STATE OF TAMIL NADU & ANR. versus NATIONAL SOUTH INDIAN RIVER INTERLINKING AGRICULTURIST ASSOCIATION

[2021] 7 S.C.R. 479

STATE OF TAMIL NADU & ANR.

NATIONAL SOUTH INDIAN RIVER INTERLINKINGAGRICULTURIST ASSOCIATION

(Civil Appeal No. 6764 of 2021)

NOVEMBER 23, 2021

[DR DHANANJAYA Y CHANDRACHUD ANDA S BOPANNA, JJ.]

Administrative Law:

Policy decision – Power of judicial review – Exercise of –Government order granting waiver of loan to small and marginalfarmers – Challenge to – High Court held the grant of loan waiveras arbitrary and directed the State to grant the same benefit to allfarmers irrespective of the extent of land holding – On appeal, held:Loan waiver scheme is in pursuance of the Directive Principles ofState Policy – Objective of promoting the welfare of the farmers asa class to secure economic and social justice is well recognized byArt. 38 – Scheme cannot be held to breach Art. 14 since it does notimpose burden but affords benefit – Loan waiver scheme isintroduced with an endeavor to bring substantive equality in societyby using affirmative action to uplift the socially and economicallyweaker sections – Application of the Scheme to only the small andthe marginal farmers is justified due to the climate crisis such asdrought and flood causes large scale damages to small holdings ascompared to the large holdings due to the absence of capital andtechnology; and the small and marginal farmers belong to theeconomically weaker section of society – Thus, the classificationbased on the extent of landholding is not arbitrary – Since theclassification in the Scheme is based neither on the grounds in Art.15 nor on the ‘innate and core trait’ of an individual, it cannot bestruck down on the alleged grounds of under-inclusiveness and over-inclusiveness – Scheme propounded by the State passes musteragainst the constitutional challenge – Thus, the order passed by theHigh Court is set aside – Constitution of India – Art 14.

DEFG

Policy decision – Judicial review of – Ambit and extent of –Held: Court cannot interfere with the soundness and wisdom of

Apolicy – Policy is subject to judicial review on the limited groundsof compliance with the fundamental rights and other provisions ofthe Constitution – Courts would show higher degree of deferenceto matters concerning economic policy, compared to other mattersof civil and political rights – State and its agencies often endeavorto make economically feasible decisions – On facts, loan waiverBscheme is, in essence, social policy in pursuance of the DirectivePrinciples of State Policy, introduced with an object to eliminateinequality in status, income, and facilities.

Term policy – Meaning of – Held: Policy is the reasoningand object that guides the decision of the authority – Statutes,Cnotifications, ordinances, or Government orders are means for theimplementation of the policy of the State – To appreciate legislation,reference to the policy behind the law is required – Judicially evolvedtwo-pronged test to determine the validity of the law vis-à-vis Art.14 refers to the objective of the law because the ‘policy’ behind theDlaw is never completely insulated from judicial attention –Constitution of India – Art. 14 – Words and phrases.

Constitution of India:

Art. 14 – Classification per se, if violative of Art. 14 – Held:Classification per se is not discriminatory and violative of Art.14 –EArt. 14 only forbids class legislation and not reasonableclassification – Classification is reasonable, when based on anintelligible differentia; and the differentia must have rationalrelationship to the object sought to be achieved by the statute –There must be some yardstick to differentiate the class included andFthe others excluded from the group – Differentia used for theclassification in the Loan Waiver scheme is the total extent oflandholding by every individual – Thus, there is yardstick usedfor constituting the class for the purpose of the scheme.Art. 14 – Under-inclusive and over-inclusive classification –GMeaning and ambit of – Held: statute is ‘under-inclusive’ if itfails to regulate all actors who are part of the problem – It is ‘over-inclusive’ if it regulates actors who are not part of the problem thatthe statute seeks to address - Determination of under-inclusivenessand over- inclusiveness, and degree of deference to it is dependenton the relationship prong (‘rational nexus’ or ‘proportional’) of theH

test – Degree of proof under the test would impact the judgment ofthis Court on whether the law is under-inclusive or over- inclusive– Nexus test, unlike the proportionality test, is not tailored to narrowdown the means or to find the best means to achieve the object – Itis sufficient if the means have ‘rational nexus’ to the object –Thus, the courts show greater degree of deference to cases wherethe rational nexus test is applied – greater degree of deference isshown to classification because the legislature can classify basedon the degrees of harm to further the principle of substantiveequality, and such classification does not require mathematicalprecision.

Introduction of Loan Waiver Scheme in pursuance of anelectoral promise, if constitutionally suspect – Held: scheme cannotbe held to be constitutionally suspect merely because it was basedon an electoral promise – Scheme can be held suspect only withinthe contours of the Constitution, irrespective of the intent with whichthe scheme was introduced.

Allowing the appeal, the Court

HELD: 1.1 policy is the reasoning and object that guidesthe decision of the authority, which in this case is the State ofTamil Nadu. Statutes, notifications, ordinances, or Governmentorders are means for the implementation of the policy of the State.Therefore, it is not possible to completely appreciate the lawwithout reference to the policy behind the law. The judiciallyevolved two-pronged test to determine the validity of the lawvis-à-vis Article 14 of the Constitution, refers to the objective ofthe law because the ‘policy’ behind the law is never completelyinsulated from judicial attention. However, it is settled law thatthe Court cannot interfere with the soundness and wisdom of apolicy. policy is subject to judicial review on the limited groundsof compliance with the fundamental rights and other provisionsof the Constitution. It is also settled that the Courts would showa higher degree of deference to matters concerning economicpolicy, compared to other matters of civil and political rights.[Paras 9, 10][491-H; 492-A-C]

1.2 Economic policies broadly comprise of policies ontaxation, expenditure, and allocation. The State and its agenciesoften endeavor to make economically feasible decisions. The

Aimplementation of every policy of the State involves expenditure.Merely because the policy involves the expenditure of funds, itcannot be termed as an economic policy. The core feature of thepolicy and the targeted area needs to be determined to identifythe nature of the policy. The impugned loan waiver scheme is, inessence, social policy in pursuance of the Directive PrinciplesBof State Policy, introduced with an object to eliminate inequalityin status, income, and facilities. [Para 12][493-H; 494-A-B]

1.3 The loan waiver scheme is also in pursuance of theDirective Principles of State Policy. The scheme cannot be heldto breach Article 14 since it does not impose burden but affordsCa benefit. [Para 13][495-A-B]

Subramaniam Balaji v. State of TN (2013) 9 SCC 659 :[2013] 13 SCR 668 – relied on.

