Bearer Bonds; on behalf of the Union of India it was asserted that this was an absolute bar. In view of the conclusion I have reached, I do not propose to decide the point and I shall proceed on the basis that it is an absolute bar. It is apparent from Cls. (a) to (c) of Section 4 that the rights they deny affect only those who have disclosed their source of acquisition of the Bonds. Those in whose case the source of acquisition has not been detected are not affected by the prohibition contained in S. 4. It is apparent from Cls. (a) to (c) of Section 4 that the rights they deny affect only those who have disclosed their source of acquisition of the Bonds. Those in whose case the source of acquisition has not been detected are not affected by the prohibition contained in S. 4. The impugned Act denies to those who have acquired the Bonds not with black money any relief under the Income-tax Act or the Wealth-tax Act or any benefit in any other way claimed on the ground that they are holders of Special Bearer Bonds, and the relief and the benefit denied to them have been made available to those who have acquired the Bonds with black money by ignoring the source of acquisition in their case. 25. The Act thus distinguishes between two classes of holders of Special Bearer Bonds: tax-evaders and honest tax-payers. Has this classification a rational relation to the object of the Act? The object, as already noticed, is to canalise black money for productive purposes to make economic and 2160 social planning effective. If the exemptions and immunities conferred by the Act are sufficiently attractive to induce tax-evaders to acquire Special Bearer Bonds, they will remain as attractive even if all these benefits were granted to those who will pay 'white' money for the Bonds. Denial of these benefits to those who have acquired the Bonds with money which has been accounted for does not in any way further the object of canalisation of black money for productive purposes. The discrimination in favour of black money therefore seems to be obvious. It was however argued that no one would be inclined to invest 'white' money for Special Bearer Bonds which carry only 2 per cent annual interest. I do not think this is a consideration which could justify the discrimination. Apart from that, a return of 2 per cent simple interest per annum is not a correct measure of the actual advantages conferred by the Act. Taking into account the income-tax and the wealth-tax savings if one did not have to pay any tax on the amount with which Special Bearer Bonds were acquired - purchasers of the Bonds with black money did not - and the tax free premium on the bonds, the actual return would be many times more than 2 per cent simple interest per annum. It must therefore be held that the basis on which the holders of Special Bearer Bonds have been classified to give certain advantages to one class and deny them to the other has no rational nexus with the object of the Act. 26. The matter has another aspect. The classification of holders of Special Bearer Bonds into tax-payers and tax-evaders does disclose a basis. Would it be in acceptable argument to say that this basis has a relation to the object of the Act because the black money invested in Special Bearer Bonds by tax-evaders could be utilitised for productive purposes for ten years and that both the conditions of a valid classification were thus satisfied? I am afraid not. In State of West Bengal v. Anwar Ali Sarkar, ( AIR 1952 SC 75 at p. 93) Das J. points out : The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while the Article (Art. 14) forbids class legislation in the sense of making improper discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liability proposed to be imposed, it does not forbid classification for the purpose of legislation.... .... ....." In Anwar Ali Sarkar's case the constitutional Validity of the West Bengal Special Courts Act (X of 1950) constituting Special Courts and empowering the State Government to refer 'cases' or 'offences' or 'classes of cases' or 'classes of offences' to such courts was in question. The object of the West Bengal Act was to provide for the speedier trial of certain offences. Das, J. observes further (at P. 95): "To achieve this object, offences or cases have to be classified upon the basis of some differentia which will distinguish those offences or cases from others and which will have a reasonable relation to the recited object of the Act. Das, J. observes further (at P. 95): "To achieve this object, offences or cases have to be classified upon the basis of some differentia which will distinguish those offences or cases from others and which will have a reasonable relation to the recited object of the Act. The differentia and the object being, as I have said different elements, it follows that the object by itself cannot be the basis of the classification of offences or the cases, for, in the absence of any special circumstances which may distinguish one offence or one class of offences or one class of cases from another offence, or class of offences or class of cases. speedier trial is desirable in the disposal of all offences or classes of offences or classes of cases." If the differentia, that is, the basis of classification, and the object of the Act are distinct things, it follows that it is not enough that the differentia should have a nexus with the object, but if should also be intelligible. The presence of some characteristics in one class, which are not found in another is the difference between the two classes, but a further requirement is that this differentia must be intelligible. If the basis of classification is on the face of it arbitrary in the sense that it is palpably unreasonable, I do not think it is possible to call the differentia intelligible. The following passage from the judgment of Bose, J. in Anwar Ali Sarkar's case ( AIR 1952 SC 75 at p. 102) illustrates the point : "I can conceive of cases where