Exorcising the Bank Nationalisation Case: Jindal Stainless Ltd v State of Haryana and Australian Caselaw

This post is not a summary of the Supreme Court’s recent decision in Jindal Stainless Ltd v State of Haryana, Civil Appeal No. 3453/2002 (2016) (“the Entry Tax case”). Other contributors to this blog will undoubtedly weigh in on the full implications of this decision soon enough. This post is a (very brief) sequel to my previous post on how the Australian High Court’s decision in Cole v Whitfield could bear upon Indian jurisprudence on restraints on interstate trade and commerce.

In that previous post, I noted that Cole v Whitfield untangled the complex thickets of jurisprudence that had grown up around Australia’s equivalent to Part XIII of the Indian Constitution – and, in doing so, reversed some of the Australian constitutional notions (such as those arising from New South Wales v Commonwealth (1948), “the Bank Nationalisation case”) that had been cited and applied by the Indian Supreme Court in Atiabari Tea Co v State of Assam (“Atiabari”) and Automobile Transport (Rajasthan) Ltd (“Automobile”). In the Entry Tax case, the Supreme Court cited Cole v Whitfield at length, with the eventual test devised by the majority – prohibiting discriminatory taxes on interstate trade rather than taxes in and of themselves – closely resembling that which resulted from Cole v Whitfield. Nearly 30 years after discredited Australian orthodoxies were killed off in their homeland, their Indian progeny have at last been interred.

As Banumathi J observed in the Entry Tax case (at [84]), ‘the Australian cases relied upon in Atiabari and Automobile’ – principally the Bank Nationalisation case and James v Commonwealth – ‘failed to stand the test of time’. (Or, more picturesquely at [87]: that Cole v Whitfield and its successors demonstrate that ‘the ramshackle cottage on which the decision[s] in Atiabari and Automobile was based has itself fallen down’. The extent to which these decisions can be said to be ‘based’ on Australia’s cottage was disputed, as noted below.) As Thakur CJ (with Sikri and Khanwilkar JJ) put it at [105], Cole v Whitfield demonstrates that the applicability of earlier Australian authorities to the interpretation of Part XIII has ‘fizzled out’ over time – with, by implication, Indian decisions based in large part upon those Australian decisions similarly losing some measure of salience. (This notion is reiterated explicitly by Banumathi J at [89].)

While broadly agreeing with Thakur CJ, Ramana J took care to note (drawing on past fluvial references to the Thames and Potomac in Indian constitutional law) that the plains of the Ganges can never be fertilised by the waters of the Murray (River) – even given that for the Murray and the Potomac alike ‘it is important to see the course which they have sailed and taken their countries to glory’. Interestingly (in light of Cole v Whitfield’s seismic effect on Australian law), one of the stated reasons for Ramana J’s caution in relying on foreign jurisprudence is that ‘they may be subject to change which will inevitably stir the matter once again’.

The most detailed and searching analysis of Australian caselaw (and, relevantly for present purposes, of the use made by Indian judges of Australian cases) in the Entry Tax decision is that of Bhushan J in dissent. The position is bluntly put at [316] in his judgment:
We are thus of the view that the concept as evolved in Australia and America with regard to freedom of trade and commerce cannot be adopted in respect of interpretation of our Constitution[. D]espite arguing against the relevance of foreign judgments, the States themselves are now relying on the foreign judgments in [the] context of ‘direct and immediate effect test theory’. The change in the legal position in Australia and America does not have any bearing on the Indian legal position as our Constitutional framework is different from those countries.

Bhushan J noted, in this regard, that the framers of the Constitution had taken inspiration from section 92 of the Australian Constitution (which may broadly be described as Part XIII’s equivalent) but ‘did not stop there’, instead imposing further textual restraints upon the right conferred by article 301 in articles 302 to 306. (In an unacknowledged irony, this approach – dispensing with accumulated jurisprudence in a bid to return to the textual meaning, informed by renewed analysis of the drafting history of the relevant provisions – is precisely the approach taken by the High Court in Cole v Whitfield, which as previously noted was remarkably novel at that time in Australian constitutional jurisprudence. Chandrachud J’s scholarly dissent devotes substantial attention to the drafting history of Part XIII, even while emphasising (at [6]) that ‘[t]he challenges to governance which India has faced over the last seven decades cannot be ignored in giving present meaning to the constitutional text’.) These provisions, as well as other unique features in Indian constitutional law (for example, a traditionally greater openness to examination of the ‘reasonableness’ of given restrictions) were cited by Bhushan J (at [313]) as key points of differentiation between the Indian and Australian constitutional schemes.

Bhushan J proceeded to assert that although Australian decisions had been cited in Atiabari, the findings reached in that decision were not premised upon those Australian cases; instead, Gajendragadkar J in particular ‘found justification for his conclusion from the [Australian] judgments’ without basing that conclusion upon such. (This hence diminishes the significance for Indian law of those Australian judgments’ fall from favour in Australia.) This point regarding the importance of Australian caselaw in past Indian legal developments would be contested by Banumathi J, who (at [82] of his judgment) describes Atiabari and Automobile’s reliance on Australian cases as representing ‘a mechanical implantation of a foreign concept into the Indian legal system, not keeping in view the distinct features of Indian Polity and the Constituent Assembly debates’. (Again, shades of Cole v Whitfield!) Banumathi J asserts the invalidity of the ‘direct and immediate effect on trade and commerce’ test in fairly blunt terms flowing almost immediately from his discussion of Australian and American authorities. Thakur CJ took a more moderate approach (at least rhetorically) than that of Banumathi J – acknowledging Gajendragadkar J’s nuanced examination of the appropriate role of comparative jurisprudence in constitutional interpretation (at [59] in Atiabari) and ultimately stating (at [99]) that Gajendragadkar J ‘referred to these [Australian] decisions with a view to supporting his conclusions by reference to Judges in other jurisdiction[s] responding to similar challenges posed by interpretation of what His Lordship described as “sister constitutions”’. (Thakur CJ’s subsequent blunt statement at [100] that the Court ‘relied upon’ Australian decisions should be read in light of this prior concession.)

I do not believe that there is, ultimately, any great gulf between Bhushan J’s interpretation of the use of comparative authorities in Atiabari and Automobile and that of Thakur CJ. Even given that, of course, it is the text of the Constitution that the Court is called upon to determine, the fact that (foreign) constitutional notions previously found to be persuasive have since fallen from favour elsewhere is a relevant factor in determining how much weight to afford (domestic) decisions that reached similar conclusions – albeit given that those domestic decisions may still stand on their own absent (to Bhushan J) extraneous, unnecessary citations of foreign jurisprudence. As the new orthodoxy on Part XIII evolves, there is, at least, the appearance of consensus that the Bank Nationalisation case and similar doctrines are no longer applicable to Indian conditions, with even the approach of the dissenters rooted in unique Indian constitutional (and, for Chandrachud J in particular, political) conditions rather than justified even in part by drawing support from long-since-discredited Australian notions.

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