1.4 The equality code in Article 14 of the ConstitutionDprescribes substantive and not formal equality. It is now settledposition that classification per se is not discriminatory and violativeof Article 14. Article 14 only forbids class legislation and notreasonable classification. classification is reasonable, when itis based on an intelligible differentia which distinguishes personsor things that are grouped, from others left out of the group; andEthe differentia must have rational relationship to the objectsought to be achieved by the statute. There must be someyardstick to differentiate the class included and the others excludedfrom the group. The differentia used for the classification in thescheme is the total extent of landholding by every individual.FTherefore, there is yardstick used for constituting the class forthe purpose of the scheme. [Paras 14, 15][495-B-E]

State of W.B v. Anwar Ali Sarkar [1952] SCR 284 –relied on.

1.5 The reasons that seem to have guided the State of TamilGNadu for the formulation of this scheme are two- fold: the smalland marginal farmers have faced greater harm due to the erraticclimate conditions in view of the limited technology and capitalthat they possess and the State seeks to provide maximum

benefits with the minimum fund. The State submitted thatproviding the benefit of the scheme only to marginal and smallfarmers leads to maximum utility for minimum investment.However, this cannot be the objective of scheme introduced bythe State. Every scheme which involves monetary or materialdisbursement aims at providing maximum benefit with minimumexpenditure. Classification cannot thus be tested on the fiscalobjective that guides every scheme. [Paras 17, 18][496-B-C, D-E]

1.6 It is judicially recognized that the legislature is free torecognize degrees of harm and may confine its restrictions orbenefits to those cases where the need is the clearest. This Courtcannot accept that degrees of harm could be recognized basedon the general consensus of the majority of the population. Thelaw or the scheme of the Government cannot be tested on theanvil of majoritarian morality but only on constitutional morality.However, the claims made by the State cannot be acceptedwithout putting it to the test of reason through the submission ofcogent material. lesser degree of burden would substantiallyweaken the rights protection. [Para 21][497-C, E-F]

1.7 The fact that 16,94,145 small and marginal farmers haveavailed of agricultural loans as compared to 3,01,926 farmersbelonging to the ‘other category’ testifies that the small andmarginal farmers have significant capital deficit when comparedto the rest of the farmers. huge capital deficit, combined with areduction in the agricultural income due to water scarcity andcrop inundation due to floods has led to financial distress. [Para22][497-G; 498-A-B]

1.8 The Situation Assessment of Agricultural Householdsand Land and Holdings of Households in Rural India, 2019[13]undertakes an extensive discussion on the Average MonthlyIncome per Agricultural Household. The report depicts thatIndia’s small and marginal farmers have essentially become wageearners. The report also tabulates the total amount of outstandingloans held by each category of farmers. The computation showsthat households that have lands less than 0.01 hectare, use 93.1%of the agricultural loans for non- agricultural purpose. In sharp

Acontrast, household that owns 10 hectares of land only uses17.1 percentage of the agricultural loan for non- agriculturalpurposes. This depicts the poverty that envelops the class ofsmall and marginal farmers. [Paras 23, 24][498-D-E; 499-D]

1.9 The application of the impugned scheme to only theBsmall and the marginal farmers is justified for two reasons: aclimate crisis such as drought and flood causes large scaledamages to small holdings as compared to the large holdingsdue to the absence of capital and technology; and the small andmarginal farmers belong to the economically weaker section ofsociety. Therefore, the loan waiver scheme in effect targets theCeconomically weaker section of the rural population. The schemeis introduced with an endeavor to bring substantive equality insociety by using affirmative action to uplift the socially andeconomically weaker sections. Due to the distinct degree of harmsuffered by the small and marginal farmers as compared to otherDfarmers, it is justifiable that the benefit of the scheme is onlyprovided to specified class as small and marginal farmersconstitute class in themselves. Therefore, the classificationbased on the extent of landholding is not arbitrary since owing tothe inherent disadvantaged status of the small and marginalfarmers, the impact of climate change or other external forces isEunequal. [Para 25][500-A-D]

1.10 The determination of whether the classification isunder-inclusive is closely related to the test that is undertakenby the Court while determining the relationship of the means tothe end. This Court follows the two-pronged test to determine ifFthere has been violation of Article 14. The test requires thecourt to determine if there is rational nexus with the objectsought to be achieved. The Courts have used the proportionalitystandard to determine non-classificatory arbitrariness, and haveused the twin test to determine if the classification is arbitrary.G[Para 28][502-A-B; F]

1.11 While non-classification arbitrariness is tested basedon the proportionality test, where the means are required to beproportional to the object, classification arbitrariness is testedon the rational nexus test, where it is sufficient if the means share

‘nexus’ with the object. The degree of proof under the testwould impact the judgment of this Court on whether the law isunder-inclusive or over-inclusive. statute is ‘under-inclusive’if it fails to regulate all actors who are part of the problem. It is‘over-inclusive’ if it regulates actors who are not part of theproblem that the statute seeks to address. The determinationof under- inclusiveness and over-inclusiveness, and degree ofdeference to it is dependent on the relationship prong (‘rationalnexus’ or ‘proportional’) of the test. [Para 31][503-F-H; 504-A]

