2021 INSC 0752 1 Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal No. 6764 of 2021 State of Tamil Nadu & Anr. …Appellants Versus National South Indian River Interlinking …Respondent Agriculturist Association J U D G M E N T Dr. Dhananjaya Y Chandrachud,J . 1 A Division Bench of the Madras High Court at the Madurai Bench allowed the writ petition filed by the Respondent under Article 226 of the Constitution for quashing G.O Ms. No. 50 which granted loan waiver to small and marginal farmers . The High Court held the grant of loan waivers only to small and marginal farmers to be ar bitrary and directed the appellant to grant the same benefit to all farmers irrespective of the extent of landholding. 2 The Government of Tamil Nadu issued G.O Ms. No. 50 dated 13 May 2016 (“Scheme”) granting a waiver of outstanding crop loan s, medium term (agriculture) loans and long term (farm sector) loans issued to small and marginal farmers. G.O Ms. No. 59 dated 28 June 2016 was issued providing guidelines for 10 16 The appellant contended that the objectives of the scheme are thus: (i) Small and Medium farmers are the main producers of f ood, inspite of their limited access to technology, credit , and capital; (ii) Small and marginal farmers constitute 85% of the crop loan beneficiaries. The objective of the State is to cover maximum benefi ciaries with minimum funds. The scheme has been framed after considering vital parameters such as budgetary allocation, revenue mobilizati on and the position of the farmers vis -à -vis their landholding; and (iii) The small and marginal farmers constitute the poor and downtrodden class of farmers. Therefore, they have suffered greater harm due to floods and the impact of climate change. 17 Therefore, the reasons that seem to have guided the State of Tamil Nadu for the formulation of this scheme are two- fold: ( i) The small and marginal farmers have faced greater harm due to the erratic climate conditions in view of the limited technology and capital that they possess; and (ii) The state seeks to provide maximum benefits with the minimum fund. 18 In the counter affidavit before the High Court , the state averred that by waiving Rs. 5780 Crore worth of crop loans, the number of small and marginal farmers who would be benefitted would be 16,94,145. On the other hand, waiving the crop loan of Rs 1980 Cror e that the other farmers held would only benefit 3,01,926 of them. These figures buttress the argument of the State that providing the benefit of the scheme only to marginal and small farmers leads to m aximum u tility for minimum investment. However, this cannot be the objective of a scheme introduced by the State. Every scheme which involves monetary or material 11 disbursement aims at providing maximum benefit with minimum expenditure. C lassification cannot thus be tested on the fiscal objective that guides every scheme. 19 The purpose of providing a waiver of agricultur al loans for farmers is to uplift the distressed farmers , who have been facing the brunt of the erratic weather conditions, low produce, and fall in the prices because of the market conditions. The objective of promoting the welfare of the farmers as a class to secure economic and social justice is well recognized by Article 38. It needs to be determined if the classification based on the extent of landholding has a rational nexus to the object sought to be achieved. 20 One of us ( Dr DY Chandrachud) in Navtej Singh Johar v. Union of India 8 accentuated the inadequacies of the two -pronged test which seeks to elevate form over substance. The over -emphasis on the ‘objective’ of the law, instead of its ‘effect’ – particularly when the objective is ostensible – was observed not to further the true meaning of the equality clauses under the Indi an Constitution. The traditional tw o- pronged classification test needs to be expanded for the Courts to undertake a substantive review of Article 14 violation s, away from the formalistic tendency that the twin test leans towards. Within the broad parameters of the two -pronged test, we find it imperative to undertake a much more substantive rev iew by focusing on the multi ax le operation of equality and non- discrimination. 21 The State of Tamil Nadu in the counter filed before the High Court states that the classification was required since the small and marginal farmers suffer a 8 (2018) 10 SCC 1 12 greater degree of harm because of their limited capacity and aid. It is judicially recognized that the legislature is free to recognize degrees of harm and may confine its restrictions or benefits to those cases where the need is the clearest. 9 In State of Maharashtra v. Indian Hotel and Restaurants Association 10, Section 33- A(1) of the Bombay Police Act which prohibited danc e performances in eating houses, permit rooms, or beer bars, and Section 33-B which allowed such dances in establishments with restricted entry or thre e starred or above hotels was under challenge. The State contended that the degree of harm in the class which is covered by Section 33 A(1) is greater. It was held by the two- Judge Bench that the Stat e must have sufficient material to reach the conclusion or a general consensus is to be shared by the majority of the population to base its decisions on classification based on the degrees of harm. W e are unable to accept that degrees of harm could be recognized based on the general co nsensus of 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 an vil of majoritarian morality but only on constitutional morality. However, the claims made by the State cannot be accept ed without putting it to the test of reason through the submission of cogent material . A lesser degree of burden would substantiall y weaken the rights protection. 