II Year B.B.A. LL.

B (Hons)– Semester - III (2021-26)

1st -Internal Assessment

SUBJECT – Constitutional Law II

TOPIC – Provisions of Financial Emergency in India (Research Article)

NAME: Richard Annant Emmanuel

DIVISION: C
PRN: 21010126225
COURSE: BBA LLB (H)
BATCH: 2021-2026
Abstract

This paper reviews the literature on financial crises and provisions, focusing on three specific as-
pects. First, what is the ground to declare a financial emergency? The report extensively reviews the
constitution, relative sections, and amendments made for a crisis like this. Second, what are the sig-
nificant troubles, Parliamentary Approval, Duration and effects Of a Financial Emergency? Thirdly,
overviewing Financial Emergency Subject To Judicial Review. Last, reviewing the covid-19 crisis
did not lead to a financial emergency.

The paper focuses on the core use, benefits of having provisions and relevant topics. This research
article concludes with a summary of the main lessons from the literature and a factual chain of
thoughts penned down.

Keywords - Financial Emergency, presidents’ role, union powers, proclamation, provisions, cri-
sis, covid-19, and judicial review

Introduction

To start, we will understand the types of emergencies wherein we focus on financial

Crises to discuss in detail. Statement problem on how financial trouble comes to be,
Parliamentary Approval, Duration Of Financial Emergency and the provisions? The main objective
It is to cultivate a better understanding and grasp of financial emergency provisions as a subject
whole.

According to the Indian Constitution, an emergency is a sudden change in the way the government
is run that the president of India may declare if he believes there is a severe threat to the nation from
either internal or external sources or if there are issues related to the country's current financial situ-
ation. As a result, the President has the authority to disregard numerous articles of the Constitution,
especially those that guarantee the residents of India their fundamental rights and even the control
of the States.

Part XVIII of the Indian Constitution lists the emergency provisions from Article 352 to Article
360. These provisions allow the Central Government to deal with any problem successfully. Emer-
gency measures were included in the Government of India Act of 1935, and the Weimar Constitu-
tion's article on the suspension of fundamental rights was also included.

Three kinds of emergencies can be declared in India: National Emergency, Constitutional Emer-
gency, and Financial Emergency.

Under Article 360, if the President is satisfied that financial instability or any part of its territory is
threatened, he can declare Financial Emergency. President can take aid and advice from the Council
of Ministers.

Types of Emergencies under the Indian Constitution:

1) National Emergency

By Article 352, the President of India may proclaim a national emergency in the event of a war, an
armed uprising, or an external assault. For this sort of emergency, approval must be granted by the
special majority in both the Rajya Sabha and the Lok Sabha within one month of the proclamation's
release. In India, the National Emergency has only been declared three times thus far.

Consequences of National Emergency

Some of the severe consequences of a proclamation of emergency are as follows:

- The Indian Constitution's Article 19 mentions the fundamental rights as being suspended (ac-
cording to Article 358).
- The State List contains the subjects on which the Parliament may pass laws.
- The rights to life and personal liberty in Articles 20 and 21, respectively, continue to be valid and
enforceable.
1.
2) Constitutional Emergency

A constitutional emergency commonly referred to as the President's Rule or a State Emergency,

happens when the constitutional system breaks down. According to Article 356, the President may
declare a State Emergency if satisfied that a state cannot carry out its duties with the requirements
outlined in the constitution. This is one of the justifications for the declaration of the Constitutional
Emergency. The emergency lasts anywhere from six months to a maximum of three years. Almost
all of our conditions have experienced this state of emergency. In Tamil Nadu, it was implemented
four times: in 1976, 1980, 1988, and 1991. In 1952, Punjab became the first State to experience this
kind of emergency.

Consequences of Constitutional Emergency

Some of the consequences of the Constitutional Emergency are:

- It is suspended or disbanded by the State Assembly.

- The State List is governed by legislation that is made by the Parliament, which also controls the
overall State budget.

3) Financial Emergency

Legal assessment of Financial Emergency is ongoing. But according to the 38th Amendment Act of
1975, the President's decision to end the financial emergency is final and cannot be challenged in
any court or on any grounds. However, the 44th Amendment Act of 1978 declared that the Presi-
dent's pleasure was subject to judicial review and might be contested in court.