there is the utmost good faith and where the classification is scientific and national and yet which would offend this law. Let us take an imaginary case in which if State legislature considers that all accused persons whose skull measurements are below a certain standard or who cannot pass a given series if intelligence tests, shall be tried summarily whatever the offence on the ground that the less complicated the trial the fairer it is to their substandard of intelligence. Here is classification. It is scientific and systematic. The intention and motive are good. There is no 2161 question of favouritism, and yet I can hardly believe that such a law would be allowed to stand. But what would be the true basis of the decision? Here is classification. It is scientific and systematic. The intention and motive are good. There is no 2161 question of favouritism, and yet I can hardly believe that such a law would be allowed to stand. But what would be the true basis of the decision? Surely simply this that the Judges would not consider that fair and proper." The scope of Article 14 was further elaborated in some of the later decisions of this Court., This is what Bhagwati, J. speaking for himself and Chandrachud and Krishna Iyer, JJ. in E. P. Royappa v. State of Tamil Nadu, (1974) 2 SCR 348 says : "We cannot countenance any attempt to truncate its all-embracing scope and meaning, for to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it cannot be "cribbed, cabined and confined" within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Art. 14 ........" Bhagwati, J. reiterates in Maneka Gandhi v. Union of India, (1978) 2 SCR 621 what he had said in Royappa's case and adds (at p. 624): "The principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non-arbitrariness pervades Article 14 like a brooding omnipresence .... ." 27. To pass the test of reasonableness if it was enough that there should be a differentia which should have some connection with the object of the Act, then these observations made in Maneka Gandhi and Royappa would be so much wasted eloquence. The decisions of this Court insist that the differentia must be intelligible and the nexus rational, and the observations quoted above would seem to be appropriate only if we attach some significance to the words 'intelligible' and 'rational'. The question however remains: when is one justified in describing something as arbitrary or unreasonable? Terms like 'reasonable', 'just' or 'fair' derive their significance from the existing social conditions. W. Friedmann in his "Legal Theory" (5th Edn. The question however remains: when is one justified in describing something as arbitrary or unreasonable? Terms like 'reasonable', 'just' or 'fair' derive their significance from the existing social conditions. W. Friedmann in his "Legal Theory" (5th Edn. page 80) points out that expressions like "a reasonable and fair price" or a "fair and equitable" restitution means "nothing except in conjunction with the social conditions of the time". Brandeis, J. in his opinion in Quaker City Cab Co. v. Commonwealth of Pennsylvania, (1927) 72 Law Ed 927 explains when a classification shall be reasonable: "We call that action reasonable which an informed, intelligent, just-minded, civilized man could rationally favour." Bose, J. in Anwar Ali Sarkar's case says much the same thing in holding that the West Bengal Special Courts Act of 1950 offends Art. 14 : "We find men accused of heinous crimes called upon to answer for their lives and liberties. We find them picked out from their fellows, and however much the new procedure may give them a few crumbs of advantage, in the bulk they are deprived of substantial and valuable privileges of defence which others, similarly charged, are able to claim. It matters not to me, nor indeed to them and their families and their friends, whether this be done in good faith, whether it be done for the convenience of Government, whether the process can be scientifically classified and labelled, or whether it is an experiment in speedier trials made for the good of society at large. It matters not how lofty and laudable the motives are. The question with which I charge myself is, can fairminded, reasonable, unbiased and resolute men, who are not swayed by emotion or prejudice, regard this with equanimity and call it reasonable, just and fair, regard it as that equal treatment and protection in the defence of liberties which is expected of a sovereign democratic republic in the conditions which obtain in India today ?" 28. Keeping in mind these observations on what is reasonable, is the basis on which the holders of Special Bearer Bonds have been classified into two groups, honest taxpayers and tax-evaders, intelligible? What is arbitrary and offends Art. 14, cannot be called intelligible. Keeping in mind these observations on what is reasonable, is the basis on which the holders of Special Bearer Bonds have been classified into two groups, honest taxpayers and tax-evaders, intelligible? What is arbitrary and offends Art. 14, cannot be called intelligible. it is clear from the provisions of the Act set out earlier that the advantages which the tax-evaders derive from the immunities provided by the Act are not available to those who have acquired the Bonds with 'white' money. The Act promises anonymity and security for tax-evaders. No question can be asked as to the nature and source of acquisition or possession of the Bonds. The Bonds can be transferred freely, and the apprehension expressed by the petitioners cannot be said to be baseless that passing from hand to hand the Bonds are likely to operate as parallel currency and be used for any kind of transaction. From a reading of the preamble of the Act it does 2162 not seem that the object of the Act was only to enable the Central Government to have some use for 10 years of the black money which is said to have "become a serious threat to the national economy". As I read the preamble the