1.12 The nexus test, unlike the proportionality test, is nottailored to narrow down the means or to find the best means toachieve the object. It is sufficient if the means have ‘rationalnexus’ to the object. Therefore, the courts show greater degreeof deference to cases where the rational nexus test is applied. Agreater degree of deference is shown to classification becausethe legislature can classify based on the degrees of harm to furtherthe principle of substantive equality, and such classification doesnot require mathematical precision. The Indian Courts do notapply the proportionality standard to classificatory provisions.Since the classification in the impugned scheme is based neitheron the grounds in Article 15 nor on the ‘innate and core trait’ ofan individual, it cannot be struck down on the alleged grounds ofunder- inclusiveness and over-inclusiveness. [Para 32][504-B-C; D]1.13 The Scheme in issue was introduced in pursuance ofan electoral promise made by the then party in power in TamilNadu. The High Court seems to have been of the view thatbecause the scheme was in pursuance of an electoral promise, itis constitutionally suspect. This view was made on an assumptionthat no study must have been conducted before the electoralpromise was made. It is settled law that scheme cannot be heldto be constitutionally suspect merely because it was based on anelectoral promise. scheme can be held suspect only within thecontours of the Constitution, irrespective of the intent with whichthe scheme was introduced. The scheme propounded by the Stateof Tamil Nadu passes muster against the constitutional challenge.The High Court erred in holding otherwise. During the pendency

Aof the proceedings the State has granted broader coverage,based on its assessment of the situation. The judgment of theHigh Court is set aside. [Para 33, 34][504-E-G; 505-A]

Subramaniam Balaji v. State of TN (2013) 9 SCC 659 :[2013] 13 SCR 668 – relied on.

Union of India v. Dinesh Engineering Corporation(2001) 8 SCC 491; Om Kumar v. Union of India (2002)2 SCC 386; Asif Hammed v. State of Jammu & Kashmir(1989) 2 Suppl. SCC 364 : [1989] 3 SCR 19; SitaramSugar Co Ltd. v. Union of India (1990) 3 SCC 223 :C[1990] 1 SCR 909; Khoday Distilleries Ltd. v. State ofKarnataka (1996) 10 SCC 304 : [1995] 6 Suppl. SCR759; Balco Employees Union v. Union of India (2002)2 SCC 333 : [2001] 5 Suppl. SCR 511; State of Orissav. Gopinath Dash (2005) 13 SCC 495 : [2005] 5 Suppl.SCR 699; RK Garg v. Union of India (1981) 4 SCCD675 : [1982] 1 SCR 947; Navtej Singh Johar v. Unionof India (2018) 10 SCC 1 : [2018] 7 SCR 379; RamKrishna Dalmia v. SR Tendolkar AIR 1958 SC 538 :[1959] SCR 279; Mohd. Hanif Quareshi v. State ofBihar AIR 1958 SC 731 : [1959] SCR 629; BinoyEViswam v. Union of India (2017) 7 SCC 59 : [2017] 7SCR 1; State of Maharashtra v. Indian Hotel andRestaurants Association (2013) 8 SCC 519 : [2013] 7SCR 654; State of Gujarat v. Ambica Mills (1974) 4SCC 656 : [1974] 3 SCR 760; NP Basheer v. State ofKerala [2004] 2 SCR 224; EP Royappa v. State of TamilFNadu 17 (1974) 4 SCC 3 : [1974] 2 SCR 348; ModernDental College and Research Centre v. State of MP(2016) 7 SCC 353 : [2016] 3 SCR 579; SubramanianSwamy v. Union of India (2016) 7 SCC 221 : [2016] 3SCR 865; Justice Puttaswamy (9J) v. Union of IndiaG(2017) 10 SCC 1 : [2017] 10 SCR 569; Puttaswamy(Retd.) v. Union of India (2019) 1 SCC 1 : [2018] 8SCR 1; Anuj Garg v. Hotel Association of India (2008)3 SCC 1 : [2007] 12 SCR 991 – referred to.

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION

Missouri, K& T Rly v. May 194 US 267, 269 – referredto.

Aparna Chandra, ‘Proportionality in India: Bridgeto Nowhere’ (2020) Oxford Human Rights Journal;Tarunabh Khaitan, ‘Equality: Legislative Review underArticle 14’ in Sujit Choudhry, Madhav Khosla, PratapBhanu Mehta (eds), The Oxford Handbook of theIndian Constitution (Oxford University Press 2016)– referred to.

Parijat Gosh, Farmers Protest: Why are small andmarginal farmers protesting against the farm acts?,(December 11, 2020) https://en.gaonconnection.com/farmers-protests-why-are-small-and-marginal-farmers- protesting-against-the-farm-acts/; https://www.mospi.gov.in/documents/213904/301563//Report_587m1631267040957. pdf/3793650e-8cf1-7872- ae90-51470c8d211c – referred to.

[2021] 7 S.C.R.

From the Judgment and Order dated 04.04.2017 of Madurai BenchDof the High Court of Judicature at Madras in W.P.(MD) No. 18119 of2016.

Jaideep Gupta, Sr. Adv., D. Kumanan, Sheikh Fakhruddin Kalia,Advs. for the Appellants.

EK.M.Nataraj, ASG, Ms. Sonia Mathur, Sr.Adv. Rajan Kr.Chourasia, Sharat Nambiar, K.L.Jhanjhani, Ms. Saudamini Sharma,Arvind Kumar Sharma, N. Rajaraman, Advs. for the Respondent.

The Judgment of the Court was delivered by

DR. DHANANJAYA Y CHANDRACHUD, J.F

1. Division Bench of the Madras High Court at the MaduraiBench allowed the writ petition filed by the Respondent under Article226 of the Constitution for quashing G.O Ms. No. 50 which granted loanwaiver to small and marginal farmers. The High Court held the grant ofloan waivers only to small and marginal farmers to be arbitrary andGdirected the appellant to grant the same benefit to all farmers irrespectiveof the extent of landholding.

2. The Government of Tamil Nadu issued G.O Ms. No. 50 dated13 May 2016 (“Scheme”) granting waiver of outstanding crop loans,medium term (agriculture) loans and long term (farm sector) loans issuedH

to small and marginal farmers. G.O Ms. No. 59 dated 28 June 2016 wasissued providing guidelines for the implementation of G.O Ms. No. 50.The guidelines provide that for the classification of farmers as small andmarginal, the extent of landholding as mentioned in the landholding registerand loan register at the time of sanction of the agricultural loan shall betaken into consideration. As for the definition of ‘small farmer’ and‘marginal farmer’, it provides that ‘small farmer’ means farmer whoholds land of 2.5 acres to 5 acres and ‘marginal farmer’ means farmerwho holds land upto 2.5 acres. Subsequently, circular was issued bythe Registrar of Cooperative Societies on 1 July 2016 providing furtherguidelines for implementation of the scheme.

