Challenge to Settlement Commission

In Jyotendrasinhji v. S.I. Tripathi [1993] 201 ITR 611 /68 Taxman 59 (SC) the Supreme Court emphasised that the only ground upon which an order passed by the Settlement Commission can be interfered with is that the order of the Commission is contrary to the provisions of the Act and that such contravention has prejudiced the appellant. This would be apart from grounds of bias, fraud or malice which would constitute a separate category. The Supreme Court held as follows:

"16. ...The scope of enquiry, whether by High Court under Article 226 or by this Court under Article 136 is also the same - whether the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the petitioner/appellant. Apart from ground of bias, fraud and malice which, of course, constitute a separate and independent category. Reference in this behalf may be had to the decision of this Court in Sri Ram Durga Prasad v. Settlement Commission ,176 ITR 169 : (AIR 1989 SC 1038), which too was an appeal against the orders of the Settlement Commission. Sabyasachi Mukharji, J., speaking for the Bench comprising himself and S.R. Pandian, J. observed that in such a case this Court is "concerned with the legality of procedure followed and not with the validity of the order." The learned Judge added "judicial review is concerned not with the decision but with the decision-making process." Reliance was placed upon the decision of the House of Lords in Chief Constable of the N.W. Police v. Evans [1982] 1 WLR 1155. Thus, the appellate power under Article 136 was equated to power of judicial review, where the appeal is directed against the orders of the Settlement Commission. For all the above reasons, we are of the opinion that the only ground upon which this Court can interfere in these appeals is that order of the Commission is contrary to the provisions of the Act and that such contravention has prejudiced the appellant..."

20. The same principle has since been reiterated in a more recent judgment rendered in relation to the powers of the Settlement Commission constituted under the Central Excise Act in Union of India v. Ind-Swift Laboratories Ltd. [2011] 4 SCC 635 by the Supreme Court:

"22. An order passed by the Settlement Commission could be interfered with only if the said order is found to be contrary to any provisions of the Act. So far as the findings of fact recorded by the Commission or question of facts are concerned, the same is not open for examination either by the High Court or by the Supreme Court..."

21. In an earlier judgment of a Division Bench of the Karnataka High Court in N. Krishnan v. Settlement Commission [1989] 47 Taxman 294/ 180 ITR 585 (Kar.) it was held that a decision of the Settlement Commission may be interfered with only, (i) if there is a grave procedural defect such as a violation of the mandatory procedural requirements of the provisions of Chapter XIX-A and/or violation of the principle of natural justice; and (ii) there is no nexus between the reasons given and the decision taken by the Settlement Commission. In other words, the Court under Article 226 would not interfere with an error of fact alleged to have been committed by the Settlement Commission.