11 22 It has been submitted that the consumption expenditure of marginal and small farmers exceeds their estimated income by a substantial margin, and the deficits are covered by borrowings. The fact that 16,94,145 small and marginal 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: A Bridge to Nowhere’ (2020) Oxford Human Rights Journal 13 farmers have availed of agri cultural loan s as compared to 3,01,926 farmers belonging to the ‘ other category’ testifies that the small and marginal farmers have a significant capital deficit when compared to the rest of the farmers. A huge capital deficit, combined with a reduction in the agricultural income due to water scarcity and crop inundation due to floods has led to financial distress. Small and marginal farmers are resource deficient; t hey do not have borewells to overcome the drought. These farmers are usually dependent on large farms to access land, water, inputs, credit, technology , and markets. It was found that almost 40% of the irrigated land of large farmers was from canals , while less than 25% of the land of small and marginal farmers was irrigated by canals or borewells and they often resort to renting water from larger landholdings. The output of produce in a small and marginal farm , for instance, paddy would not be sufficient even to feed the small farmer’s family . Thus, a majority of them purchase grains at a subsidized rate from the Public Distribution System (since these farmers fall below the poverty line) so they can sell their produce. 12 23 The Situation Assessment of Agricultural Households and Land and Holdings of Households in Rural India, 2019 13 undertakes an extensive discussion on the Average Monthly Income per Agricultural Household. The report depicts that India’s small and marginal farmers have essentially become wage earners. For instance, the average monthly income of an agricultural household possessing less than 0 .01 hectares of land (0.02 acres) from crop production is Rs. 1,435 and from wages is Rs. 6,435. When compared to an 12 Parijat Gosh, Farmers Protest: Why are small and marginal 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/ 13 https://www.mospi.gov.in/documents/213904/301563//Report_587m1631267040957.pdf/3793650e-8cf1 -7872- ae90-51470c8d211c 14 agricultural household that possesses 2-4 hectares of land (4.94- 9.88 acres), the income from crop production is Rs. 7,945 and t he income from wages is 3,548. A comparative graph of the figures is as under. The x -axis indicates the percentage of income from farm produce, wages , and other sources. The y -axis indicates the land held by the farmers (in hectares): 24 The report also tabulates the total amount of outstanding loan s held by each category of farmers. The computation shows that households that have lands less than 0.01 hectare, use 93.1% of the agricultural loans for a non- agricultural purpose. In sharp contrast, a household that owns 10 hectares of land only uses 17.1 percentage of the agricultural loan for non- agricultural purposes. This depicts the poverty that envelops the class of small and marginal farmers. The percentage distribution of the indebted agricultural households depicts that 27% of the households that hold between 0 .01- .040 hectares of land; 34% of those who hold between 0.40 -1 hectares and 20% of those who hold between 1- 2 acres, are indebted. On the other hand, only 4.5% of those who 0% 10% 20%30%40%50%60%70%80%90%100% <0.01 0.01-0.40 0.40-1.00 1.01-2.00 2.01-4.00 4.01-10.00 10.00+ Income distribution Income from farm Income from wages Others 15 hold 4- 10 hectares and 0 .6% of those who hold 10 plus hectares are indebted. Extracted below is the graph for percentage distribution of indebted agricultural households: 25 In view of the discussion above, the application of the impugned scheme to only the small and the marginal farmers is justified for two reasons : (i) A climate crisis such as d rought and flood causes large scale damages to small holdings as compared to the large holdings due to the absence of capital and technology; and ( ii) The small and marginal farmers belong to the economically weaker section of society . Therefore, the loan waiver scheme in effect targets the economically weaker section of the rural population. The scheme is introduced with an endeavor to bring substantive equality in society by using affirmative action to uplift the socially and economically weaker sections. Due to the distinct degree of harm suffered by the small and marginal farmers as compared to other farmers, it is justifiable that the benefit of the scheme is only provided to a specified class as small and marginal farmers constitute a class in themselves. Therefore, the Percentage Distribution of Indebted Agricultural Households < 0.01 0.40 - 1.00 1.01 - 2.00 2.01 - 4.00 4.01 - 10.00 10.00 + 16 classification based on the extent of landholding is not arbitrary since owing to the inherent disadvantaged status of the small and marginal farmers, the impact of climate change or other external forces is unequal. 