The division bench of the apex court, consisting of justice Sujata V Manohar and justice GB Pattanaik, has also directed Agarwal and Sonik to personally show cause why action should not taken against them for contempt of the Supreme Court. According to legal experts, the petition will have a significant impact on the independent functioning of the tribunal which decides tax appeals of substantial amounts.

"The case throws up the question of separation of power between the executive and judiciary," said a Supreme Court advocate, adding that the proceedings before the apex court are likely to highlight significant directions with regard to fundamental matters including the independence of the ITAT. The contempt petition, which was filed through its president TVRajagopal Rao, had arisen out of an appeal filed by Neerja Birla before the ITAT. After hearing the appeal, judicial member of the tribunal RV Easwar prepared a draft order in August, 1997, wherein he allowed the appeal of the assessee.

However, since an accountant member of the tribunal, MVR Prasad, was of a different view, a further discussion took place between both the members. It was finally decided by both the members that Birla's appeal should be dismissed and accordingly, both signed an ordered prepared by the accountant member (Prasad) on October 23, 1997. Agarwal, the then law secretary, addressed a letter to the president, ITAT, describing the above circumstances as "judicial impropriety of the highest degree". Agrawal also reportedly asked the tribunal's president to take action against the members.

Both the tribunal members were requested to comment on Agarwal's letter to which they concurred that first order prepared by the judicial member was only a draft order and not the final verdict.Denying any judicial impropriety, they explained to Rao that after the discussion both agreed to dismiss the appeal of the assessee.

After certifying the facts, Rao filed a contempt petition in the Supreme Court against Agarwal and Sonik, alleging gross interference in the independent judicial functioning of the tribunal.

At Tuesday's hearing, senior advocate Dinesh Vyas and PH Parekh, arguing on behalf of ITAT's president, said that contempt proceedings must be taken against the former law secretary. They also pleaded for a CBI enquiry to ascertain as to how the law secretary procured copies of the confidential and secret documents forming part of the judicial proceedings of the ITAT. They also submitted that in a public interest litigation involving the issue of non-interference of executive in independent judicial administration of ITAT, the apex court has already passed a stay order against the government and the present action of the former law secretary amounted to violation, thereof, resulting incontempt of the court.

Altaf Ahmad, additional solicitor general, appeared for the union of India.