3. The respondent challenged the scheme as unconstitutional forviolation of Article 14 of the Constitution, and sought direction to provideloan waiver for all farmers irrespective of the extent of landholding. TheHigh Court allowed the writ petition holding that the exclusion of ‘otherfarmers’ – those who hold land exceeding 5 acres – from the land waiverscheme is discriminatory and violative of Article 14. It directed that thescheme be extended to all farmers including farmers whose landholdingexceeds 5 acres. The High Court was aided by the following reasons toarrive at this conclusion:

(i)Courts can exercise judicial review in the realm of policy todetermine if it conforms to the requirements of Article 14 ofthe Constitution as held by the this Court in Union of Indiav. Dinesh Engineering Corporation[1], Om Kumar v.Union of India[2]);

(ii)The All India Anna Dravida Munnetra Kazhagam(“AIADMK”) made an electoral promise to implement thescheme if voted to power. In the counter filed by therespondents, it is stated that small and marginal farmersconstitute class in themselves since they require moreassistance because of their meagre income and resources.There is no indication of this reasoning in the file. TheAIADMK introduced the scheme after being voted to powerin pursuance of the election promise, without taking intoconsideration relevant factors warranting such aclassification;

1 (2001) 8 SCC 491

2 (2002) 2 SCC 386

A(iii)The contention of the State that the objective of the schemeis to cover maximum number of beneficiaries with aminimum outlay of funds cannot be accepted. When theoverall objective of the Government is to obviate the sufferingof the farmers, classification based on the extent of holdingis not intelligible;B

(iv)Farmers who apply for an agricultural loan are not requiredto disclose all their landholdings. It would be sufficient forsecuring loan if farmer only mentions the total extent ofland for which the loan is sought. Similarly, if farmer hasland in more than one village, the loan application wouldConly mention the extent of land that falls within the specificbank’s jurisdiction. Therefore, the reliance on the totallandholding mentioned in the ‘landholding register’ at thetime of sanction of the agricultural loan for classifying farmersas ‘marginal farmers’ and ‘small farmers’ is irrational; and

D(v)The irrational method of classification leads to over-inclusiveness and under-inclusiveness.

4. Notice was issued by this Court on 3 July 2017 and the judgmentof the High Court was stayed. By an order dated 18 September 2019,a two-judge Bench consisting of Justices R Banumathi and A.S BopannaEobserved that it is open to the Government of Tamil Nadu to grant anyother ‘limited benefits’ to other categories of farmers.

5. In pursuance of the above directions, the State of Tami Naduhas produced on record GO (MS) 15 and 16 dated 8 February 2021 bywhich the Government has waived off crop loans of Rs. 12,110.74 croreFoutstanding as on 31 January 2021 availed by 16,43,346 farmers fromcooperative banks.

6. The appellant has made the following submissions:

(i)The court can interfere with the policy of the governmentonly when the action is unconstitutional or contrary toGstatutory provisions;

(ii)The scheme was formulated after studying the financialcapacity of the State;

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION [DR. DHANANJAYA YCHANDRACHUD, J.]

(iii)There is an intelligible differentia in providing loan waiveronly to small and marginal farmers since they are the mostaffected class; and

(iv)The underlying policy of the Government is to maximizethe beneficiaries with an efficient use of funds. Even iffarmers with larger landholdings suffered losses, it is fiscalBpolicy decision of the State to only extend the scheme tosmall and marginal farmers.

7. The respondents have made the following submissions:

(i)Farmers who hold more than five acres of land contributemore to the GDP and food security of the country. Thesmall and marginal farmers do not contribute to thebetterment of food security as their scale of production isminimal;

(ii)The court can interfere with policy decision if the policy isarbitrary; and

(iii)The State has failed to prove that small and marginal farmersconstitute class in itself, particularly because the farmersholding larger landholdings are better contributors and havesuffered greater losses.

8. Three issues fall for consideration. They are as follows:

(i)Whether the court can exercise its powers of judicial reviewsince the scheme is policy decision of the government;

(ii)Whether the extension of the scheme only to ‘small farmers’and ‘marginal farmers’ is arbitrary and violative of Article14 of the Indian Constitution; and

(iii)Whether the scheme is under-inclusive and over-inclusive.

9. The State of Tamil Nadu has raised preliminary contentionthat the Court cannot review the scheme since it is fiscal policy decisionof the State. Before we proceed with the arguments on Article 14, it isimperative that we discuss the law down by this Court relating to theambit and extent of judicial review of policy. An examination of thisissue must begin with the primary question of the meaning of the phrase‘policy’. policy is the reasoning and object that guides the decision ofthe authority, which in our case is the State of Tamil Nadu. Statutes,

Anotifications, ordinances, or Government orders are means for theimplementation of the policy of the State. Therefore, it is not possible tocompletely appreciate the law without reference to the policy behind thelaw. The judicially evolved two-pronged test to determine the validity ofthe law vis-à-vis Article 14 of the Indian Constitution, refers to theobjective of the law because the ‘policy’ behind the law is never completelyBinsulated from judicial attention.

10. However, it is settled law that the Court cannot interfere withthe soundness and wisdom of policy. policy is subject to judicialreview on the limited grounds of compliance with the fundamental rightsand other provisions of the Constitution.[3] It is also settled that the CourtsCwould show higher degree of deference to matters concerningeconomic policy, compared to other matters of civil and political rights.In RK Garg v. Union of India[4], this Court decided on the constitutionalvalidity of the Special Bearer Bonds (Immunities and Exemptions) Act1981. The challenge to the statute was on the principal ground that itDwas violative of Article 14 of the Indian Constitution. Rejecting thechallenge, the Constitution Bench observed that laws relating to economicactivities must be viewed with greater latitude and deference whencompared to laws relating to civil rights such as freedom of speech:

“8. Another rule of equal importance is that laws relating toEeconomic activities should be viewed with greater latitude thanlaws touching civil rights such as freedom of speech, religion etc.It has been said by no less person than Holmes, J., that thelegislature should be allowed some play in the joints, because ithas to deal with complex problems which do not admit of solutionthrough any doctrinaire or strait-jacket formula and this isFparticularly true in case of legislation dealing with economicmatters, where, having regard to the nature of the problems requiredto be dealt with, greater play in the joints has to be allowed to thelegislature. The court should feel more inclined to give judicialdeference to legislative judgment in the field of economic regulationGthan in other areas where fundamental human rights are involved.

