A JUDICIAL MISREADING OF THE LAW

FROM BUSINESS WORLD OF 16 SEPTEMBER 2005.


A portentous verdict

Ruling in a case filed by Monnet Sugar Limited, the Allahabad High Court struck down Press Note 11 delicensing the sugar industry issued by the central ministry of industry in 1998. According to the Honourable Bench, no condition "is attached to the law nor any power of delegation has been given by Parliament by law to the executives to delicence the industry”. The law referred to is the Industries (Development and Regulation) Act, 1951, which laid the foundations of licence-permit raj. The Act prohibited anyone from setting up a new industrial undertaking, producing a new product or carrying on business without a licence from the central government. It was intended to give the government power to force industries to take a licence; the Honourable High Court has read it to mean that the government did not have permission to permit production without a licence.

It is always possible that the government does not know the law; but it seems rather incredible that the government should have delicensed the sugar industry without considering whether it had the power to do so. Presumably it relied on Section 29B(1), under which it has power to exempt any industry from any provision of the Act. But that section empowers the government to exempt undertakings only on the grounds that they are small and need to be encouraged. It just happens that no one put on Section 29B(1) the interpretation that the Allahabad High Court has, but it was always open for someone to do so.

The central government will be tempted to glue together an ad hoc solution by declaring a new sugar policy or amending the Sugar Control Order. But that would be short-sighted. Although the Allahabad High Court has not spelt it out, its judgment can be read to mean that all the delicensing of industry that the government boldly undertook in 1991, and perhaps even the relaxation of 1985 under Rajiv Gandhi, were ultra vires. In other words, the liberalization of the economy, which made our Prime Minister a global hero, which has transformed Indian industry from a handfed weakling to a globally competitive powerhouse, and which is the basis of the ongoing economic boom, was an illegal act of the government. The challenge thrown to the government by the Allahabad High Court is too serious to be ignored.

The government could go repeal the Industries (Development and Regulation) Act. It is high time that it was repealed; it should have been repealed in 1991. But the government is chary of going to Parliament, often with good reason, namely that it has not the majority to pass any major legislation. That was certainly the case in 1991. The situation was desperate, a sticking-tape solution was found, and since it worked, the government forgot to revisit it at a more propitious time.

The government could still go to Parliament. But now it has allied itself with the Left which, if given a chance, may declare its belated and untimely love for the Industries (Development and Regulation) Act. The government may well find itself stuck in slow and painful negotiations with the Left; the outcome may emerge years later in the form of an amendment that gives a temporary solution but keeps the Act more or less intact. Such a solution would be worse than the problem.

Hence the wisest thing for the government to do would be to appeal to the Supreme Court. There is a risk that the Supreme Court will confirm the Allahabad High Court’s decision; a literal reading of the Act hardly supports another interpretation. But unlike the High Court, the Supreme Court can adapt, modify or supplement the law. In this case, where the consequences of following the High Court’s interpretation would be catastrophic, it is highly likely that the Supreme Court will. Even if it does not, one must never underestimate the ingenuity of a judicial brain; the Supreme Court may well come up with a solution that everyone can live with.

The problem was not unforeseen. The finance ministry under Dr Manmohan Singh was aware that the economic laws were anachronistic and needed to be revised. It appointed a working group under Dr Bibek Debroy to propose amendments in law. But once the crisis passed, so did the government’s interest in reforms; the entire exercise came to nought. The only law that was reformed was Foreign Exchange Regulation Act. Now that the reformer of yore is the most powerful man in the country, he should take up the agenda he was led to abandon ten years ago.