Duration of Financial Emergency

Only resolutions with a simple majority can be approved by the Lok Sabha or the Rajya Sabha. Af-
ter the proclamation's issuance, it must be authorised within two months. There is no need for re-
peated parliamentary approval. The President has the right to withdraw the declaration at any time.

Consequences of Financial Emergency

Regarding financial concerns or other connected government affairs, the Central Government shall
command the State. The Central Government's executive authority significantly increases. The al-
lowances and wages of officials or workers employed by the State, including the judges of the
Supreme Court and the High Court, may be decreased. The Money notes, which shall be reserved
for this purpose, require the president's consent. The money allocated to the States by the Central
Government may potentially be decreased or eliminated.
2.
Significance of Financial Emergency
The declaration of the Financial Emergency's provisions can assist a nation in quickly resolving any
financial instability or crisis it may be experiencing. Dr B. R. Ambedkar claimed that Article 360 of
the Indian Constitution was modelled after the National Recovery Act of 1933 of the US, which
gave the President the authority to enact similar measures to ease the hardships the American peo-
ple were experiencing as a result of the 1930s Great Depression.

Circumstances under which Financial Emergency can be invoked in India

Some of the events that can lead to a Financial Emergency are mentioned below-

- If the budget deficit increases.

- If the country's credit ratings fall.
- There is a more significant current account deficit.
- The Gross Domestic Product is falling.
- I am assuming a general economic slump.
- If the Indian rupee loses value.
- Regarding the nation's financial stability, there is uncertainty. The word "economic instability" is
ambiguous. Its application to a wide range of national circumstances is possible.

As per article 360 (1):

Suppose the President determines that a situation has developed in which India's financial stability
or credit, or any portion of its territory, is in danger. In that case, he may declare in a proclamation
that such a situation exists and that such a portion of India's territory is in trouble.

The President alone has the power to declare such a situation an emergency. This does not, how-
ever, shield the Presidents' authority from the judicial examination. The supreme court may evaluate
the declaration of a financial crisis according to the 44th Amendment of 1978 (commonly known as
the Corrective Amendment).

A declaration of financial emergency must be ratified by a simple majority in both Houses of Parlia-
ment, the Lok Sabha and the Rajya Sabha, within two months after its issuing. The Rajya Sabha
may endorse the dissolution of the Lok Sabha, but the Lok Sabha must approve it within 30 days of
its reconstitution.

The declaration lasts until halted (there is no maximum duration) without requiring further parlia-
mentary authorisation after both Houses have approved it. The president may also revoke this
proclamation without parliament's approval.
Research and Analysis

To process this segment first, we will review the Central Government Act, Article 360 in The Con-
stitution Of India 1949

Provisions as to financial emergency

1. “Suppose the President is satisfied that a situation has arisen whereby India’s financial stability
or credit or any part of the territory thereof is threatened. In that case, he may declare to that ef-
fect by a Proclamation.”
2. A Proclamation issued under clause ( 1 )
- May be revoked or varied by a subsequent Proclamation;
- Shall be laid before each House of Parliament;
- “Shall cease to operate at the expiration of two months unless before the end of that period it has
been approved by resolutions of both Houses of Parliament: Provided that if any such Proclama-
tion is issued at a time when the House of the People has been dissolved, or the dissolution of the
House of the People takes place during the period of two months referred to in sub-clause (c),
and if the Council of States has passed a resolution approving the Proclamation, but the House of
the People has passed no resolution concerning such Proclamation before the expiration of that
period, the Proclamation shall cease to operate at the end of thirty days from the date on which
the House of the People first sits after its reconstitution unless before the expiry of the said pe-
riod of thirty days a resolution approving the Proclamation has also been passed by the House of
the People.”
3. “During the period any such Proclamation as is mentioned in clause [ 1 ) is in operation, the ex-
ecutive authority of the Union shall extend to the giving of directions to any State to observe
such canons of financial propriety as may be specified in the rules, and to the giving of such
other directions as the President may deem necessary and adequate for the purpose.”
4. Notwithstanding anything in this Constitution
A. Any such direction may include
- a provision requiring the reduction of salaries and allowances of all or any class of persons serv-
ing in connection with the affairs of a State;
- a provision requiring all Money Bills or other Bills to which the provisions conditions of Article
207 apply to be reserved for the consideration of the President after the Legislature of the State
passes them;
5. “It shall be competent for the President during the period any Proclamation issued under this ar-
ticle is in operation to give directions for the reduction of salaries and allowances of all or any
class of persons serving in connection with the affairs of the Union, including the Judges of the
Supreme Court and the High Courts PART XIX MISCELLANEOUS.”

