When Can Doctrine Of Prospective Overruling Be Applied? Supreme Court Explains

Chief Justice of India, Dr. DY Chandrachud, while authoring the judgment on behalf of the 9-judge bench (8:1 majority), explained when the doctrine could be applied by the Supreme Court.

The Court explained that the doctrine of prospective overruling means that an old well-established principle of law is overruled and the new legal principle would validly be applicable for all future instances. The intent of the doctrine is to avoid any injustice or hardships for the parties or individuals upon whom such a doctrine applies.

“The doctrine of prospective overruling is applied when a constitutional court overrules a well-established precedent by declaring a new rule but limits its application to future situations. The underlying objective is to avert injustice or hardships.”

The Top Court noted that the genesis of the doctrine can be found in the American Jurisprudence. In Chevron Oil Company v. Huson the US Supreme Court laid down 3 aspects to determine the applicability of the doctrine:(1) there should exist a new legal principle which overrules the old precedent; (2) the Court shall analyze the merits and demerits of each case where the doctrine is to be applied by understanding the previous history of the law in question, the objective, effect of the law and if allowing retrospective application would impact the law; (3) if the application of the doctrine is needed to avoid substantial injustice or inequitable results and hardships.

Adoption Of The Doctrine Of Prospective Overruling In India : Principles Laid Down In Golak Nath v. State of Punjab

The Supreme Court for the first time adopted the US doctrine in the 1967 judgment in Golaknath v. State of Punjab. In the said case, the validity of the Constitution (Seventeenth Amendment) Act 1964 was challenged. It may be noted that the amendments included certain state agrarian laws in the Ninth Schedule of the Constitution. The Court therein held that the constitutional amendment in question was declared void for violating Article 13(2). It also ruled that constitutional amendments were subject to the limitation set by Article 13(2) and therefore cannot infringe fundamental rights of individuals.

The court then had to decide whether to apply this ruling only to future cases or to past ones as well. CJI Chandrachud in his analysis observed that this decision was crucial because (1) The Golak Nath ruling overturned previous decisions that had allowed Parliament to change fundamental rights; (2) States had relied on these earlier rulings to make laws about land reforms; (3) Many changes had been made to the Constitution between 1950 and 1967 to support these reforms.

The Doctrine of Prospective Overruling was adopted in the present instance, as the then CJI K Subba Rao noted that allowing a retrospective application of the decision would create chaos and upset the country's stability considering that many State agrarian laws were enforced by relying on the overruled precedents. He suggested that making the ruling apply only to future cases was a sensible way to handle this tricky situation.

“In this context, Chief Justice K Subba Rao observed that giving retrospective operation to the decision “would introduce chaos and unsettle the conditions in our country.” Resultantly, it was observed that overruling the earlier decisions but restricting the ruling to the future and not to the past was a “reasonable principle” to resolve extraordinary situations.”

The Court further observed that the doctrine of prospective overruling can be applied under the Supreme Court's special powers to do complete justice under Article 142.

The court outlined three main rules for using prospective overruling in India: (1) It can only be used for matters related to the Constitution; (2) Only the Supreme Court can apply this doctrine; (3) The court can decide how far back in time the new ruling should apply.

“The Chief Justice held that the power of this Court to apply the doctrine of prospective overruling could be traced to Article 142 and formulated the following propositions about the applicability of the doctrine: a. It can be invoked only in matters arising under the Constitution; b. It can be applied only by this Court as it has the constitutional jurisdiction to declare law binding on all the courts in India; and c. The scope of the retroactive operation of the law is left to the discretion of this Court to be moulded in accordance with the justice of the cause or matter before it.”

It may be noted that while the Golaknath decision was subsequently overruled in Kesavananda Bharati v. State of Kerala, the doctrine of prospective overruling has been accepted by this Court.

