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Legal Aspects of funding and investments per the Indian laws

Updated: Sep 3, 2022


Sakshi Shairwal

Shrusti Mulgund

Indian Constitution is considered to be the lengthiest constitution in the world. At the time of its enactment, it consisted of 22 parts, 395 articles, and 8 schedules [1]. The lawmakers of the Indian Constitution made a provision for amending the constitution, keeping in mind that the laws may have to be amended to keep the laws up to date with the advancement of society and various kinds of crimes, which may not have been foreseen.

Article 368 of the Indian Constitution provides the power of amending the constitution to the Parliament of India. To amend the constitution, a bill has to be introduced in either house of the Parliament (Lok Sabha or Rajya Sabha), after the bill is passed by both the houses (by the majority of total members present and voting), it will be presented to the President for his assent, after his ascent, the Constitution will be amended as per the terms of the bill [2].

In the last seven decades, the Indian Constitution has been amended 104 times, since the date of its enactment. The first amendment of the Constitution was made in the year 1951 for the welfare and advancement of socially & economically backward classes, scheduled caste & scheduled tribe [3]. The latest amendment of the Constitution was done in the year 2020 for extending the reservation of seats of SC ST members in Lok Sabha & state assemblies for ten years and it also removed the reservation of seats for Anglo-Indians in Lok Sabha & state assemblies [4]. As of the year 2020, the Indian Constitution has 470 articles, 25 parts, 12 schedules along with 5 appendices [5].

Since time immemorial, people belonging to the backward classes have been treated poorly and were discriminated against, they were never treated as equals, they were looked at as inferiors and some were considered to be so inferior, that they would be treated as untouchables. Because of this discrimination, many innocents suffered and they were deprived of education, employment and to live their life with dignity. Hence, the constitution-makers, with an intention to put an end to this discrimination provided the right to equality under Article 14, abolished untouchability under Article 17, prohibited discrimination on grounds of caste, religion, race, sex, or place of birth, provided equal opportunity in public employment under Article 16 and provided many other provisions to ensure education and employment of backward classes through reservation.

102nd Amendment of the Indian Constitution

Constitution (One Hundred and Second) Amendment Act, 2018 came into effect on 11 August 2018, after being passed by both houses and the president’s assent. Article 338B and 342A were added to the Indian Constitution through this amendment.

Article 338B lays down provisions for establishing a National Commission for Backward Classes for the welfare of economically & socially backward classes. After this amendment, the NCBC was given constitutional status. The Commission shall consist of a chairperson, vice-chairperson & 3 other members. The duty of the commission will be i) monitoring & investigating issues related to safeguarding educationally & socially backward classes ii) inquiring about complaints of backward classes being deprived of their rights iii) advising & participating in the socio-economic development of the backward classes & evaluating the progress of development iv) presenting annual reports regarding the safeguard to the President v) preparing reports for recommending measures needs to be taken for implementation of protection measures vi) discharging duties concerning advancement, welfare & protection of backward classes. The article also grants the commission the authority of a civil court regarding complaints of depriving rights & safeguards of educationally & socially backward classes [6].

Through article 324A, President has been empowered to specify socially & economically backward classes in a state or union territory, in a state he may do so after consulting the governor. However, parliamentary approval is mandatory in including or excluding a community from the Central list of educationally & socially backward classes [7].

Recently, there has been wide speculation regarding State’s power to specify socially & educationally backward classes. The reason for this speculation is because of the case Jaishri Laxmanrao Patil vs The Chief Minister and Ors. The Maharashtra State Reservation for Socially & Educationally Backward Classes Act, 2018 extended the reservation in public education & employment to the Maratha community which exceeded the ceiling limit of 50%. The respondent cited the case of Indra Sawhney v. Union of India, where it was held that in extraordinary circumstances, granting reservation that exceeds 50% would be justifiable. Bombay High Court was of the view that in certain extraordinary circumstances, the 50% limit on the reservation can be exceeded and the Indra Sawhney case didn’t limit the power of the state in “deserving case” and hence upheld the validity of the SEBC Act. It also held that Article 342A of the 102nd Constitutional Amendment doesn’t deprive the state of its power to identify/specify socially and educationally backward classes [8]. However, Supreme Court’s 5 judge bench struck down the SEBC Act, 2018 because of its unconstitutionality and asserted that no caution was taken in breaching the limit; the bench observed “Maratha community which comprises 30 percent of the population in the State of Maharashtra cannot be compared to marginalized sections of the society living in far-flung and remote areas. The State has failed to make out a special case for providing reservation in excess of 50 percent.”; and the court was of the opinion that there was no extraordinary circumstance in granting reservation to the Maratha community and exceeding the ceiling limit of 50% violates Article 14. In the same case, the state’s power to identify educationally & socially backward classes for reservation in admissions & jobs has also been contended. The Honourable Supreme Court gave a 3:2 verdict ruling that by appointing National Commission for Backward Classes, the power of the state was taken away to specify socially & educationally backward classes. The state can only make recommendations and suggestions to President or Commission for including, excluding, or modifying caste/communities. However, the state’s power to make reservations in favor of communities, determine quantum & kind of reservations, nature of benefits & other issues that fall under the ambit of Article 15 as well as Article 16, except specifying/identifying socially & educationally backward classes, will be unaffected. Justice S. Ravindra Bhat stated that by introducing Article 366 & 342A through the 102nd Constitution amendment, only President excluding other authorities has the power to specify socially & educationally backward classes & including them in the list under Article 342A(1) from each state & union territory. The 102nd amendment was upheld by all 5 judges of the bench to be valid and it neither has any effect on federal polity nor it is in violation of the basic structure of the Indian Constitution [9].


The intent of providing reservation for the backward classes is to provide them an equal opportunity as others with regards to education and employment, but if the ceiling limit of 50% for reservation is exceeded, then it will be a violation of article 14, as it infringes others’ opportunity from education and employment. Hence, it is important that States should limit the reservation of seats for socially & educationally backward classes to 50%. The Honourable Supreme Court has held that the power to specify the socially and educationally backward classes has been given to the President and states can only suggest the backward communities to be included in the list. If the power to specify socially and educationally backward classes are given to the states, then it will result in misuse/abuse of power. States will use that power for political agendas and it will be used as a tool for gaining votes. Hence, the decision of the Honourable Supreme Court was appropriate in this aspect.

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