Financial Emergency Subject To Judicial Review

• The declaration of a financial emergency cannot be contested in court, according to the 38th
Amendment Act of 1975.
• Judicial review was permitted by the 44th Amendment Act of 1978.
The following things happen when a financial emergency is declared:
• The Union Government may provide financial guidance to any state.
• The President may request that all or a specific class of government employees have their
salary and benefits reduced by the States.
• After the State Legislature has passed, the President may request that all money bills be held
back for consideration by the Parliament.
• The President may also instruct that the salary and benefits of central government officials,
including Supreme Court and High Court judges, be reduced.
Effects of Financial Emergency

• The following effects could result from declaring a financial emergency:

• The Union Government may provide financial guidance to any state.
• The President may request that all or a specific class of government employees have their
salary and benefits reduced by the States.
• After the State Legislature has approved all money bills, the President may ask the States to
hold them all for consideration by the Parliament.
• The President may also instruct that the salary and benefits of central government officials,
including Supreme Court and High Court judges, be reduced.
•
Financial Emergency has never been imposed in India to date.

The Indian Economic Crisis of 1991

The 1991 financial crisis was India's worst economic catastrophe ever. India's economy was in tran-
sition. Fiscal imbalances were substantial and worsening in the 1980s, which fuelled the economic
disaster; budgetary deficits of the federal and state governments widened significantly.
India's foreign exchange reserves were so low that they could barely cover three weeks' worth of
imports, which led to a significant devaluation of the rupee. In the middle of 1991, India's exchange
rate was significantly altered.

But even though the situation was so complex that it nearly bankrupted India, no financial emer-
gency was declared. Although this circumstance warranted the designation of a financial crisis, it
was avoided through restructuring and rupee devaluation.

Before the crisis of 1991, from 1990 to 1991, Prime Minister Chandra Shekhar's administration ex-
perienced a circumstance that called for the declaration of a financial emergency. Nevertheless, sell-
ing off India's gold stockpiles managed to stop it once more.

Proclamation under Article 356

Because the authority under Article 356(1) is conditional, a Proclamation made under it is incontro-
vertibly subject to judicial review. The court has the right to assess whether or not the requirement
has been met when using its judicial review authority. The debate, therefore, centres on the extent
and use of judicial review. A consistent norm cannot be applied to all patients, as shown by the rul-
ings in the state of Rajasthan v. Union of India and the Bommai cases. It will unavoidably differ de-
pending on the context, the type of the right, and other elements.

However, where it is attainable, the presence of satisfaction can always be contested because it is
"based on completely superfluous and irrelevant grounds" or "based on mala files." The Supreme
Court's ruling in State of Madhya Pradesh v. Bharat Singh held that it was not prohibited from in-
validating a law passed before a Proclamation of Emergency as being ultra vires to the Constitution
just because the Proclamation was in effect at the time, emphasises the importance of judicial re-
view in cases involving Article 356.

In the State of Rajasthan v. Union of India, a seven-member Supreme Court constitution bench
unanimously rejected the petitioner's request. It upheld the centre's action of dissolving three assem-
blies under Article 356 as constitutionally valid. This case served as the first test of judicial review
of the Proclamation under Article 356(1).

In the case of Minerva Mills and Others v. Union of India and Others, the Supreme Court went into
great detail about its authority to review the legality of a President-issued Proclamation of Emer-
gency. In this case, the Supreme Court noted, among other things, that it should not be reluctant to
carry out its constitutional duties simply because it entails taking into account political considera-
tions. However, it should not go into whether the facts and circumstances are sufficient for the pres-
ident to be satisfied that an emergency exists; instead, it should limit its inquiry to whether the con-
stitutional criteria of Article 352 have been followed in the Proclamation's declaration.