26 The High Court in the impugned judgment has observed that the scheme is both under -inclusive and over -inclusive since the total extent of land held by a person is calculated based on the information in the landholding register which permits discrepancies. It also held the scheme to be under -inclusive for not extending the benefit to ‘other farmers’ or the ‘large farmers’ . The meaning and ambit of under -inclusiveness and over -inclusiveness has been discussed in an erudite exposition by Justice K K Mathew, wr iting for a Constitution Bench in State of Gujarat v. Ambica Mills 14 : “55. A classification is under -inclusive when all who are included in the class are tainted with the mischief but there are others also tainted whom the classification does not include. In other words, a classification is bad as under - inclusive when a State benefits or burdens persons in a manner that furthers a legitimate purpose but does not confer the same benefit or place the same burden on others who are similarly situated. A classification is over-inclusive when it includes not only those who are similarl y situated with respect to the purpose but others who are not so situated as well. In other words, this type of classification imposes a burden upon a wider range of individuals than are included in the class of those attended with mischief at which the law aims. Herod ordering the death of all male children born on a particular day because one of them would some day bring about his downfall employed such a classification. 56. Since the classification does not include all who are similarly situated with res pect to the purpose of the law, the classification might appear, at first blush, to be unreasonable. But the Court has recognised the very real difficulties under which legislatures operate — difficulties arising out of both the nature of the legislative process and of the society which legislation attempts perennially to re- shape — and it has refused to strike down indiscriminately all legislation embodying classificatory inequality here under consideration. 14 (1974) 4 SCC 656 17 Mr Justice Holmes, in urging tolerance of under -inclusive classifications, stated that such legislation should not be disturbed by the Court unless it can clearly see that there is no fair reason for the law which would not require with equal force its extension to those whom it leaves untouched. [Missouri, K&T Rly v. May , 194 US 267, 269] What, then, are the fair reasons for non- extension? What should a court do when it is faced with a law making an under -inclusive classification in areas relating to economic and tax matters? Should it, by its judg ment, force the legislature to choose between inaction or perfection?” 27 Ambica Mills (supra) justified under -inclusiveness on the grounds of recognition of degrees of harm, administrative convenience, and legislative experimentation. Reference was made to Justice Oliver Wendell Holmes’s observation in Missouri, K& T Rly v. May 15, that “legislation should not be disturbed by the Court unless it can clearly see that there is no fair reason for the law which would not require with equal force its extension to those whom it leaves untouched” , to state that the judiciary must exercise self -restraint in such cases. In NP Basheer v. State of Kerala 16, a two judge Bench of this Court held that 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. 28 The determination of whether the classification is under -inclusive is closely related to the tes t that is undertaken by the Court while determining the relationship of the means to the end. This Court follows the two- pronged test to determine if there has been a violation of Article 14. The test requires the court to determine if there is a rational nexus with the object sought to be achieved. Justice P N Bhagwati (as the learned Chief Justice then was) in EP Royappa v. 15 194 US 267, 269 16 2004 (2) SCR 224 18 State of Tamil Nadu 17 held that arbitrariness of State action is sufficient to constitute a violation of Article 14. Thus, it came to be recognized that the equality doctrine as envisaged in the Constitution not only guarantees against comparative unreasonableness but also non- comparative unreasonableness. 18 This Court in Modern Dent al College and Research Centre v. State of MP 19, invoked the proportionality test while testing the validity of the statute and rules that sought to regulate admission, fees and provided reservations for post graduate courses in private educational institution s. In Subramanian Swamy v. Union of India 20, the Court used the proportionality test to determine if the offence of criminal defamation prescribed under Sections 499 and 500 of the IPC violates the freedom of speech and expression under Section 19(1)(a). In Justice Puttaswamy (9J) v. Union of India 21, a nine judge Bench of this Court held that the right to pr ivacy is a fundamental right. T he proportionality standard was used in the context of determining the limits that could be imposed on the right to privacy. The Constitution Bench then dealt with the proportionality test in Justice Puttaswamy (Retd.) v. Union of India 22, to determine if the Aadhar scheme violated the right to privacy of an individual. Our Courts have used the proportionality standard to determine non- classificatory arbitrariness, and have used the twin test to determine if the classification is arbitrary . 