Justice cannot be blind to the economy

Finance Minister Arun Jaitley has called on the legal scholars and academicians to look into the impact of judicialisation of the economy, especially in cases where there is an adverse impact on the country’s GDP and employment. Though the need for ‘economically responsible justice’ has been stressed in the past as well, when the appeal comes from the Finance Minister of the country it cannot be ignored.

It would be naive to suggest that Supreme Court decisions do not have an impact on the economy. The Constitution has always been a source of guidance while interpreting economic policy matters, but on several occasions the Supreme Court has not been able to keep pace with the changing policy regime .

Examples of this are: affirming a stricter standard of patenting might impact innovation in the pharmaceutical industry, an unconstitutional imposition of a tax can hit the automobile industry, and a ban on selling liquor near highways may affect the tourism industry. The shock waves of the quashing of coal block allocations are still being felt throughout our banking system as well as power, metal, steel and mining industries.

All these decisions have a significant economic impact. It would be worthwhile for academicians to analyse the impact of judicial decisions on India’s poor rank (172 out of 190) in enforceability of contracts that effectively takes the ‘ease’ far away from ‘doing business’.

Many of these decisions by the Supreme court were hailed as the apex court then was battling corruption that had gripped the country at the highest levels.

In this fight against corruption, all stood united behind a powerful Court trying to take on the wrongdoings of a defunct government that, in the words of a respected Supreme Court lawyer (Harish Salve), “... had simply refused to govern.”

But in this battle against corruption we had ignored the economic implications of these judicial decisions and it is now time for a mature reflection on them. It is not for the Court to examine the substantive content of the economic policy, which is exclusively in the domain of the executive and legislative branches of the government. The jurisprudence supporting these propositions is settled and does not require a reference to authority.

The government is bound by Constitutional diktats and if its actions violate Constitutional provisions, the Court can review such executive action and strike it down if necessary. However, when such executive action is being reviewed, the court cannot direct the government to follow a particular kind of economic policy.

Ronald Coase, a Nobel Prize winning economist, has said that the initial assignment of rights is irrelevant to efficiency, and the law should try to minimise transaction costs of functioning in the market. This can be accomplished by clearly defining property rights and making them readily transferable, as well as by creating cheap and effective remedies for breach of contract.

Looking at the 2G case, the subsequent Presidential reference in In Re: Natural Resource Allocation and the Coal Block Case from the Coase Theorem’s perspective, disturbing clearly defined property rights can have an adverse impact on allocative efficiency. Article 14 of the Constitution is a safeguard against arbitrary government decision-making, but one should also keep in mind the grave dangers if our judiciary continues to traverse this alarmist path.

The Supreme Court can’t be insensitive to the potential economic impact that its decisions might have, especially when there is no statutory violation or the violation is, at most, of a technical character.

In a significant verdict last year in the Shivshakti Sugar Mills case, Supreme Court Justices Sikri and Sapre said that, “The court needs to avoid that particular outcome which has a potential to create an adverse effect on employment, growth of infrastructure or economy, or the revenue of the state.”

Through this verdict the apex court has a set a precedent where the economic impact of the courts’ decisions are crucial especially in an era of economic liberalisation.

The court has realised that its decisions on the legality of several licenses granted by the government qua industrial operations do have wide ranging economic impact. Investments made by private and public industrial units, combined with job security of thousands of employees, and financial security, via peripheral business opportunities, to all those linked with these industrial units are at stake.

Justice Sikri stated, “India is on the road of economic growth. In such an environment it becomes the bounden duty of the Court to have the economic analysis and economic impacts of its decisions.”

In the coal blocks Case, Chief Justice Lodha opened his opinion by observing that, “Coal can help significant economic growth. India’s energy future and prosperity are integrally dependent upon mining and using its most abundant, affordable and dependent energy supply — which is coal.”

The Chief Justice’s first two sentences of his opinion are, “Coal is king and paramount Lord of industry is an old saying in the industrial world. Industrial greatness has been built up on coal by many countries.”

Corruption or mala fides during the licensing process, proved beyond doubt, cannot be tolerated.

The question is which is the proper forum for such issues to be litigated. The burden of proof in a writ petition is not ‘beyond all reasonable doubt’.That is reserved for a Sessions Court.

But when the Supreme Court cancels licenses (as it did in the coal blocks case) going back decades based on an apprehension of some wrongdoing without actually being legally required to examine proof beyond reasonable doubt, and without any Judicio-Economic Impact Assessment, the economy and people suffer.

The words of Justice Sikri in Shivshakti Sugar Mills, are almost prophetic, “(...) in a situation where two views are possible or wherever there is a discretion given to the Court by law, the Court needs to lean in favour of a particular view which subserves the economic interest of the nation.”

When we read these two sentences from two significant Supreme Court decisions together, it becomes abundantly clear that a wholesale cancellation of coal block licenses was not in the economic interest of the nation. If coal is such an integral part of industrial growth, then ignoring the economic impact of the cancellation of 214 out of 218 coal block licenses was undesirable and unacceptable.

As stated by the Finance Minister, it falls now on the legal and economic profession, including academicians and practitioners, to build the necessary theoretical framework so that we can offer urgently needed assistance to the Supreme Court. After all, in our attempt to reinforce the belief ‘Let justice be done even though heavens may fall’ ( justitiaruatcaelum ), the economy might come to a screeching halt.

Khagesh Gautam is Associate Professor of Law in Jindal Global Law School. Ashish Bharadwaj is Assistant Professor and teaches law & economics.

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