3 Asif Hammed v. State of Jammu & Kashmir, 1989 Supp (2) SCC 364 ; SitaramSugar Co Ltd. v. Union of India, (1990) 3 SCC 223; Khoday Distilleries Ltd. v.State of Karnataka,(1996) 10 SCC 304; Balco Employees Union v. Union of India,(2002) 2 SCC 333; State of Orissa v. Gopinath Dash, (2005) 13 SCC 495H4 (1981) 4 SCC 675

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION [DR. DHANANJAYA YCHANDRACHUD, J.]

Now here has this admonition been more felicitously expressedthan in Morey v. Doud [351 US 457 : 1 L Ed 2d 1485 (1957)]where Frankfurter, J., said in his inimitable style: “In the utilities,tax and economic regulation cases, there are good reasons forjudicial self-restraint if not judicial deference to legislative judgment.The legislature after all has the affirmative responsibility. Thecourts have only the power to destroy, not to reconstruct. Whenthese are added to the complexity of economic regulation, theuncertainty, the liability to error, the bewildering conflict of theexperts, and the number of times the judges have been overruledby events — self-limitation can be seen to be the path to judicialwisdom and institutional prestige and stability.”

11. The respondent has placed reliance on BALCO EmployeesUnion v. Union of India[5]. Constitution Bench considered challengeto the decision of the Union of India to disinvest and transfer 51% sharesof Bharat Aluminum Company Limited. Rejecting the challenge, it wasobserved that that the wisdom of economic policies is not subject tojudicial review:

“92. In democracy it is the prerogative of each electedGovernment to follow its own policy. Often change in Governmentmay result in the shift in focus or change in economic policies.Any vested interests. Unless any illegality is committed in theexecution of the policy or the same is contrary to law or malafide, decision bringing about change cannot per se interferedwith by the Court.

93. Wisdom and advisability of economic policies are ordinarilynot amenable to judicial review unless it can be demonstrated thatthe policy is contrary to any statutory provision or the Constitution.In other words, it is not for the courts to consider relative merits ofdifferent economic policies and consider whether wiser or betterone can be evolved. For testing the correctness of policy, theappropriate forum is Parliament and not the courts. Here the policywas tested and the motion defeated in the Lok Sabha on 1-3-2001.”

12. Economic policies broadly comprise of policies on taxation,expenditure, and allocation. The State and its agencies often endeavor

Ato make economically feasible decisions. The implementation of everypolicy of the State involves expenditure. Merely because the policyinvolves the expenditure of funds, it cannot be termed as an economicpolicy. The core feature of the policy and the targeted area needs to bedetermined to identify the nature of the policy. The impugned loan waiverscheme is, in essence, social policy in pursuance of the DirectiveBPrinciples of State Policy, introduced with an object to eliminate inequalityin status, income, and facilities.

13. In Subramaniam Balaji v. State of TN[6], the scheme of giftsin the State of Tamil Nadu was under challenge. One of the argumentswas that the distribution of color television sets, laptops and mixer-grindersCviolates Article 14 of the Constitution as unequals are treated equallysince the gifts were distributed irrespective of the income level. Thecontention was rejected on the ground that the distribution of the giftsrelates to the implementation of the Directive Principles of State Policy.It was held that the Article 14 principle would only be applicable whenDstate action imposes burden on the citizens:

“78. With regard to the contention that distribution of State largessein the form of colour TVs, laptops, mixer-grinders, etc. violatesArticle 14 of the Constitution as the unequals are treated equally.Before we venture to answer this question, we must recallEthat these measures relate to implementation of theDirective Principles of State Policy. Therefore, the principleof not to treat unequals as equal has no applicability as faras State largesse is concerned. This principle applies onlywhere the law or the State action imposes some burden onthe citizen either financial or otherwise. Besides, whileFimplementing the directive principles, it is for the Governmentconcerned to take into account its financial resources and the needof the people. There cannot be straitjacket formula. Ifcertain benefits are restricted to particular class that canobviously be on account of the limited resources of the State.GAll welfare measures cannot at one go be made available to allthe citizens. The State can gradually extend the benefit and thisprinciple has been recognised by this Court in several judgments.”

(emphasis supplied)

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION [DR. DHANANJAYA YCHANDRACHUD, J.]

The loan waiver scheme is also in pursuance of the DirectivePrinciples of State Policy. In view of the observations in SubramaniamBalaji (supra), the scheme cannot be held to breach Article 14 since itdoes not impose burden but affords benefit. We, however, deem itimperative to determine if the scheme violates the fundamental rights, inparticular Article 14 of the Indian Constitution.

14. The equality code in Article 14 of the Indian Constitutionprescribes substantive and not formal equality. It is now settled positionthat classification per se is not discriminatory and violative of Article 14.Article 14 only forbids class legislation and not reasonable classification.A classification is reasonable, when the twin tests as laid down by JusticeSR Das in State of W.B v. Anwar Ali Sarkar[7] are fulfilled:

(i)The classification must be based on an intelligible differentiawhich distinguishes persons or things that are grouped, fromothers left out of the group; and

(ii) The differentia must have rational relationship to the objectsought to be achieved by the statute.

15. Justice Das in Anwar Ali Sarkar (supra) held that there mustbe some yardstick to differentiate the class included and the othersexcluded from the group. The differentia used for the classification inthe scheme is the total extent of landholding by every individual. Therefore,there is yardstick used for constituting the class for the purpose of thescheme.