17 (1974) 4 SCC 3 18 See Tarunabh Khaitan, ‘Equality: Legislative Review under Article 14’ in Sujit Choudhry, Madhav Khosla, Pratap Bhanu Mehta (eds), The Oxford Handbook of the Indian Constitution (Oxford University Press 2016) 19 (2016) 7 SCC 353 20 (2016) 7 SCC 221 21 (2017) 10 SCC 1 22 (2019) 1 SCC 1 19 29 In Anuj Garg v. Hotel Association of India 23, the Court decided the constitutional validity of Section 30 of the Punjab Excise Act 1914 prohibiting employment of “any man under the age of twenty -five years” or “any women” in the premises where liquor or intoxicating drugs are consumed. This classificatory provision was challenged for violation of Articles 19(1)(g), 14, and 15 of the Indian Constitut ion. It was held that the law in effect perpetuates the oppression of women. In determining the validity of the provision, the Court applied the proportionality standard: “50. The test to review such a protective discrimination statute would entail a two- pronged scrutiny: (a ) the legislative interference (induced by sex discriminatory legalisation 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 states that the State shall not discriminate on the grounds of ‘religion, race, caste, sex, place of birth or any of them ’. Since the ‘protective discrimination’ in Anuj Garg (supra) was based on one of the grounds in Article 15, the Court thought it fit to test its constitutionality on a higher degree of scrutiny. A similar line of reasoning was taken up by Justice Indu Malhotra in Navtej Singh Johar (supra) where she held that Section 377 IPC does not fulfil the rational nexus t est because the “legislation discriminates on the basis of an intrinsic and core trait of an individual, it cannot for m a reasonable classification based on an intelligible differentia”. 31 While non- classification arbitrariness is tested based on the propor tionality test, where t he means are required to be proportional to the object , classification arbitrariness is tested on the rational nexus test, where it is sufficient if the means 23 (2008) 3 SCC 1 20 share a ‘nexus’ with the object. The degree of proof under the test would impact the judgment of this Court on whether the law is under -inclusive or over -inclusive. A statu te 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 a part of th e problem that the statut e seeks to address. The determination of under - inclusiveness and over -inclusiveness , and degree of deference to it is dependent on the relationship prong (‘rational nexus’ or ‘proportional’) of the test. 32 The nexus test , unlike the proportionality test, is not tailored to narrow down the means or to find the best means to achieve the object. It is sufficient if the means have a ‘rational nexus’ to the object. Therefore, the courts show a greater degree of deference to cases where the rational nexus test is applied. A greater degree of deference is shown to classification because the legislature can classify based on the degrees of harm to further the principle of substantive equality , and such classification does not require mathemat ical precision. The Indian Courts do not apply the proportionality standard to classificatory provisions. Though the two- judge Bench in Anuj Garg (supra) articulated the proportionality standard for protective discrimination on the grounds in Article 15; a nd Justice Malhotra in Navtej Singh Johar (supra) held that less deference must be allowed when the classification is based on the ‘ innate and core trait’ of an individual, this is not the case to delve into it. Since the classification in the impugned scheme is based neither on the grounds in Article 15 nor on the ‘innate and core trait’ of an individual, it cannot be struck down on the alleged grounds of under -inclusiveness and over -inclusiveness . 21 33 The Scheme in issue was introduced in pursuance of an electoral promise made by the then party in power in Tamil Nadu. The High Court seems to have been of the view that because the scheme was in pursuance of an electoral promise, it is constitutionally suspect . This view was made on an assumption that no study must have been conducted before the electoral promise was made. It is settled law that a scheme cannot be held to be constitutionally suspect merely because it was based on an electoral promise. 24 A scheme can be held suspect only within the contours of the Constitution, irrespective of the intent with which the scheme was introduced. The scheme propounded by the State of Tamil Nadu passes muster against the constitutional challenge. T he High Court has erred in holding otherwise. During the pendency of the proceedings the State has granted a broader coverage, based on its assessment of the situation. 34 For the reasons indicated above, the appeal is allowed and the judgment of the Madras High Court at the Madurai Bench dated 4 April 2017 is set aside. 35 All pendi ng application(s) are disposed of. .....………......….......………………........J. [Dr Dhananjaya Y Chandrachud] .....…............….......………………........J. [AS Bopanna] New Delhi; November 23, 2021 24 Subramaniam Balaji (n 6)