Insolvency and Bankruptcy Code enmeshed in legal action

The law laid down by the SC in a plethora of cases is that policy issues of the govt are not justiceable. The precedent laid down by the SC also cannot be violated by the apex court itself

A dawn of a new era. That is how the Insolvency and Bankruptcy Code recently enacted and worked up was described in news media and even by economists and analysts. Now after a group of power asset companies went to the Supreme Court and has obtained time for no action till November 11, 2018, it is clear that the apex court has treated the issue of the Reserve Bank of India’s (RBI’s) policy initiative on realising dues from non-performing assets (NPA) as justiceable. Some analysts have pointed out the effect of this policy being enmeshed into litigation. The facts argued before the Supreme Court are based on hardship, etc, and no argument has been made out about the infringement of fundamental rights. Here I am writing only on the legality of the scope of intervening in policy matters of the government and of the RBI. 

It has always been accepted in various judgements of the Supreme Court that economic policy is not justiceable. It is already a settled issue that the Court cannot intervene unless any fundamental right has been violated. A very clear decision is the well-known case of Indian Express Newspapers v.U.O.I reported in AIR 1986SC 515 that a notification is legislative in nature and so intervention is not permissible. Here the Supreme Court interfered to strike down the excessive tax on newsprint because it came to the conclusion that the imposition of high tax on it was violative of the fundamental right of freedom of speech under Art 19(1) g. On a mere ground of unreasonableness, an imposition of tax even by an amendment of a notification cannot be challenged, it said. Economic policy is not justiceable unless it violates fundamental rights. There were many judgments after that. The Kasinka Trading vs. UOI – 1994(74) ELT 782(SC) and Shrijee and Sales Corporation vs. UOI – 1997(89) ELT 452 (SC) held that taxation policy cannot be pronounced upon by the courts unless there is a violation of the Constitution. 

The settled position is this. In the case of an ordinary fiscal levy, mere excessiveness of tax is not justiceable. If the petitioner is able to prove that the excessiveness of tax has created discrimination vis-a-vis his competitors or has otherwise completely ruined his business such that it has gone against his fundamental right to trade or business, then it becomes justiceable. So far no such case has succeeded on this ground before the high courts and the Supreme Court. Only in the case of newsprint, the challenge to a levy, which was found to be burdensome, has been entertained by the Supreme Court as justiceable on the plea that it violates Article 19(1) (g) and is a threat to democracy.

Now the question is whether the Supreme Court itself can go against the precedent laid down by it by several judgments. Here also the decision of the Supreme Court is that it cannot do that unless the number of judges in the new judgment is more than the number in the previous judgments. The Supreme Court has held in the case of UjagaR Prints v U.O.I-1987 (27) ELT 567 (S.C) that judicial discipline requires that a Bench of two judges should not disregard the decision of a Bench of three judges, but if the Bench of two judges is inclined to disagree with the decision of three judges, the case should be referred to a larger Bench. The court further said that for the purpose of imparting certainty and endowing due authority, decisions of this Court should be rendered by Division Benches of at least three judges.

There is a status quo ordered by the Supreme Court not to initiate any insolvency proceeding till November 11, 2018. There is no report that the Supreme Court has taken the cases as the infringement of the fundamental rights. If that is factually true, then the action on the part of the Supreme Court in staying the operations of the power companies tantamount to the court's taking the issue as justiceable. The law laid down by the Supreme Court in a plethora of cases is that such policy issues of the government are not justiceable. The precedent laid down by the Supreme Court also cannot be violated by the Supreme Court itself.

The writer is member, Central Board of Excise & Customs (retired)

Email: smukher2000@yahoo.com