2.1 A statute generally lays down a principle for application to case situations yet to materialise. The Legislature has, therefore, to speculate on how future situations will come up and what ramifications will ensue therefrom. It is because of this difficulty, that the Legislatures are often content with laying down the most general statements of law leaving it to the judicial interpretative process to apply creatively the general principle to particular cases. It is, in effect, a deliberate delegation of responsibility to the Courts by the Legislature. Thus, it is for the Courts to remove the ambiguities and doubts thrown up by the language of the statute and lay down what the statute means. Lords Scarman observed in Furniss v. Dawson  1 All ER 530 (HL) :
“Whatever a statute may provide, it has to be interpreted and applied by courts; and ultimately it will prove to be in this area of judge-made law that our elusive journey’s end will be found.” (Quoted in Velayudhan Ramakrishnan v. Rajeev  174 ITR 482).
When a defect appears a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament and then he must supplement the written word so as to give “force and life” to the intention of the Legislature. A judge should ask himself the question how if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out? He must then do as they would have done. A Judge must not alter the material of which the Act is woven but he can and should iron out the creases.1
As Lord Denning said, it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As Judge Learned Hand said, we must not make a fortress out of dictionary but remember that statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjust or absurd result. We should not make a mockery of legislation. To make sense out of an unhappily worded provision, when the purpose is apparent to the judicial eye, ‘some’ violence to language is permissible.
2.1-1 Judges not only declare but also make laws - It used to be disputed that Judges make law. Today, it is no longer a matter of doubt that a substantial volume of the law governing the lives of citizens and regulating the functions of the State flows from the decisions of superior Courts. “There was a time”, observed Lord Reid, “when it was thought almost indecent to suggest that Judges make law-they only declare it... But we do not believe in fairy tales any more.”1 In countries such as the United Kingdom where Parliament, as the legislative organ, is supreme and stands at the apex of the constitutional structure of the State, the role played by judicial law-making is limited. In the first place, the function of the Courts is restricted to the interpretation of laws made by Parliament, and the Courts have no power to question the validity of parliamentary statutes, the Diceyan dictum holding true that the British Parliament is paramount and all powerful. In the second place, the law enunciated in every decision of the Courts in England can be superseded by an Act of Parliament. As Cockburn C.J. observed in Canon Selwyn, ex parte  36 JP 54 :
“There is no judicial body in the country by which the validity of an Act of Parliament could be questioned. An act of the Legislature is superior in authority to any Court of Law.”
And Ungoed - Thomas, J. in Cheney v. Conn  1 All ER 779 (Ch.D.), referred to a parliamentary statute as (at p. 782) “the highest form of law... which prevails over every other form of law”. The position is substantially different under a written Constitution such as the one which governs us. The Constitution of India, which represents the supreme law of the land, envisages three distinct organs of the State, each with its own distinctive functions, each a pillar of the State. Broadly, while Parliament and the State Legislature in India enact the law and the executive Government implements it, the judiciary sits in judgment not only on the implementation of the law by the executive but also on validity of the legislation sought to be implemented. One of the functions of the superior judiciary in India is to examine the competence and validity of legislation, both in point of legislative competence as well as its consistency with fundamental rights. In this regard, the Courts in India possess a power not given to the English Courts. Where a statute is declared invalid in India, it cannot be reinstated unless constitutional sanction is obtained therefor by a Constitutional amendment or an appropriately modified version of the statute is enacted which accords with Constitutional prescription. The range of judicial review recognised in the superior judiciary of India is perhaps the widest and the most extensive known to the world of law. The power extends even to examining the validity of an amendment to the Constitution , for, now, it has been repeatedly held that no Constitutional amendment can be sustained which violates the basic structure of the Constitution.1 With this impressive expanse of judicial power, it is only right that the superior Courts in India are conscious of the enormous responsibility which rests on them. This is specially true of the Supreme Court, for, as the highest Court in the entire judicial system, the law declared by it is, by Article 141 of the Constitution, binding on all Courts within the territory of India.
Declaration of law by the Supreme Court under that article can be said to have been made only when it is contained in a speaking order, either expressly or by necessary implication (S. Shanmugavel Nadar v. State of Tamil Nadu  8 SCC 361). In Arnit Das v. State of Bihar AIR 2000 SC 2264; (2000) 5 SCC 488, the Supreme Court observed :
“A decision not expressed, not accompanied by reasons and not proceeding on a conscious consideration of an issue cannot be deemed to be a law declared to have a binding effect as is contemplated under article 141.”
The Constitution entrusts the task of interpreting and administering the law to the judiciary whose view on the subject is made legally final and binding on all till it is changed by a higher Court or by permissible legislative measure. The Court’s verdict has to be respected not necessarily by the authority of its reason but always by reason of its authority. (In Re : Sanjiv Datta  3 SCC 619, as per Justice P.B. Sawant).
