Gold is God’s money. It can neither be printed nor inflated. When the price of gold rises, it’s a sign that the value of printed fiat money is declining, prompting the people to rush towards an inflation-resistant form of wealth storage. Rather than view the spiralling price of Gold as a ground for self-introspection, successive Indian governments have treated as a casus belli for imposing regressive controls that eventually backfire, leaving a trail of fraud, bribery, black-marketing and corruption in its wake.
The Indian Government, like innumerable counterparts across the globe, has displayed considerable antagonism towards people’s tendency to ‘hoard gold’. It continually cites ‘precious’ foreign exchange outflow as a justification to limit the growth of gold imports. The ‘License Raj’ era helmed by Jawaharlal Nehru and Indira Gandhi stands as a case in point about the Indian Government’s historically hostile stand against Gold.
The Gold Control Act of 1968 was one such unfeasible legislation enacted by the Indira Gandhi Government, piloted by her Finance Minister Morarji Desai. A lengthy and verbose statute comprising 117 sections, the Gold Control Act represented a frontal attack by the Government upon the people’s historical affiliation for the Yellow Metal. The utopian and unfeasible nature of the Act would continue to reveal itself over the next two decades till its repeal in 1990.
Salient Features of the Gold Control Act of 1968:
Section 8 of the Act imposed severe and blanket restrictions on acquisition, possession and disposal of gold. Firstly, it prohibited ownership or possession of gold. Secondly, it prohibited persons from acquiring any form of ownership, possession, custody or control of gold. Thirdly, it prohibited people from buying, selling or carrying out any transaction pertaining to gold.
The Act also went on to prohibit financial transactions involving gold. Section 10 placed a prohibition on advancement of ‘gold loans’ i.e. loans advanced on the basis of hypothecation of gold jewellery. Section 11 prohibited the manufacturing of primary gold or any articles thereof. Even temples and religious institutions were not spared, with Section 13 mandating them to sell all gold received by way of devotional offerings to licensed dealers or converted into ornaments for the idol.
Having imposed a blanket prohibition in complete disregard of societal backlash, the Act went on to create a tortuous bureaucratic procedural nightmare for any person who wanted to make gold part of his daily life. Section 16 of the Act required every person owning or possession gold ornaments or articles to execute a declaration specifying the existence and contents of the same. Such a declaration was to be executed and filed with the government administrator within thirty days of acquiring the same. In yet another example of unbridled bureaucratic discretion, the Administrator was empowered to reject declarations if ‘sufficient cause’ was not shown for acquiring the gold.
Section 71 of the Act also empowered the State to confiscate any gold in the event of any statutory infraction by following the procedure prescribed therein. Stringent penal provisions were also imposed, with Section 85 imposing seven years imprisonment on any person for owning, possession, transacting or trading in gold in violation of the Act.
The Act Backfires:
Like any legislation driven by an obsessive socialistic control of society, the Gold Control Act of 1968 immediately backfired. A massive black market emerged for Gold where transactions were done in cash, off the books and out of gaze of the tax authorities. Smuggling boomed as traffickers sought to make a killing. Further rampant corruption spread throughout the bureaucracy as the Act became a convenient tool to harass people whose only crime was to possess or trade in a metal which has been part of human history since time immemorial.
Reaction of the Courts to the Gold Control Act – Did they fall a Step Short of overturning the Statute?
The constitutionality of the Gold Control Act, 1968 came to be challenged before the Supreme Court of India in the case of Badri Prasad & Ors. vs. Collector of Central Excise and Customs, 1971 AIR 1170. The Petitioners, who were pawn broker and money lenders by profession, challenged the constitutional validity of the Act as being violative of Article 19 of the Constitution of India. The Supreme Court, while hearing the case, formulated a total of twelve questions of law, revolving around the constitutional vires of the Act.
In their judgment, the five-judge bench headed by Chief Justice SM Sikri upheld the constitutionality of the Gold Control Act. They held that the object of the legislation was to curb the smuggling of gold into the country. There was a need to prevent the conversion of smuggled gold into articles or ornaments. Therefore it was absolutely reasonable for the State to require all pawn brokers advancing gold loans to furnish declarations to the administrator and Gold Control Officer.
The court also upheld the powers of Gold Control Officers to search premises to detect illegal possession of gold. The Court held that despite the Sea Customs Act of 1882 and the Customs Act of 1962 containing analogous search provisions, Gold Control Officers required confidentiality in their missions and hence, conferment of search powers under Section 58 would prevent any advance news of planned raids leaking out to other authorities.
Further the constitution bench upheld the broad ambit of Section 16, holding that any person having gold in his ownership or possession, was statutorily bound to furnish a declaration regarding the same to the authorities.
The only silver lining of the judgment was that it struck down Section 71 of the Act as unconstitutional on the ground that mere absence of filing of declaration under Section 16 could not be a ground for confiscation of gold. The court held that despite a right of hearing provided under Section 79 and a fine of twice the value under Section 73, the unbridled power to confiscate gold under Section 71 was unduly harsh and unconscionable. Section 71 amounted to an unreasonable restriction under Article 19(5) and (6) and hence, was declared ultra vires the same.
Stringent as India’s socialistic curbs were, the State soon caught up with the ruling. The declaration of Section 71 as unconstitutional was immediately sidestepped by the Gold Control (Amendment) Act of 1971 wherein a proviso was inserted introducing further safeguards on confiscation along with some checks and balances. Already appearing utopian on paper, the amended Section 71 became yet another tool of arbitrary bureaucratic harassment characteristic of the Nehru-Indira Gandhi era.
Constitutional Safeguards imposed but the Statutory Chokeholds remained – Did the Judiciary fail to Walk the Extra Mile in the Hour of Need?
The Supreme Court Judgment in Badri Prasad, along with innumerable other rulings passed during the regressive ‘License Raj Era’ failed to eliminate the statutory chokeholds on India’s economic progress. The bench failed to see the issue in a larger perspective – that the exhaustive bureaucratic controls established under the Act were utopian in nature and only served to hammer additional nails into the coffin of India’s economic progress. The prohibitive regime of restrictions contained in the Gold Control Act, already daunting on paper, became worse with the proliferation of sloth and corruption in the 1970s and 80s.
The tenor of judgements passed by the Supreme Court in the Badri Prasad and other cases revealed a clear reluctance on the part of the bench to completely overturn and set aside an economically retrograde legislation. Rather, the courts chose the path of ‘reasonable restrictions’ and imposition of procedural safeguards to find a way out. The fact that the intricate web of bureaucratic controls on gold were viewed as ‘reasonable restrictions’ further emboldened the state to intensify its efforts to implement the Act, causing untold damage to the economy and limiting India to a state of ‘Hindu Rate of Growth’ – the infamous characterisation of ‘License Raj’ India.