JUDGMENT : A.C. Gupta, J. - I was unable to share the view taken by the majority in disposing of these writ petitions on September 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 Art. 14 of the Constitution and are there- fore invalid. I would allow the writ petitions with costs. I shall give my reasons later." Here briefly are my reasons. 2. 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 The ordinance which was promulgated by the President on January 1 2, 1981 was repealed and replaced by the Act. The Act received the President's assent on March 27. 1981. Section I (3) of the Act says that it shall be deemed to have come into force on January 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. 3. 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. 3. As the long title of the Act shows, it is "An Act to provide for certain immunities to holders of Special Bearer Bonds, 1991 and for certain exemptions from the direct taxes in relation to such Bonds and for matters connected therewith." The purpose for which the Act was passed as appearing from the preamble is:- "Whereas for effective economic and social planning it is necessary to canalise for productive purposes black money which has become a serious threat to the national economy: And whereas with a view to such canalisation the Central Government has decided to issue at par certain bearer bonds to be known as the Special Bearer Bonds, 1991 of the face value of ten thousand 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 per sons 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 Supreme Court of India, as Chairman explains what the term black money means in its final report submitted in December, 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. 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. 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. And whereas it is expedient to provide for certain immunities and exemptions to render it possible for per sons in possession of black money to invest the same in the said Bonds ;" Today the term 'black money' is generally used to denote unaccounted money or concealed income and/or undisclosed wealth, as 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. "Immunities" - 3.(1) Notwithstanding anything contained ties 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 other wise 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) Acquisition, etc., of Bonds not to Bonds not to be taken into account for certain proceedings 4. (2) Acquisition, etc., of Bonds not to Bonds not to be taken into account for certain proceedings 4. 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 proceeding 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 assessment, re-assessment, appeal, reference or 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 or 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. Amendment of Act 43 of 1961 5. In the Income-tax Act,- (a) in section 2, in clause (14), after sub clause Act (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 :" . Amendment of Act 27 of 1967 6. In section 5 of the Gift-tax Act, in sub-section (1), after clause (xvia), the following clause shall be inserted, namely:- "(xvib)(iiib) Special Bearer Bonds, 1991." Amendment of Act 18 of 1958 7. In Section 5 of the Gift-tax Act. Amendment of Act 27 of 1967 6. In section 5 of the Gift-tax Act, in sub-section (1), after clause (xvia), the following clause shall be inserted, namely:- "(xvib)(iiib) Special Bearer Bonds, 1991." Amendment of Act 18 of 1958 7. In Section 5 of the Gift-tax Act. In Sub-section (1) after Clause (ii)(a) 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. 4. The Act has been challenged mainly on the ground that it infringes Art. 14 of the Constitution. Art. 14 forbids class legislation but permits classification. Permissible classification, it is well established, must satisfy two conditions which Das J. enunciated in the 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 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 acquire 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 conferred by the Act are of use only to those who have acquired the Bonds with unaccounted money. Section 4 states that the fact that one has subscribed to or otherwise acquired the Bonds shall not be taken into account in any proceeding under the Income-tax Act, 1961, the Wealth-tax Act, 1957 and the Gift- tax Act, 1958 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 65 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 an 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 clauses (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 section 4. It is apparent from clauses (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 section 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 by 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. 5. 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 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. 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. 6. 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 an 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 utilised 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, (supra) 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 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' '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: "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: "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 it 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 illustrates the point: "I can conceive of cases where there is the utmost good faith/and where the classification is scientific and rational and yet which would offend this law. Let us take an imaginary case in which a State legislature considers that all accused persons whose skull measurements are below a certain standard, or who cannot pass a given series of intelligence tests, shall be tried summarily whatever the offence on the ground that the less complicated the trial the fairer it is to their sub-standard of intelligence. Here is classification. It is scientific and systematic. The intention and motive are good. There is no 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 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 Art. 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 and another, (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 "cribed, cabbined and confined" within traditional and doctrinaire limits. From a positivistic points 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 S.C.R. 621 what he had said in Royappa's case and adds: "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 . . . " 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 Ed. 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 Ed. 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, 72 Law Ed. 927 explains when a classification shall be reasonable: 'We call that action reasonable which an informed, intelligent, just-minded, civilized men could rationally favour." Bose J. in Anwar Ali Sarkar's case says much the same thing in holing 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 fair-minded, 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 ?" 7. 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 tax-payers 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 tax-payers 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 he 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 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 help 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 under-ground 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 of 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 of 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." 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. 8. 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 a 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 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. 9. 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. 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. Historical and ideological differences concern the extent to which the norms of the social order are absorbed into the general order." It has been held by this Court in Royappa and Maneka Gandhi 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. 10. 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 E 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. 11. 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 circumstances. My conclusion is based not on what the policy of the government is but on what the equality clause in Art. 14 requires. 12. 11. 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 circumstances. My conclusion is based not on what the policy of the government is but on what the equality clause in Art. 14 requires. 12. 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 Art. 14 of the Constitution, I do not find it necessary to consider whether Special Bearer Bonds (Immunities and Exemptions) ordinance, 1981 is outside the ordinance making power of the President under Art. 123 of the Constitution. Petitions dismissed.