2.1-2 Supreme Court and High Courts decisions - As important as statutes - Taking note of the hierarchical character of the judicial system in India, it is of paramount importance that the law declared by the Supreme Court should be certain, clear and consistent. It is commonly known that most decisions of the Courts are of significance not merely because they constitute an adjudication on the rights of the parties and resolve the dispute between them, but also because in doing so, they embody a declaration of law operating as a binding principle in future cases. In this latter aspect, lies their particular value in developing the jurisprudence of the law.2
Thus, next to legislative enactment it is the decision of the Courts that forms the most important source of law. It is on the faith of decisions that rights are acquired and obligations incurred, and State and subjects alike shape their course of action.3 The decisions of the Supreme Court and of High Courts are almost as important as statutes, rules and regulations passed by the competent Legislatures and other bodies since they affect the public generally. It is well known that the decisions of the superior Courts while they settle the disputes between the parties to the proceedings in which they are given are the sources of law insofar as all others are concerned.1
Apart from the Article 141 of the Constitution, the decisions of the Supreme Court, which is a Court of record, constitute a source of law as they are the judicial precedents of the highest Court of the land. They are binding on all the Courts throughout India. Similarly, the decisions of every High Court being judicial precedents are binding on all Courts situated in the territory over which the High Court exercises jurisdiction. These decisions also carry persuasive value before Courts which are not situated within its territory. (All India Reporter Karamchari Sangh v. AIR Ltd. AIR 1988 SC 1325).
2.2 The judge as the interpreter for the community of its sense of law and order must supply omissions, correct uncertainties and harmonize results with justice through a method of free decision. Courts are to “search for light among the social elements of every kind that are the living force behind the facts they deal with”. The judicial process as it is, that the chief law makers often are the judges because they are the final seat of authority. They enact into law parts of a system of social philosophy; and as such interpretation is fundamental. They give direction to all law-making. The decisions of the Courts on economic and social questions depend upon their economic and social philosophy. “There is no guarantee of justice”, said Ehrlich, “except the personality of the judge”. Justice Benjamin N. Cardozo said that the judicial process comes then to this, and little more logic, history, custom and utility, and the accepted standards of right conduct, are the forces which singly or in combination shape the progress of the law. Judges try to see things as objectively as they please. Nevertheless they can never see them with any eyes except their own. Therefore, the perception of a judge is important or relevant. Judicial process is not only a path of discovery but a path of creation2 :
The business of the judge is to discover objective truth. His own little individuality, his tiny stock of scattered and the coordinated philosophies, these, with all his weaknesses and unconscious prejudices, are to be set aside and forgotten. But rarely it so happens. Difficult as it is, to cast away personal prejudices or idiosyncrasies and the social background. The decisions they hand over to the society bear the impact of their economic and social philosophy, their beliefs and opinions. One judge may look at the problem from the point of view of history; another from that of social utility, one is formalist; another a latitudinarian, one is timorous of change, another dissatisfied with the present. However, out of the attrition of diverse minds there is beaten something which has a consistency and uniformity and average value greater than its component elements.
Laws made by the Supreme Court are not merely matters of individual opinion, they are products of judicial functioning having binding force. In India, the judges of the Supreme Court make law on the basis of objective test and nothing is left to chances. Faith, devotion and respect to the Supreme Court resulted in installing Article 141 in the Constitution. Article 141 is the heart and soul of the Constitution.1
2.3 The law exists to serve the needs of the society which is governed by it. If the law is to play its allotted role of serving the needs of the society, it must reflect the ideas and ideologies of that society. It must keep time with the heart-beats of the society and with the needs and aspirations of the people. As the society changes, the law cannot remain immutable. The early nineteenth century essayist and wit, Sydney Smit, said “When I hear any man talk of an unalterable law, I am convinced that he is an unalterable fool.” The law must, therefore, in a changing society march in tune with the changed ideas and ideologies, Legislatures are, however, not best fitted for the role of adapting the law to the necessities of the time, for the legislative process is too slow and the Legislatures are often divided by politics, slowed down by periodic elections and overburdened with myriad other legislative activities. A Constitutional document is even less suited to this task, for the philosophy and the ideologies underlying it must of necessity be expressed in broad and general terms and the process of amending a Constitution is too cumbersome and consuming to meet the immediate needs. This task must, therefore, of necessity fall upon the Courts because the Courts can by the process of judicial interpretation adapt the law to suit the needs of the society.
