Part XII: Finance, Property, Contracts and Suits

Article 266: Consolidated Funds and Public Accounts

Original Article:

(1) Subject to the provisions of article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled “the Consolidated Fund of India”, and all revenues received by the Government of a State, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled “the Consolidated Fund of the State”.

(2) All other public moneys received by or on behalf of the Government of India or the Government of a State shall be credited to the public account of India or the public account of the State, as the case may be.

(3) No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution.

Explanations:

Article 266 of the Indian Constitution outlines the structure and control of the Consolidated Funds and Public Accounts of both the Union and State Governments. This article is central to the financial administration of India, providing a clear distinction between funds meant for regular government expenses and public funds for specific purposes. By segregating funds into the Consolidated Fund and Public Account, the Constitution ensures transparency, accountability, and legal oversight on the expenditure and collection of public money.

This differentiation supports the efficient management of finances, enabling the government to allocate resources appropriately and maintain accountability to the Legislature.

Clause-by-Clause Analysis:

Clause (1): The Consolidated Fund of India and States - This clause ensures all revenues, loans, and repayments are centrally managed in a Consolidated Fund, which is subject to legislative oversight and control. Examples include taxes collected by the Union and States.

Clause (2): The Public Account of India and States - Public moneys that do not belong to the government, such as employee provident funds and court deposits, are credited here. These funds do not require legislative approval for withdrawal.

Clause (3): Appropriation of Money - Ensures that no funds are withdrawn from the Consolidated Fund without legal authorization, highlighting the importance of parliamentary approval and accountability.

Legislative History:

Article 266, initially proposed as Article 248A in the Draft Constitution, was finalized after extensive deliberations in the Constituent Assembly. The discussions emphasized financial discipline and accountability, ensuring legislative oversight over public finances.

Historical Significance:

Inspired by British financial practices, Article 266 represents a robust mechanism for maintaining fiscal responsibility in India. It aligns with democratic principles by empowering the Legislature to oversee and authorize the appropriation of funds.

Real-Life Examples:

• Union Budget Allocation: The Union Budget utilizes the Consolidated Fund of India to finance various ministries and schemes. For instance, funds allocated for national defense are drawn from this fund after parliamentary approval.
• State Public Accounts: Employee contributions to provident funds are credited to the State’s Public Account, ensuring these funds are accessible when required by employees.
• Judicial Deposits: Funds deposited in courts are managed under the Public Account, highlighting its role as a custodian for public money.

Debates and Deliberations:

During the Constituent Assembly debates, Dr. B. R. Ambedkar emphasized the need for clear demarcation between funds intended for governmental use and those held in trust. Prof. Shibban Lal Saksena proposed centralization to prevent misuse, suggesting that all funds should be first credited to the central treasury. This was met with opposition from other members who stressed the importance of respecting state autonomy.

K. Santhanam argued for flexibility in fund management, stating that rigid structures could hinder financial efficiency. Meanwhile, T.T. Krishnamachari highlighted the need for a balanced approach, ensuring that both Union and State Governments could exercise fiscal responsibility while being accountable to their respective Legislatures.

Ultimately, the Assembly agreed upon a decentralized yet accountable structure, ensuring that all appropriations required legislative approval to maintain transparency and efficiency in financial administration.

References and Case Law:

• State of Kerala v. Gwalior Rayon Silk (1973): Clarified the scope of Consolidated Funds in state budgets.
• Union of India v. Harbhajan Singh Dhillon (1972): Addressed the legislative powers over taxation and fund allocation.