16. The appellant contended that the objectives of the scheme arethus:

(i)Small and Medium farmers are the main producers of food,inspite of their limited access to technology, credit, andcapital;

(ii)Small and marginal farmers constitute 85% of the crop loanbeneficiaries. The objective of the State is to cover maximumbeneficiaries with minimum funds. The scheme has beenGframed after considering vital parameters such as budgetaryallocation, revenue mobilization and the position of thefarmers vis-à-vis their landholding; and

A(iii)The small and marginal farmers constitute the poor anddowntrodden class of farmers. Therefore, they havesuffered greater harm due to floods and the impact of climatechange.

17. Therefore, the reasons that seem to have guided the State ofBTamil Nadu for the formulation of this scheme are two- fold: (i) Thesmall and marginal farmers have faced greater harm due to the erraticclimate conditions in view of the limited technology and capital that theypossess; and (ii) The state seeks to provide maximum benefits with theminimum fund.

C18. In the counter affidavit before the High Court, the state averredthat by waiving Rs. 5780 Crore worth of crop loans, the number of smalland marginal farmers who would be benefitted would be 16,94,145. Onthe other hand, waiving the crop loan of Rs 1980 Crore that the otherfarmers held would only benefit 3,01,926 of them. These figures buttressthe argument of the State that providing the benefit of the scheme onlyDto marginal and small farmers leads to maximum utility for minimuminvestment. However, this cannot be the objective of scheme introducedby the State. Every scheme which involves monetary or materialdisbursement aims at providing maximum benefit with minimumexpenditure. Classification cannot thus be tested on the fiscal objectiveEthat guides every scheme.

19. The purpose of providing waiver of agricultural loans forfarmers is to uplift the distressed farmers, who have been facing thebrunt of the erratic weather conditions, low produce, and fall in the pricesbecause of the market conditions. The objective of promoting the welfareFof the farmers as class to secure economic and social justice is wellrecognized by Article 38. It needs to be determined if the classificationbased on the extent of landholding has rational nexus to the objectsought to be achieved.20. One of us (Dr DY Chandrachud) in Navtej Singh Johar v.GUnion of India[8] accentuated the inadequacies of the two-pronged testwhich seeks to elevate form over substance. The over-emphasis on the‘objective’ of the law, instead of its ‘effect’ – particularly when theobjective is ostensible – was observed not to further the true meaning ofthe equality clauses under the Indian Constitution. The traditional two-

H8 (2018) 10 SCC 1

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION [DR. DHANANJAYA YCHANDRACHUD, J.]

pronged classification test needs to be expanded for the Courts toundertake substantive review of Article 14 violations, away from theformalistic tendency that the twin test leans towards. Within the broadparameters of the two-pronged test, we find it imperative to undertake amuch more substantive review by focusing on the multi axle operationof equality and non- discrimination.

21. The State of Tamil Nadu in the counter filed before the HighCourt states that the classification was required since the small andmarginal farmers suffer agreater degree of harm because of theirlimited capacity and aid. It is judicially recognized that the legislature isfree to recognize degrees of harm and may confine its restrictions orbenefits to those cases where the need is the clearest.[9] In State ofMaharashtra v. Indian Hotel and Restaurants Association[10], Section33-A(1) of the Bombay Police Act which prohibited dance performancesin eating houses, permit rooms, or beer bars, and Section 33-B whichallowed such dances in establishments with restricted entry or threestarred or above hotels was under challenge. The State contended thatthe degree of harm in the class which is covered by Section 33 A(1) isgreater. It was held by the two- Judge Bench that the State must havesufficient material to reach the conclusion or general consensus is tobe shared by the majority of the population to base its decisions onclassification based on the degrees of harm. We are unable to acceptthat degrees of harm could be recognized based on the general consensusof the majority of the population. As held in Navtej Singh Johar (supra),the law or the scheme of the Government cannot be tested on the anvilof majoritarian morality but only on constitutional morality. However, theclaims made by the State cannot be accepted without putting it to thetest of reason through the submission of cogent material. lesser degreeof burden would substantially weaken the rights protection.[11]

22. It has been submitted that the consumption expenditure ofmarginal and small farmers exceeds their estimated income by asubstantial margin, and the deficits are covered by borrowings. Thefact that 16,94,145 small and marginal farmers have availed of agricultural

9 Ram Krishna Dalmia v. SR Tendolkar, AIR 1958 SC 538; Mohd. Hanif Quareshi v.State of Bihar, AIR 1958 SC 731; Binoy Viswam v. Union of India, (2017) 7 SCC 59.10 (2013) 8 SCC 519

11 Aparna Chandra, ‘Proportionality in India: Bridge to Nowhere’ (2020) OxfordHuman Rights Journal

Aloans as compared to 3,01,926 farmers belonging to the ‘other category’testifies that the small and marginal farmers have significant capitaldeficit when compared to the rest of the farmers. huge capital deficit,combined with reduction in the agricultural income due to water scarcityand crop inundation due to floods has led to financial distress. Small andmarginal farmers are resource deficient; they do not have borewells toBovercome the drought. These farmers are usually dependent on largefarms to access land, water, inputs, credit, technology, and markets. Itwas found that almost 40% of the irrigated land of large farmers wasfrom canals, while less than 25% of the land of small and marginal farmerswas irrigated by canals or borewells and they often resort to rentingCwater from larger landholdings. The output of produce in small andmarginal farm, for instance, paddy would not be sufficient even to feedthe small farmer’s family. Thus, majority of them purchase grains at asubsidized rate from the Public Distribution System (since these farmersfall below the poverty line) so they can sell their produce.[12]

D23. The Situation Assessment of Agricultural Households and Landand Holdings of Households in Rural India, 2019[13] undertakes an extensivediscussion on the Average Monthly Income per Agricultural Household.The report depicts that India’s small and marginal farmers have essentiallybecome wage earners. For instance, the average monthly income of anEagricultural household possessing less than 0.01 hectares of land (0.02acres) from crop production is Rs. 1,435 and from wages is Rs. 6,435.When compared to an agricultural household that possesses 2-4 hectaresof land (4.94- 9.88 acres), the income from crop production is Rs. 7,945and the income from wages is 3,548. comparative graph of the figuresis as under. The x-axis indicates the percentage of income from farmFproduce, wages, and other sources. The y-axis indicates the land heldby the farmers (in hectares):

12 Parijat Gosh, Farmers Protest: Why are small and marginal farmers protesting against--the farm acts?, (December 11, 2020) https://en.gaonconnection.com/farmersprotestswhy-are-small-and-marginal-farmers- protesting-against-the-farm-acts/1 3 t t p s : / / w w w . m o s p i . o v . i n / o u m n t s / 2 1 3 9 0 4 / 3 0 1 5 6 3 / /HReport_587m1631267040957.pdf/3793650e-8cf1-7872- ae90-51470c8d211c

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION [DR. DHANANJAYA YCHANDRACHUD, J.]