Law has to grow in order to satisfy the needs of the fast changing society and keep abreast with the economic developments taking place in the country. As new situations arise, the law has to be evolved in order to meet the challenge of such new situations. Law cannot afford to remain static. Judges have to evolve new principles and lay down new norms which would adequately deal with the new problems which arise in a highly industrialised economy.2
Justice Cardoze said :
“The law has its epochs of ebb and flow, the flood tides are on us. The old order may change yielding place to new; but the transition is never an easy process.”
Albert Campus stated :
“‘The wheel turns, history changes’. Stability and change are the two sides of the same law-coin. In their pure form they are antagonistic poles; without stability, the law becomes not a chart of conduct, but a gare of chance; with only stability, the law is as the still waters in which there is only stagnation and death.”
In any view of the matter even if a provision was not unconstitutional on the day on which it was enacted or the Constitution came into force, by reason of facts emerging out thereafter, the same may be rendered unconstitutional.
Referring to Motor General Traders v. State of Andhra Pradesh  1 SCC 222, Ratan Arya v. State of Tamil Nadu  3 SCC 385 and Synthetics & Chemicals Ltd. v. State of U.P.  1 SCC 109, the Supreme Court held :
“There cannot be any doubt whatsoever that a law which was at one point of time constitutional may be rendered unconstitutional because of passage of time. We may note that apart from the decisions cited by Mr. Sanghi, recently a similar view has been taken in Kapila Hingorani v. State of Bihar JT 2003 (5) SC 1 and John Vallamattom v. Union of India JT 2003 (6) SC 37.”
Precedents - Meaning and Scope
2.4 Precedent is a judicial decision which contains in itself a principle. A decision is available as precedent only if it decides a question of law State of Punjab v. Surinder Kumar  194 ITR 434 (SC). One of the essential features of the doctrine of precedent in the common law is that rules of law are developed in the very process of application to the facts and circumstances of a case. They are created by judges when they decide issues raised and argued by the parties. In the process of application, they interpret or construct law. Decisions of Courts not merely constitute an adjudication of the rights of the parties and resolve disputes between them, but also in doing so, embody a declaration of law operating as a binding principle in future cases. “There was a time”, observed Lord Reid, “when it was thought almost indecent to suggest that judges make law - they only declare it. . . But we do not believe it in fairy tales any more.” Salmond classifies precedents into authoritative and persuasive1. Authoritative precedents are the decisions of the Supreme Court, and of the High Court and its subordinate Courts, and the Tribunal under its jurisdiction. The persuasive precedents are the decisions of the foreign Courts, the other High Courts, Privy Council, and judicial dicta and so on. The authoritative precedents are legal sources of law, persuasive precedents are merely historical; while the former establish law in pursuance of a definite rule of law which confers upon them that effect, the latter, if they succeed in establishing law at all, do so indirectly though serving as the historical ground of some later authoritative precedent and that in themselves have no legal force or effect.
Precedents which enunciate rules of law form the foundation of administration of law. This is the fundamental principle which every presiding officer of the judicial forum ought to know; for consistency in the interpretation of law alone can lead to public confidence in a judicial system. The Supreme Court has laid down time and again that precedent law must be followed by all concerned. (See S.I. Roopal v. Lt. Governor AIR 2000 SC 594) What is binding is the principle decided, i.e., the ratio decidendi, and not the observation made therein, i.e., the obiter dicta. The Court before applying a decision of the Supreme Court must find out the ratio of the decision and then consider its applicability - Delhi Administration v. Manohar Lal  7 SCC 222.
2.4-1 Ratio Decidendi - It is the rule deductible from the application of law to the facts and circumstances of a case which constitutes its ratio decidendi and not some conclusions based on some facts which may appear to be similar - Regional Manager v. Pawan Kumar Dubey AIR 1976 SC 1766. It is judicial decision which contains in itself a principle. Rule of precedent is a source of law for which it actually decides as also because no Judge departs from previous decision except for compelling reasons and legal advisers do not encourage vain hopes in their clients. Authorities or decisions of the superior Courts are to be followed. But this principle applies in a limited way. The only thing in a judge’s decision binding as an authority upon a subsequent judge is the principle upon which the case was decided. That which binds is called ‘ratio decidendi’, which means literally the ‘reason of decision’ or ‘reason for deciding’. Reasons and spirit of cases make law, and not the letter of particular precedent. (Fisher v. Prince 3 Burr 1363).
To be the ratio decidendi amongst others, the minimum requirements are : (1) that the matter was directly at issue, (2) that the issue needs to have been decided, and (3) the matter has been decided by giving reasons - Industrial Credit and Investment Corporation of India Ltd. v. Dhanesh D. Ruparelia  99 Comp. Cas. 181 (Bom.). The High Court or any other Court before applying the decision of the Supreme Court must find out the ratio of the decision and then consider its applicability - Delhi Administration v. Manohar Lal  7 SCC 222.