Thus, it is acceptable to say that the Presidential Proclamation under Article 356 is amenable to ju-
dicial review, despite its limitations. S. R. Bommai v. Union of India, the most recent case that de-
termined the scope of judicial review of the President's Proclamation imposing "President's Rule in
the States" and solidified the legal position on the President's subjective satisfaction, was a turning
point in the development of the Indian Constitution. In this instance, the Supreme Court firmly out-
lined the framework and constraints under which Article 356 was to operate. According to distin-
guished jurist and former Indian Solicitor-General Soli Sorabjee, “After the Supreme Court’s judg-
ment in the S. R. Bommai case, it is well settled that Article 356 is an extreme power and is to be
used as a last resort in cases where it is manifest that there is an impasse and the constitutional ma-
chinery in a State has collapsed”.

COVID-19 Crisis

The Center for Accountability and Systemic Change (CASC) requested that a financial emergency
be proclaimed due to the Covid-19 outbreak in a writ petition filed as public interest litigation dur-
ing the lockdown in March 2020. The argument was, however, rejected because, even though courts
have extraordinary authority, the concept of separation of powers requires the president to assess
whether a financial emergency is legitimate.

The President may declare a financial emergency; the Supreme Court may only examine such a
proclamation. According to the petition, COVID-19 is the nation's worst emergency since indepen-
dence and has to be handled by the constitution by a joint command between the Union and state
administrations. After the lockdown is over, it would aid in recovering the economy.

India and other countries are now dealing with the COVID-19 situation. The world economy is
struggling in the unusual circumstances of the moment. A recent International Monetary Fund
(IMF) announcement shows that a recession is also on the way. Every major nation is placing var-
ied limits on the export of necessities in light of the current global situation. Additionally, govern-
ments attempt to maintain their economies by providing various economic assistance programmes.
India announced 1.7 lakh crore in relief due to COVID-19 to deal with the difficulties that resulted
from COVID-19. A budget this large will have an influence on the money the union government
has available. Financial emergencies may be necessary to handle the government's financial situa-
tion.

But even the most severe emergency in the country did not lead to the declaration of a Financial
Emergency.

Conclusion and Suggestion

These guidelines were provided to protect the constitution's honour. Accumulation of power is in-
tended to preserve, not to overthrow, the constitutional system. The Emergency Provisions enhance
the efficiency of the federal government. The Union is in charge of protecting the component units.
As the Federal Head, the President is given emergency powers to safeguard the national framework
of the Union of India.
Financial emergency provisions can quickly stop an economic crisis in several nations during the
well-known World Economic Depression of the 1930s.

During a financial crisis, the Center acquires total control over states in financial affairs, posing a
danger to the state's economic sovereignty and going against the national character of the nation.
The president might also turn into a despot.

The mishandling and use of the Constitution's Articles for political ends was also noted by Dr BR
Ambedkar, the chief architect of the Indian Constitution. It was pointed out that emergency provi-
sions would render the people's fundamental rights meaningless.

Economic activity has decreased as a result of the current epidemic circumstances. Pressure is being
placed on nations' financial sectors. Is it possible to declare a financial emergency in India at this
moment of great importance? There has been much discussion on this subject in the past. Prime
Minister Narendra Modi concluded that the current circumstance did not call for the declaration of a
financial emergency.

My only complaint is that the State's financial affairs are given sole control to the Central Govern-
ment. This poses a severe threat to the State's independence and could result in the dictatorship of
the Central Government.

After dealing with all emergency provisions, it is simple to comprehend why such circumstances
are enforced. But it's crucial to remember that even when these rules are made to protect the popu-
lace and the country's security, the states grant the Executive broad discretionary authority. As a re-
sult, the country's federal system is altered, becoming unitary.

As a result, the courts should have the authority to increase the Centre's capabilities. Doing so will
serve as a built-in mechanism to ensure that the Parliament and the Executive aren't abusing their
discretionary powers.

Bibliography

1. The 38th (Constitutional) Amendment Act, 1975, clause-5

2. The 44th (Constitutional) Amendment Act, 1978
3. State of Madhya Pradesh v. Bharat Singh, 1967 AIR 1170, 1967 SCR (2) 454
4. Effects of Financial Emergency on Economy-Covid-19-Varun Chawla (CA)
5. Minerva Mills Ltd. and Ors. v. Union Of India and Ors. AIR 1980 SC 1789)
6. S.R. Bommai vs Union Of India 1994 AIR 1918, 1994 SCC (3) 1