The proclivity to litigate in India has led to the judiciary dealing with matters that tend to have large scale ramifications on the economic functioning of the state. These generally arise in matters of private commercial disputes or commercial disputes against the government or in matters of antitrust law, for example. Of late, a new mechanism to challenge government policy has developed with individuals challenging the same by approaching the ‘Writ Courts’ (Supreme Court and High Courts) directly by way of public interest litigations (PIL). Under the PIL construct, challenges are placed against various fiscal policy decisions and many times they have been entertained. However, the Supreme Court of India in some of these decisions has often forgotten the need to proceed beyond the myopic ‘Letter of Law’, the court needs to move towards a more holistic concept that considers the impact that its judgments would have on the economy.
A brief overview of the adjusted gross revenue (AGR) judgment
On 24 October 2019 the Supreme Court of India in Union of India v Association of Unified Telecom Service Providers of India pronounced an economic death knell for major telecom companies in India by ordering the payment of AGR to the Department of Telecommunications (DoT). The estimated dues owed by the telecom companies amount to 1.3 lakh crores.
The judgment held that revenue for the calculation of the AGR would be determined in a manner so as to include revenue from licensed operations of the licensee and also for activities that would go beyond the licensed activities. This was contrary to the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) order and the plea of the telecom companies which prayed for assessment as per the Accounting Standards 9 (AS-9). The AS-9 postulated that the definition of revenue would be limited to the gross inflow of cash that would arise in the ordinary course of activities and would be limited to the licensed activities itself.
Further, the court on 18 March 2020 declined to entertain any review petition and came down heavily on the companies’ plea for reassessment. So far as the correctness of the decision goes, much has been argued against it.
However, this blog aims to avoid an analytical discussion regarding the correctness of the judgment in terms of the law – meaning, in terms of its reasoning or reliance on precedents. The purpose here is to explore the possibility of court decisions adopting economic analysis and striking a fine balance between the correctness of the judgment and the economic impact following its delivery. This is because a good law would not subserve the progress of a developing nation if the same acts in an antithetical manner for its economic health. Previous court rulings that have advocated a pro-economic approach are discussed in this blog. The need for the interrelation between law and economics and the extent of the latter’s significance in the adjudication of disputes by the court is thereby highlighted.
The conflation of law and economics
A definitive pronouncement in 2017 of Shiva Shakti Sugar Mills v Shree Renuka Sugar Limited required court judgments to proceed in a direction that would be beneficial for the economy.The court went on to hold that there exists a need for the courts to weigh its decisions in favour of the economy. The court while examining several schools of economics held that the judiciary would have a remarkable role in developing the economy of the country. The court went on to say that in cases wherein two views are possible, the one favouring a healthy economy is to be adopted by the courts.
Reiterating these observations, the Supreme Court in 2018 in Arjun Gopal v Union of India, while dealing with the ban of firecrackers, again observed the role economics ought to play in the determination of disputes, more particularly in the era of globalisation.
More than a decade ago in 2007 the Supreme Court of India in State of UP v Jeet S Bisht, remarked that a deviation was required from the strict value-laden approach to law. It explored the conflation of subjects like law and economics, law and philosophy. The court held that rationality of the law would be guiding the interpretation. Thus, the court needs to adopt a binary approach – meaning, an approach that would not strictly be confined to the correctness of the law but also consider its ramifications and if the ramifications seem to be impractical or antithetical to the country’s interests, then a solution aimed at correcting the same is found.
In yet another judgment – in Common Cause v Union of India – the Supreme Court of India had the occasion to consider a plea of euthanasia. Amidst social questions of the right to die with dignity, the court also had the opportunity to consider the economic burden aspect that health services have on the patients and their families. Reiterating its principle in Shiva Shakti Sugar Mills (mentioned above) the court held that economic analysis ought to be an inevitable approach and the courts must weigh their decisions in favour of the economy.
While dealing with penalties, the Supreme Court in Excel Crop Care v Competition Commission of India held that the purpose behind fines and penalties was not to cause the economic death of an institution or a company so concerned. The principle of ‘economic death’ discussed in the Excel Crop Care case postulates that fines and penalties are meant to act as a deterrence and are not to be levied so as to economically paralyse an institution or a company. These observations are of much relevance to the AGR issue. This is because the AGR judgment (paragraph 184 onwards) considers payment of penalty and whether penalty and interest on the same ought to be paid by the companies. The telecom companies contended that the question of default for a penalty would not arise since the non-payment could not be categorised as wilful non-payment rather the same would be non-payment as a result of the penalty being disputed. The court brushed aside all such submissions and contended that the companies had ample knowledge regarding the method of calculation for the AGR. To ameliorate the condition of the telecom companies, waiver or at least extension of the time limit was a wholly plausible view that could have been adopted by the court.
In this regard, an overview of some foreign jurisprudence would be enlightening. The United States Supreme Court in deciding the quantum and scope of punitive damages in BMW of North America Inc v Gore held that although punitive damages were meant to act as a deterrence, the judiciary or the legislature while fixing the quantum was to keep in mind the interests of the economy and the impact that such a levy of penalty would have in turn. The court considered the role played by the petitioner towards the national economy. In a stark similarity to this judgment, the AGR issue also dealt with a penalty which was capable of adverse fiscal health. Another similarity was that the parties before the court were major contributors to the national economy. In such a situation, adopting the view taken by the US Supreme Court was a very plausible alternative that could have been adopted by the Indian Supreme Court. The decision, so far, as it closed all doors for any relief is seriously flawed. It may be correct to hold that the revenue would actually have to be paid. However, the court even declined the plea for extension of time. Thus, the court virtually has caused an economic death of the majority of telecom companies in India. The US jurisprudence is relevant in this context as most of the judgments of the Indian Supreme Court on this subject matter have relied upon the theories of Justice Richard Posner, under whose aegis the confluence between law and economics developed. The possibility of applying these principles in the AGR case was highly imperative. This is evident from the air of bankruptcy that is predicted for the telecom sector if no relief is granted to them either by legislative fiat or by a positive pronouncement in the review petition.
Conclusion
India being a developing country thrives for a powerful economy. In the era of globalisation, foreign investment is of much credence. Ignorance of economic factors by the apex court would certainly cause a frontal attack on the very core of the country’s fiscal interest. These factors would play an important role in bridging the gap between a developing economy and the desired developed economy.
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