purpose of the Act is to unearth black money and use it for productive purposes for effective economic and social planning. If that be the object of the Act, it is difficult to see how its provisions held to achieve the intended purpose. The Act discloses a scheme which enables tax-evaders to convert black money into white after 10 years and in the meantime use the Bonds as parallel currency initiating a chain of black money investments. There is no provision in the Act requiring that on maturity of the Bonds their holders would have to disclose their identity, which means that if after 10 years black money which had taken the shape of Special Bearer Bonds goes underground again and retain its colour, there is nothing to prevent it. There is nothing in the scheme to halt generation of black money which threatens the national economy. Some people by successful evasion manoeuvres are able to throw the burden of taxation off their own shoulders which means a greater burden on the honest tax-payers and this leads to economic imbalance. There is nothing in the scheme to halt generation of black money which threatens the national economy. Some people by successful evasion manoeuvres are able to throw the burden of taxation off their own shoulders which means a greater burden on the honest tax-payers and this leads to economic imbalance. On the effect of giving concessions to such unscrupulous tax-evaders in preference to the honest tax-payers, Mr. R. K. Garg appearing in person and Mr. Salve both repeated what the Direct Taxes Enquiry Committee's final report says: "Resorting to such a measure ... ... ... would only shake the confidence of the honest tax-payers in the capacity of the Government to deal with the law breakers and would invite contempt for its enforcement machinery." Counsel for the petitioners submitted further that measures like the Special Bearer Bonds Scheme would tempt more people to evade taxes and instead of serving a legitimate public interest would grievously damage it. 29. It has been pointed out that there have been voluntary disclosure schemes in the past. That is so, but none of them is quite like the scheme in question which not only exempts the unaccounted money in the shape of Special Bearer Bonds from all taxes but provides also for tax-free premium on it. According to the petitioners, if the earlier schemes have been conciliatory, the present scheme amounts to capitulation to black money. I asked the Attorney General if it was his case that all attempts to unearth black money had failed and the present scheme was the only course open. His answer was that that was not his case. The affidavit filed on behalf of the Union of India also does not make such a case. Clearly, the impugned Act puts a premium on dishonesty without even a justification of necessity - that the situation in the country left no option. 30. The Act has been criticised as immoral and unethical. Any law that rewards law breakers and tax dodgers is bound to invite such criticism. Should the Court concern itself with questions of morality and ethics in considering the constitutional validity of an Act? Of course no law can be struck down only on the ground that it is unethical. However as Friedmann in his "Legal Theory" (page 43) says "There cannot be - and there never has been - a complete separation of law and morality. Of course no law can be struck down only on the ground that it is unethical. However as Friedmann in his "Legal Theory" (page 43) says "There cannot be - and there never has been - a complete separation of law and morality. Historical and ideological differences concern the extent to which the norms of the social order are absorbed into the legal order." It has been held by this Court in Royappa, ( AIR 1974 SC 555 ) and Maneka Gandhi, ( AIR 1978 SC 597 ) that the principle of reasonableness is an essential element of equality. The concept of reasonableness does not exclude notions of morality and ethics. I do not see how it can be disputed that in the circumstances of a given case considerations of morality and ethics may have a bearing on the reasonableness of the law in question. 31. Having regard to the provisions of the impugned Act which I have discussed above and the object of the Act to which I have referred, is it possible to say that it is reasonable to classify the holders of Special Bearer Bonds into honest tax-payers and tax-evaders for the purpose of conferring benefits on the tax-evaders and denying them to those who have honestly paid their taxes, especially when a measure appeasing the tax-evaders to the extent the scheme in question does is not claimed as unavoidable? The informed, fair-minded, civilized man on whose judgment both Brandeis J. and Bose J. rely, would he have found the basis of the classification intelligible? The questions answer themselves, the arbitrary character of the differentiation is so obvious. I do not think it is possible to take the rhetoric of Royappa and Maneka Gandhi seriously and find that the Act passes the test of reasonableness. 32. What I have said above on the Special Bearer Bonds Scheme should not be read as an expression of opinion on the wisdom of the Government policy - that the scheme is not the best in the circumstances. My conclusion is based not on what the policy of 2163 the Government is but on what the equality clause in Art. 14 requires. 33. My conclusion is based not on what the policy of 2163 the Government is but on what the equality clause in Art. 14 requires. 33. Having held that the Special Bearer Bonds (immunities and Exemptions) Ordinance, 1981 and the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 are invalid on the ground that they infringe Article 14 of the Constitution, I do not find it necessary to consider whether Special Bearer Bonds (Immunities and Exemptions) Ordinace, 1981 is outside the ordinance making power of the President under Art. 123 of the Constitution. Petitions dismissed. For Citation : AIR 1981 SC 2138