The 7 Key Principles To Apply The Doctrine : CJI Draws From Supreme Court's Rulings Over The Years

The CJI in his analyses further listed the wide acceptance of the doctrine of prospective overruling in various decisions of the Supreme Court. The following are the 7 main principles as observed by CJI Chandrachud which are intrinsic in guiding on the application of the doctrine:

(1)The Supreme Court's ability to shape relief in cases stems from Article 142 of the Indian Constitution; (2) The Doctrine is to be applied when overturning past precedents and ruling on new issues of law; (3) the key objective of the doctrine is to preserve the past actions in public interest, however it doesn't make invalid legal principles valid but only sets the future date for legal changes to take effect;

(4) in order to prevent hardship and unnecessary complexities, the cases which are fully resolved are not reopened; (5) the doctrine helps the law change smoothly without unfairly affecting people who followed the old rules; (6) the doctrine prevents the reopening of settled issues, restricts the need for refunds under invalid laws and avoids multiplicity of ligitation; (7) the doctrine gives affected parties and institutions time to adjust to new legal interpretations, avoiding social and economic upheaval.

a. The power of this Court to mould the relief claimed to meet the justice of the case is derived from Article 142;

b. It is applied by this Court while overruling its earlier decision, which was otherwise final. It has also been applied when deciding on an issue for the first time;

c. The object is to validate all the actions taken before the date of declaration in the larger public interest. The doctrine does not validate an invalid law, but the declaration of invalidation takes effect from a future date;

d. Cases that have attained finality are saved because doing otherwise would cause unnecessary and avoidable hardships;

e. It is applied to bring about a smooth transition of the operation of law without unduly affecting the rights of the people who acted upon the overruled law;

f. It is a device innovated to avoid: (i) reopening settled issues, (ii) refundnof amounts collected under invalid legislation, and (iii) multiplicity of proceedings; and

g. It is applied to avoid social and economic disruptions and give sufficient time to the affected entities and institutions to make appropriate changes and adjustments.

However, in the recent decision of the Top Court upholding the powers of the States to tax mineral rights and mineral-bearing lands, the Court allowed a retrospective application of the ruling.

This means that the Court has allowed the States to recover the tax dues for the past period based on the judgment in Mineral Area Development Authority v. M/S Steel Authority Of India & Ors. (MADA) At the same time, the Court clarified that the levy of tax by the States, based on this judgment, should not operate on transactions made during the period before April 1, 2005.

The Court also stated that the tax arrears can be paid over a staggered period of 12 years from April 1, 2026.

The Court further stated that there should be no levy of interest or penalty for the demand made for the period before July 25, 2024.

In the said decision, the Court held that royalty on mining lease is not within the nature of a tax as it is a contractual consideration paid by the lesssee to the lessor under the mining lease. Both royalty and dead rent do not fulfill the characteristics of tax. The judgment in India Cement Ltd. v. State of Tamil Nadu (1990) 1 SCC 12 [34] holding royalty to be a tax is overruled. The payment made to the Government cannot be deemed to be a tax merely because the statute provides for the recovery of the arrears. On the contrary, the Court upheld the decision in State of West Bengal v. Kesoram Industries Ltd. and Ors which ruled that royalty is not a tax.

The reason for the Court to not allow a prospective application of the decision in MADA was because (1) the MADA decision upheld the powers of the states to make laws for taxing mineral rights; (2) if this decision is applied only to future cases, the Court would have to reconsider the older legislations before this; (3) however, before MADA there were conflicting court decisions on the issue of state's power to tax mineral rights (decisions in India Cement and Kesoram); (4) when dealing with older laws, one has to consider the unclear legal situation that existed before MADA and also keep in mind that laws made through elected members represent what people want and shouldn't be easily dismissed unless they clearly violate the constitution.

(5) if MADA is applied prospectively, this would lead to state tax laws being invalidated and states needed to refund the taxes which have already been collected; (6) Since now that MADA has resolved the conflict on the legal principles, applying it to future cases would become unfair.

“If MADA (supra) is applied prospectively, the relevant taxing legislations may conceivably be invalidated, requiring the States to refund the amount collected to the assesses. Since MADA (supra) has answered the reference and resolved the conflict, it would be iniquitous to apply the decision prospectively.”

On July 25, the Court held by an 8:1 majority that States have the power to levy tax on mineral rights and that the Union law - Mines and Minerals (Development and Regulation) Act 1957 - do not limit such power of the States.

The 9-judge bench which delivered the judgement was headed by CJI DY Chandrachud and comprises Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma and AG Masih. The Chief Justice of India DY Chandrachud wrote the judgment on behalf of himself and seven colleagues. Justice BV Nagarathna delivered a dissenting judgment.

After the judgment was pronounced, the Union and certain assesses made a demand that the judgment should be given only prospective effect. Following that, the 9-judge bench held a hearing on this aspect on July 31.

Other relevant reports on the decision can be read here.

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