Income distribution10.00+4.01­10.002.01­4.001.01­2.000.40­1.000.01­0.40<0.010%10%20%30%40%50%60%70%80%90%100%Income from farmIncome from wagesOthers

24. The report also tabulates the total amount of outstanding loansheld by each category of farmers. The computation shows thathouseholds that have lands less than 0.01 hectare, use 93.1% of theagricultural loans for non- agricultural purpose. In sharp contrast, ahousehold that owns 10 hectares of land only uses 17.1 percentage ofthe agricultural loan for non-agricultural purposes. This depicts the povertythat envelops the class of small and marginal farmers. The percentagedistribution of the indebted agricultural households depicts that 27% ofthe households that hold between 0.01- .040 hectares of land; 34% ofthose who hold between 0.40-1 hectares and 20% of those who holdbetween 1-2 acres, are indebted. On the other hand, only 4.5% of thosewho hold 4-10 hectares and 0.6% of those who hold 10 plus hectaresare indebted. Extracted below is the graph for percentage distribution ofindebted agricultural households:

Percentage Distribution of Indebted Agricultural Households< 0.010.40 ­ 1.001.01 ­ 2.002.01 ­ 4.004.01 ­10.0010.00 +

A25. In view of the discussion above, the application of the impugnedscheme to only the small and the marginal farmers is justified for tworeasons: (i) climate crisis such as drought and flood causes large scaledamages to small holdings as compared to the large holdings due to theabsence of capital and technology; and (ii) The small and marginal farmersbelong to the economically weaker section of society. Therefore, theBloan waiver scheme in effect targets the economically weaker sectionof the rural population. The scheme is introduced with an endeavor tobring substantive equality in society by using affirmative action to upliftthe socially and economically weaker sections. Due to the distinct degreeof harm suffered by the small and marginal farmers as compared toCother farmers, it is justifiable that the benefit of the scheme is only providedto specified class as small and marginal farmers constitute class inthemselves. Therefore, the classification based on the extent oflandholding is not arbitrary since owing to the inherent disadvantagedstatus of the small and marginal farmers, the impact of climate change orother external forces is unequal.D

26. The High Court in the impugned judgment has observed thatthe scheme is both under-inclusive and over-inclusive since the totalextent of land held by person is calculated based on the information inthe landholding register which permits discrepancies. It also held thescheme to be under-inclusive for not extending the benefit to ‘otherEfarmers’ or the ‘large farmers’. The meaning and ambit of under-inclusiveness and over-inclusiveness has been discussed in an eruditeexposition by Justice K K Mathew, writing for Constitution Bench inState of Gujarat v. Ambica Mills[14] :“55. classification is under-inclusive when all who are includedFin the class are tainted with the mischief but there are others alsotainted whom the classification does not include. In other words, aclassification is bad as under- inclusive when State benefits orburdens persons in manner that furthers legitimate purposebut does not confer the same benefit or place the same burden onGothers who are similarly situated. classification is over-inclusivewhen it includes not only those who are similarly situated withrespect to the purpose but others who are not so situated as well.In other words, this type of classification imposes burden upon

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION [DR. DHANANJAYA YCHANDRACHUD, J.]

wider range of individuals than are included in the class of thoseattended with mischief at which the law aims. Herod ordering thedeath of all male children born on particular day because oneof them would some day bring about his downfall employed sucha classification.

56. Since the classification does not include all who are similarlysituated with respect to the purpose of the law, the classificationmight appear, at first blush, to be unreasonable. But the Court hasrecognised the very real difficulties under which legislaturesoperate — difficulties arising out of both the nature of thelegislative process and of the society which legislation attemptsperennially to re-shape — and it has refused to strike downindiscriminately all legislation embodying classificatory inequalityhere under consideration. Mr Justice Holmes, in urging toleranceof under-inclusive classifications, stated that such legislation shouldnot be disturbed by the Court unless it can clearly see that thereis no fair reason for the law which would not require with equalforce its extension to those whom it leaves untouched. [Missouri,K&T Rly v. May, 194 US 267, 269] What, then, are the fair reasonsfor non-extension? What should court do when it is faced with alaw making an under-inclusive classification in areas relating toeconomic and tax matters? Should it, by its judgment, force thelegislature to choose between inaction or perfection?”

27. Ambica Mills (supra) justified under-inclusiveness on thegrounds of recognition of degrees of harm, administrative convenience,and legislative experimentation. Reference was made to Justice OliverWendell Holmes’s observation in Missouri, K& T Rly v. May[15], that“legislation should not be disturbed by the Court unless it can clearly seethat there is no fairreasonfor the law which would not require withequal force its extension to those whom it leaves untouched”, to statethat the judiciary must exercise self-restraint in such cases. In NPBasheer v. State of Kerala[16], two judge Bench of this Court heldthat if the extent of over-inclusiveness and under-inclusiveness is marginal,then it could not be held to be violative of Article 14 of the Constitution.

