When economic interests take precedence

Should 'economic interests' influence a court's decision? The legal fraternity is divided on the issue

The recent Supreme Court judgment in Shivashakti Sugars Limited Vs Shree Renuka Sugar Limited has sparked a debate on whether ‘economic interests’ should influence the courts. What would have otherwise been an ordinary civil appeal has caught the attention of the legal fraternity after the apex court chose to allow a sugar factory set up in violation of statutory norms to continue operations, after hailing the ‘economic analysis of law’ approach as the best route for the judiciary to arrive at a conclusion.

The case in question involved the setting up of a sugar mill within 15 kilometres of an existing mill, in violation of the Sugarcane (Control) Amendment Order 2006 — which stipulates this minimum distance. The requirement, initially introduced as an administrative direction through a press note by the Union government in 1991, was given statutory force through a clause in the amendment order, which came into effect retrospectively. By this time, the new mill against which the existing mill brought the case had received the necessary permissions and approvals by the relevant authorities. Regardless, the Karnataka high court ruled against the new mill after considering the statutory illegality, following which the matter came up to the Supreme Court.

This is where things took an interesting turn. Breaking away from traditional jurisprudence, the apex court chose to evaluate the issue in terms of ‘economic interests’ and allowed the mill to continue its activities, even after concluding that the establishment may have been in breach of the strict letter of the law. Taking aid of Article 142 of the Constitution, which says that the Supreme Court may pass any decree or order that is necessary for doing complete justice, the court decided to brush aside the ‘technical violation’ after considering the equitable considerations of the investment undertaken and the positive impact on employment in an area of ample sugar cane production.

The court opined that it was the bounden duty of the Indian judiciary to consider the economic impact of its decisions and acknowledge the interface of law and economics in our modern age. The judgment also held that the courts must lean in favour of the ‘economic interests’ of the nation, after highlighting the growing role of economics in contract, labour, tax, corporate and other laws. Atul Gupta, partner, Trilegal, says the Supreme Court’s interpretation is forward thinking. “Economic interest is a broad benchmark in a system where the law-making process is often divorced from reality and creates a no-win situation for all sides. The judgment will promote business confidence and ensure such activities move more smoothly. Where there is a scope to increase business and labour interests, they must be promoted.”

Ramesh Vaidyanathan, partner, Advaya Legal, agrees with the apex court’s decision. “The courts are not just about complying with technical requirements, and must consider a situation in the context of prevailing circumstances and carve out the necessary exceptions.”

While the court’s conclusion that the economic impact of a judicial decision must weigh heavily in situations involving business interests has been hailed by many as a ‘coming of age’, others have expressed a far more sceptical view. “The economic analysis of law approach cannot be used to interpret statutory laws or the Constitution. Modification of inappropriate legislation is the job of Parliament, not the courts,” says Indira Jaising, senior advocate, Supreme Court.

Critics are also concerned with the effect of this judgment on issues of environment, forest and coastal clearances and its impact on sustainable development and ecological preservation. Sanjay Parikh, senior advocate, Supreme Court, says that invoking Article 142 of the Constitution to promote ‘economic interests’ is not the correct approach towards achieving complete justice, especially in environmental matters.

In support of his view are the recent judgments of the apex court in the NCR diesel ban and the Bharat Stage IV emission norms cases, in which the court has held that the citizens’ rights to a clean environment as enshrined under Article 21 of the Constitution would supersede economic concerns of business houses.

Vaidyanathan, however, allays fears of a widespread replication of the sugar mills judgment, saying that the decision will not become a generic precedent, given the reasoning outlined by the court and the peculiarity of the case. “However, it (the judgment) is bound to be used as a persuasive tool in the days to come,” adds Vaidyanathan.

Gupta also cautions that the decision has to be interpreted carefully and in the context of the facts and circumstances of each situation to ensure it is not misused in any manner.

Regardless of which side of the fence the expert opinions fall, they are in agreement that the adoption of this ‘economic interests’ approach — which has been held as an elixir in aiding the country to become a developed nation in an era of economic liberalisation — is a significant judgment with far-reaching consequences. The court’s opinion that this approach must be adopted on a sustainable basis, instead of the ad hoc approach followed in the past, also comes at a time when several stalled projects worth thousands of crores are grappling with longstanding litigation on various procedural and compliance-based issues.