Article 266

Article 266 of the Constitution of India establishes the framework for managing public finances through the Consolidated Fund and Public Account at both the Union and State levels. It is a cornerstone of India’s fiscal governance system, ensuring that all revenues, loans, and government receipts are properly credited, managed, and spent under legislative authority. This Article promotes financial accountability, transparency, and adherence to the rule of law in the management of public money.

Constitutional Provision and Structure

Article 266 provides for the creation and maintenance of two major financial accounts:

1. The Consolidated Fund of India (CFI) – the principal account of the Union Government.
2. The Consolidated Fund of each State – the corresponding account for individual State Governments.

It also provides for a third category known as the Public Account, which includes funds held by the government in trust for others. The Article ensures that all receipts and expenditures of the government are routed through these accounts in accordance with constitutional and statutory procedures.

Text and Interpretation of Article 266

Article 266 reads as follows:

1. Clause (1): All revenues received by the Government of India or of a State, all loans raised by them, and all money received in repayment of loans shall form one consolidated fund, to be known respectively as the Consolidated Fund of India and the Consolidated Fund of the State.
2. Clause (2): All other public money received by or on behalf of the Government of India or a State shall be credited to the Public Account of India or the Public Account of the State.
3. Clause (3): No money shall be withdrawn from the Consolidated Fund of India or of a State except under appropriation made by law in accordance with the Constitution.

These clauses collectively establish the constitutional requirement that all government revenues and expenditures must be authorised by law, thereby ensuring legislative oversight over public finance.

Components of the Consolidated Fund

The Consolidated Fund of India (and of the States) comprises:

• Revenue Receipts: All taxes, duties, fees, and other income received by the government, such as customs, excise, and income tax.
• Loans Raised: Borrowings by the government from domestic or international sources, including treasury bills, bonds, and advances from the Reserve Bank of India.
• Loan Repayments: Money received from individuals, institutions, or States as repayment of loans granted earlier by the government.

This fund constitutes the main financial repository of the government and forms the basis for preparing the Annual Budget (Union or State).

The Public Account

The Public Account consists of money that does not belong to the government but is held by it in trust or as a custodian. Such funds are not part of the Consolidated Fund but are separately maintained and managed. Examples include:

• Provident Funds and Pension Funds (e.g., General Provident Fund, Public Provident Fund).
• Small Savings Schemes (such as National Savings Certificates).
• Deposits and Advances received by the government.
• Reserve Funds and other trust accounts.

Money from the Public Account does not require parliamentary approval for withdrawal, as it represents funds belonging to individuals or entities, though its use remains subject to legislative scrutiny through audits and reports.

Appropriation and Legislative Control

Article 266(3) mandates that no money can be withdrawn from the Consolidated Fund except through an Appropriation Act passed by the legislature. This ensures that:

• All government expenditure is sanctioned by Parliament (for the Union) or the State Legislature (for States).
• Expenditure follows the procedure laid down in Articles 112 to 114 for the Union and Articles 202 to 204 for the States.
• Legislative approval is obtained through the Annual Financial Statement (Budget) and related Appropriation Bills.

This process safeguards the democratic principle that the executive cannot spend public money without legislative consent.

Relationship with Article 267: Contingency Fund

Article 266 operates in conjunction with Article 267, which provides for the establishment of a Contingency Fund for both the Union and the States. While the Consolidated Fund is used for regular government expenditure approved by the legislature, the Contingency Fund allows for immediate expenditure to meet urgent or unforeseen needs pending subsequent legislative approval.

Judicial Interpretation and Case Law

The Supreme Court of India has, in several decisions, underscored the significance of Article 266 in ensuring fiscal discipline and legislative oversight:

• Union of India v. Harbhajan Singh Dhillon (1972): The Court affirmed that the power to raise and manage public funds must adhere strictly to constitutional authorisation.
• State of Madhya Pradesh v. Bhailal Bhai (1964): The Court held that money unlawfully collected by the State (without authority of law) must be refunded, reinforcing the principle of fiscal legality.
• Centre for Public Interest Litigation v. Union of India (2012): The Court highlighted the need for transparency and public accountability in the allocation of financial resources, which are derived from the Consolidated Fund.

These decisions collectively strengthen the constitutional principle that financial sovereignty rests with the legislature, not the executive.

Related Constitutional Articles

Article 266 is part of Part XII (Finance, Property, Contracts and Suits) of the Constitution and is closely linked with several related provisions:

• Article 267: Establishes the Contingency Fund of India and of the States.
• Articles 268 to 281: Deal with the distribution of taxes between the Union and the States and the functioning of the Finance Commission.
• Article 112 and 202: Relate to the presentation of the Annual Financial Statement (the Budget) at the Union and State levels.
• Article 150: Provides for the form in which accounts of the Union and States are to be maintained, as prescribed by the President on the advice of the Comptroller and Auditor General (CAG).

Together, these provisions constitute the constitutional framework for financial administration and accountability.

Significance of Article 266

Article 266 holds immense significance in India’s financial system for several reasons:

• Centralisation of Public Finance: It ensures that all government revenues and borrowings flow into a single fund, simplifying financial management and oversight.
• Legislative Accountability: It empowers Parliament and State Legislatures to control and monitor government expenditure.
• Fiscal Transparency: It mandates that all withdrawals must be legally sanctioned, preventing misuse of public funds.
• Democratic Control of Finance: It embodies the principle that taxation and expenditure must be subject to the will of the people through their elected representatives.

Practical Implications

In practice, Article 266 governs the structure and management of government accounts and plays a critical role in the budgetary process:

• Union and State Budgets: All receipts and expenditures are routed through the Consolidated Fund and classified into revenue and capital accounts.
• Auditing by the CAG: The Comptroller and Auditor General of India audits all transactions related to the Consolidated Fund and Public Account to ensure compliance with constitutional and legal norms.
• Financial Accountability: Regular audits, legislative discussions, and public reporting ensure transparency in the use of public money.

Amendments and Reforms

While Article 266 has not undergone substantive constitutional amendments, financial management practices have evolved to enhance transparency and accountability. Reforms such as computerised accounting systems, performance-based budgeting, and public expenditure tracking have modernised fiscal administration in accordance with constitutional principles.