15 194 US 267, 269

16 2004 (2) SCR 224

A28. The determination of whether the classification is under-inclusive is closely related to the test that is undertaken by the Courtwhile determining the relationship of the means to the end. This Courtfollows the two-pronged test to determine if there has been violationof Article 14. The test requires the court to determine if there is rationalnexuswith the object sought to be achieved. Justice P N Bhagwati (asBthe learned Chief Justice then was) in EP Royappa v. State of TamilNadu[17] held that arbitrariness of State action is sufficient to constitute aviolation of Article 14. Thus, it came to be recognized that the equalitydoctrine as envisaged in the Constitution not only guarantees againstcomparative unreasonableness but also non-comparativeCunreasonableness.[18] This Court in Modern Dental College andResearch Centre v. State of MP[19], invoked the proportionality testwhile testing the validity of the statute and rules that sought to regulateadmission, fees and provided reservations for postgraduate courses inprivate educational institutions. In Subramanian Swamy v. Union ofIndia[20], the Court used the proportionality test to determine if the offenceDof criminal defamation prescribed under Sections 499 and 500 of theIPC violates the freedom of speech and expression under Section 19(1)(a).In Justice Puttaswamy (9J) v. Union of India[21], nine judge Benchof this Court held that the right to privacy is fundamental right. Theproportionality standard was used in the context of determining the limitsEthat could be imposed on the right to privacy. The Constitution Benchthen dealt with the proportionality test in Justice Puttaswamy (Retd.)v. Union of India[22], to determine if the Aadhar scheme violated theright to privacy of an individual. Our Courts have used the proportionalitystandard to determine non-classificatory arbitrariness, and have usedthe twin test to determine if the classification is arbitrary.F

17 (1974) 4 SCC 318 See Tarunabh Khaitan, ‘Equality: Legislative Review under Article 14’ in SujitGChoudhry, Madhav Khosla, Pratap Bhanu Mehta (eds), The Oxford Handbook of theIndian Constitution (Oxford University Press 2016)19 (2016) 7 SCC 353

20 (2016) 7 SCC 22121 (2017) 10 SCC 122 (2019) 1 SCC 1H

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION [DR. DHANANJAYA YCHANDRACHUD, J.]

29. In Anuj Garg v. Hotel Association of India[23], the Courtdecided the constitutional validity of Section 30 of the Punjab Excise Act1914 prohibiting employment of “any man under the age of twenty-fiveyears” or “any women” in the premises where liquor or intoxicatingdrugs are consumed. This classificatory provision was challenged forviolation of Articles 19(1)(g), 14, and 15 of the Indian Constitution. Itwas held that the law in effect perpetuates the oppression of women. Indetermining the validity of the provision, the Court applied theproportionality standard:

“50. The test to review such protective discrimination statutewould entail two-pronged scrutiny:

(a) the legislative interference (induced by sex discriminatorylegalisation in the instant case) should be justified in principle,

(b) the same should be proportionate in measure.”

30. Article 15(1) of the Indian Constitution specifically statesthat the State shall not discriminate on the grounds of ‘religion, race,caste, sex, place of birth or any of them’. Since the ‘protectivediscrimination’ in Anuj Garg (supra) was based on one of the grounds inArticle 15, the Court thought it fit to test its constitutionality on higherdegree of scrutiny. similar line of reasoning was taken up by JusticeIndu Malhotra in Navtej Singh Johar (supra) where she held thatSection 377 IPC does not fulfil the rational nexus test because the“legislation discriminates on the basis of an intrinsic and core trait of anindividual, it cannot form reasonable classification based on an intelligibledifferentia”.31. While non-classification arbitrariness is tested based on theproportionality test, where the means are required to be proportional tothe object, classification arbitrariness is tested on the rational nexus test,where it is sufficient if the means share ‘nexus’ with the object. Thedegree of proof under the test would impact the judgment of this Courton whether the law is under-inclusive or over-inclusive. statute is‘under-inclusive’ if it fails to regulate all actors who are part of theproblem. It is ‘over-inclusive’ if it regulates actors who are not part ofthe problem that the statute seeks to address. The determination of under-

Ainclusiveness and over-inclusiveness, and degree of deference to it isdependent on the relationship prong (‘rational nexus’ or ‘proportional’)of the test.

32. The nexus test, unlike the proportionality test, is not tailoredto narrow down the means or to find the best means to achieve theBobject. It is sufficient if the means have ‘rational nexus’ to the object.Therefore, the courts show greater degree of deference to cases wherethe rational nexus test is applied. greater degree of deference is shownto classification because the legislature can classify based on the degreesof harm to further the principle of substantive equality, and suchCclassification does not require mathematical precision. The Indian Courtsdo not apply the proportionality standard to classificatory provisions.Though the two-judge Bench in Anuj Garg (supra) articulated theproportionality standard for protective discrimination on the grounds inArticle 15; and Justice Malhotra in Navtej Singh Johar (supra) heldthat less deference must be allowed when the classification is based onDthe ‘innate and core trait’ of an individual, this is not the case to delveinto it. Since the classification in the impugned scheme is based neitheron the grounds in Article 15 nor on the ‘innate and core trait’ of anindividual, it cannot be struck down on the alleged grounds of under-inclusiveness and over-inclusiveness.

33. The Scheme in issue was introduced in pursuance of anelectoral promise made by the then party in power in Tamil Nadu. TheHigh Court seems to have been of the view that because the schemewas in pursuance of an electoral promise, it is constitutionally suspect.This view was made on an assumption that no study must have beenFconducted before the electoral promise was made. It is settled law thata scheme cannot be held to be constitutionally suspect merely because itwas based on an electoral promise.[24] scheme can be held suspectonly within the contours of the Constitution, irrespective of the intentwith which the scheme was introduced. The scheme propounded by theState of Tamil Nadu passes muster against the constitutional challenge.GThe High Court has erred in holding otherwise. During the pendency ofthe proceedings the State has granted broader coverage, based on itsassessment of the situation.

STATE OF TAMIL NADU & ANR. v. NATIONAL SOUTH INDIAN RIVERINTERLINKING AGRICULTURIST ASSOCIATION [DR. DHANANJAYA YCHANDRACHUD, J.]

34. For the reasons indicated above, the appeal is allowed andthe judgment of the Madras High Court at the Madurai Bench dated 4April 2017 is set aside.

35. All pending application(s) are disposed of.

Nidhi Jain

Appeal allowed.