November 06, 2017


- Lalltaksh Joshi, Lawyer [ ]

Lalltaksh Joshi

Lalltaksh Joshi graduated from the Symbiosis Law School, Pune and now practices law in Delhi. Previously, he has worked at Mumbai in one of India’s largest conglomerates.
+91 9730630681
New Delhi, India

“Time has come to consider the inter-discipline between Law and Economics as a profound movement on sustainable basis.”1

Recently, the Hon’ble Supreme Court in Shivashakti Sugars Limited Vs Shree Renuka Sugar Limited and others [(2017) 7 SCC 729] revisited the jurisprudence on the interface between law and economics. The commercial impact of judicial decisions is important more than ever as our nation has ushered into the era of economic liberalisation and is on the path of economic growth. The psyche behind the judgment can best be understood from the observation that India has been a developing country for a number of decades and efforts at all levels are made to ensure that India becomes a developed economy. And, the judiciary while performing judicial functions is also required to perform its role in the direction of safeguarding India in all its national interests including the progression to a developed economy.

There is a rising consensus about the need to understand the economic implications of judicial decisions.No doubt, legal scholars and courts in various other nations have been spearheading the jurisprudence of law and economics. However, Indian courts are recognising the importance of economic impact of judicial decisions more than ever. What else can be a better example of it than the above stated recent judgment wherein the Hon’ble Supreme Court observed that it is the bounden duty of the courts to have an economic analysis of its decisions.

Expert on the subject, Richard A. Posner has rightly analysed the transition of focus areas of law and economics. According to him and rightly so, the economic analysis of law has expanded beyond the “original focus” on competition laws, taxation laws and other areas of economic regulation. According to him, the “new” economic analysis of law embraces law of torts, family law, intellectual property laws, regulation of health and safety, laws forbidding discrimination in employment, to name a few.In the same recent judgment and borrowing on the principles articulated by Richard A. Posner, the Hon’ble Supreme Court observed that the courts need to avoid an outcome which has a potential adverse effect on the employment, growth of infrastructure or economy or the revenue of the State.

Perhaps considering the consequences of situations where economic impact is not a part of judicial decision making would assist in understanding its significance further. Failure to consider the commercial impact of judicial decisions not only puts an enormous number of jobs at risk but even puts the investment by foreign and domestic investors in jeopardy. As a result, foreign investors, more than their domestic counterparts feel apprehensive to invest in Indian markets.

It is also imperative to understand the pace with which judicial decisions impact the commercial calls. The government policies may be studied prior to venturing into a business leading to legitimate expectation, parties may agree for arbitration to reduce the time spent in resolving disputes, however, the impact of judicial decisions on commercial activities can never be foreseen. Therefore, it falls upon the courts to consider the commercial impact of their decisions.

Interestingly, in certain cases, grant or rejection of interim injunctions have commercial implications as well. The test followed by courts to adjudicate matters of interim injunctions is well settled: (i) prima facie case, (ii) balance of convenience, and, (iii) irreparable injury. In Shivashakti case (supra), the Hon’ble Supreme Court referred to a previous judgment wherein the High Courts were cautioned to not easily grant interim stay order in writ petitions where challenge is to grant tender by the Government, highlighting that even commercial transactions of the State may involve element of public interest and grant of interim injunction may delay the approach and in turn escalate the cost thereof, which may not be in public interest.

What is public interest? T.M.A. Pai Foundation case2 stated public interest to be means of concern or advantage to people as a whole. Going back in time, in 1971, the Hon’ble Allahabad High Court held public interest as an act beneficial to the general public and actions necessarily taken for public purpose. Though the term “public interest” cannot have a strait jacket formula, however, given the definition of “public interest” and the general parlance in which it is used, it is convincing to state that economic impact of court decisions would constitute an aspect of public interest.

In Shivashakti case (supra), the Hon’ble Supreme Court implicitly emphasised on the cost benefit analysis to be adopted by the courts in their approach while granting injunctions. The benefits of granting or rejecting an injunction would have to be balanced with the costs linked with the action of grant or rejection. In case, the benefit of granting injunction surpasses the costs associated with such grant, an injunction may be granted. On contrary, if the costs connected with granting injunction surpasses the benefits of grant, an injunction might be rejected. Upon a conjoint reading of the previous two paragraphs reveals that cost benefit analysis may be factored into ‘balance of convenience’ while deciding a case for interim injunction.

Notably, the fundamental rights enshrined in the Indian Constitution may also be turned to find importance of consideration of commercial impact while arriving at decisions. It is a fundamental right to equality before the law. Therefore, it is required to be considered that no decision discriminates equals and be a cause of adverse commercial consequences. It is also a fundamental right to carry on trade and business, subject to constitutional restraints. As such, curtailing fundamental right to carry on trade and business would cause an economic impact on those people whose right is being curbed. Even the directive principles of state policy give due importance to economic welfare of the society.

It can also be argued that economic implication of judgments is a facet covered within the ambit of Article 142 of the Indian Constitution which confers an unfettered jurisdiction upon the Hon’ble Supreme Court to do justice. The Wharton’s Concise Law Dictionary3 defines the term “Justice” as “the virtue by which we give to every man what is his due, opposed to injury or wrong. It is either distributive, belonging to magistrates, or commutative, respecting common transactions among men.” Therefore, in any given situation, commercial impact can be considered as what is due to a person.

The Shivashakti judgment (supra) evokes an outburst of thoughts, ideas, questions and assertions. The judgment has very lucidly raised the importance of economic welfare of India to attain the status of a developed nation and that the Courts must contribute in the capacity best suited to them.Today, the economic impact of judicial decisions can be seen in diverse branches of law. An imperative issue has been raised pertaining to the economic analysis of law which may not affect public at large and might be restricted to rights of limited people before court. Notably, the issue of interim injunctions and the impact of economicconsiderations has also been touched upon with the intent to develop it further. While concluding as well, the Hon’ble Supreme Court has given a flavour of rising importance of economic interests during judicial decision making –

“Even in those cases where economic interest competes with the rights of other persons, need is to strike a balance between the two competing interests and have a balanced approach.”

1. Shivashakti Sugars Limited Vs Shree Renuka Sugar Limited and others [(2017) 7 SCC 729]
2. T.M.A. Pai Foundation Vs State of Karnataka [(2002) 8 SCC 481]
3. Fifteenth Edition (Concise) 2009, Reprint 2010, page 573

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.


Related Post

follow us

Publication & Enquiries

phone icon  +91 8879635570/8879635571

mail icon