Sometimes, the most interesting judgments of the Supreme Court are delivered far away from the mass media’s attention. While some financial and niche news outlets reported the judgment in Innoventive Industries v. ICICI Bank, it has largely escaped the attention of the legal commentariat. This is a pity because apart from interpreting one of the biggest legislative reforms in recent times, the Insolvency and Bankruptcy Code (disclosure: the Vidhi Centre for Legal Policy where I work was involved in its drafting), the Supreme Court’s judgment, authored by Justice Rohinton Nariman, is a definitive and detailed discussion on an important aspect of federalism: the legislative powers of the Union and the Centre.
Conflicts of legislative power
One of the core features of a federal polity, as I’ve discussed previously, was the division of sovereignty in a domestic polity between the central and federal units. This necessarily meant the division of (and not the devolution of) legislative power into separate fields. A study of federal polities, starting from the United States Constitution would show that since the 18th century and leading up to the framing of our own, constitution framers have been grappling with ways of getting this right for the specific needs of the country.
Over the years, a rich and nuanced body of law has been developed by courts around the world on how to address conflict or potential conflict between laws made by the national and sub-national units. The Indian Supreme Court and the High Courts have been unafraid to tap into them when asked to interpret the Constitution. Whether it is in analysing the “pith and substance” of the legislation or the scope of the entries in the Seventh Schedule, the Supreme Court’s been unafraid of importing such concepts where needed.
Technically, the source of legislative power for both State and Central legislatures is Article 245 read with Article 246. The discussion on what the scope of this power is usually revolves around an examination of the entries in the three lists in the Seven Schedule. The first list, known as the Union List, mentions the topics on which the Union has the exclusive power to make law. The second list, known as the State List, does the same for the States. So the states cannot make laws on subjects in the Union List and the Union cannot make laws on subjects in the State List. The third list, known as the Concurrent List, mentions the topics on which both the Union and States have the power to make law. The Constitution itself doesn’t say how to determine if a law is actually within the competence of the Union Government or the State Government or both, or even what each of the entries mean exactly.
When the Constitution was being debated, there was already a small but growing body of law laid down by the Federal Court of India in the context of the Government of India Act, 1935 which was largely followed in the Constitution of India. This was itself based on judgments delivered by the Privy Council and other Commonwealth courts, such as Australia’s, which had to interpret a written constitution.
Conflict in the Concurrent List
Justice Nariman’s judgment in Innoventive Industries, deals with an issue that crops most obviously when there is a concurrent list of powers between the Union and the States: that of conflict between laws made in the concurrent list. Legally there can be no “repugnancy” or conflict of laws where both Union and State legislatures have legitimately exercised their powers under the Constitution. It is only therefore in the context of concurrent powers that conflict of laws can take place and need to be resolved. Here, Article 254 (“Inconsistency between laws made by Parliament and laws made by the Legislatures of States”) provides for a way out in cases of conflict: the Central law prevails over the State laws in all cases, except where the State law has gotten Presidential assent, in which case it will prevail.
That still doesn’t address what we mean by “repugnancy” for the purposes of Article 254. Justice Nariman’s judgment has a detailed discussion on what constitutes such “repugnancy” and makes for a great primer on the subject for someone looking to study it. One issue that has been clarified by the courts is that the subject matter, in both the State and Central laws in conflict, should necessarily be relatable to the same entry in List III. This is not clearly obvious from the text of Article 254 itself and the matter was clarified by the Supreme Court in Tika Ramji v. State of Uttar Pradesh. Repugnancy only comes into question when both laws are traceable to the same subject matter in the Concurrent List.
So if the two laws can be traced to the same entry in the Concurrent List, does that necessarily mean they are “repugnant”?
The Australian way
Like with modern Indian cricket, the Supreme Court’s jurisprudence on repugnancy owed much more to Australia than to England (that is, the Privy Council decisions in the context of Canada). For good reason, as Justice Nariman points out in Innoventive, Section 109 of the Australian Constitution is very similar to Article 254 of the Constitution in so far as it deals with repugnancy in the context of the laws of the States and the Centre there. There has been enduring stability to the law on interpretation of Article 254 laid down in Tika Ramji and the tests which Justice Nariman uses to hold that the Insolvency and Bankruptcy Code prevail over the provisions of the Maharashtra Relief Undertakings (Special Provisions Act), 1958 can be traced back to the principles laid down in Australian cases cited by him.
In this case, given that the IBC was supposed to be a “complete code”, all State laws on the subject are deemed to be overridden and therefore “repugnant” to the IBC in all respects. This applies not only to Maharashtra’s law but all State laws that may contradict the IBC.
There is a long and rich history of the Supreme Court of India’s use of Australian constitutional law, as outlined by Justice Michael Kirby in his talk here. For all its sui generis nature, India’s federalism has only grown and strengthened over years due to the willingness of judges to look beyond its borders to find ways to deal with the disputes that come before them.
Alok Prasanna Kumar is a Senior Resident Fellow of the Vidhi Centre for Legal Policy and heads its Bengaluru office.