2.4-2 Obiter Dicta - Pronouncements of law which are not part of the ratio decidendi are classed as obiter dicta. Obiter dicta signifies statement by the way, and is an observation by a Judge which is either not necessary for the decision of the case or does not relate to the material facts in issue.1 While the rule of precedent or its modern ‘stare decisis’ principle in England does not apply to obiter dicta under article 141 of the Constitution, the obiter dicta of the Supreme Court is binding upon all the Courts.1
Binding element in Supreme Court’s decision is the ratio decidendi of the decision and not any finding of fact. Obiter dictum although may not be binding is nonetheless of considerable weight - Director of Settlements v. M.R. Apparao  4 SCC 638.
The observations by way of obiter dicta though are without binding authority, help to rationalise the law and also to guide future development of law by way of suggesting solutions to problems not yet decided. Dias on Jurisprudence, fifth edition at page 143, it was stated :
“Pronouncements of law, which are not part of ratio decidendi are classed as obiter dicta and are not authoritative. Rationale and dicta tend to shade into each other. The former have law-quality and are binding on lower courts; dicta, too, have law-quality but are not binding at all. Vis-a-vis a higher court even the ratio decidendi of a lower court decision has only persuasive force like that of a dictum. It has been pointed out that some dicta are so authoritative that the distinction between ratio and dictum is reduced to vanishing point. Dicta, which have no force are propositions stated by way of illustration or on hypothetical facts. Greater difficulties attend rulings of law which are subsequently relegated to the status of dicta by interpretation. The distinction in such cases between ratio and dictum is but a device employed by subsequent courts for the adoption or rejection of doctrine expressed in previous cases according to the inclination of the judges.”
Quotability of “law” applies to the principle of a case, its ratio decidendi,
u that in a judge’s decision what is binding as an authority upon the subsequent judge is the principle on which the case is decided;
u that the statements which are the part of the ratio decidendi are distinguished as other dicta and are not authoritative;
u that the weight accorded to dicta varies with the type of dictum;
u that mere casual expressions carry no weight and that not every passing expression of a judge, however eminent, can be treated as an ex cathedra statement, having the weight of authority (see Municipal Corporation of Delhi v. Gurnam Kaur AIR 1989 SC 38).
2.4-3 Judicial Dicta - Statements of law which go beyond the occasion and lay down a rule that is irrelevant to the purpose in hand, or is stated by way of analogy merely, or is regarded by a later Court as being unduly wide, may be regarded as providing a persuasive precedent. Dicta, therefore, have no force because they are propositions stated by way of illustrative or on hypothetical facts.
Rules of Precedents
2.5 Precedent is a judicial decision which contains in itself a principle M. Sheikh Dawood v. Collector of Central Excise Madras  2 MLJ 230. That principle furnishes an example or authority for an identical or similar question of law. The law laid down by courts operates as precedent. A decision is available as precedent only if it decides a question of law State of Punjab v. Surinder Kumar  194 ITR 434 (SC). People would shape their course of conduct or dealings or legal affairs in accordance with the law laid down by Parliament and as declared by the courts. Rule of precedent aims at achieving finality and homogeneity of judgments1. The rule of precedent plays an important role in development of law and provides a guide to a person as to what the course of law would be in future. It is a source of law along with legislative and customary law. Although legislation is a superior form, precedent is more modern than custom, the prevalence of which has to be ascertained and proved before the Court of Law accepts it as establishing law, and accords it a judicial recognition. The rule of precedent is a doctrine that is webbed through a mine of case laws since several decades so that what is said by a Court of Law is binding on subsequent decision of a like nature. Innovations can be unsettling and lead to loss of confidence - G.C. Gupta v. N.K. Pandey AIR 1988 SC 654.
2.5-1 Precedents binding - Reasons - It would be conducive to judicial discipline and uniformity in administering the law, if the law propounded by the Court on some issue is an acceptable precedent in respect of similar issues. Precedents should be binding for the following reasons :
u Like cases should be decided alike.
u Judge’s discretion should be limited to avoid ‘Judicial despotism’ or called ‘activism’.
u There should be stability and uniformity in the administration of law.
The Supreme Court in Mamleshwar Prasad v. Kanhayalal AIR 1975 SC 907 observed :
“Certainty of law, consistency of ruling and comity of courts - all flowering from the same principle coverage. Coverage to the conclusion that a decision once rendered must later bind like cases”.
Uniformity and consistency are the core of the judicial discipline State of UP v. Synthetics & Chemicals  4 SCC 139.
The consistency, certainty and uniformity in the field of judicial decisions are considered to be the benefits arising out of the ‘doctrine of precedent’. The precedent sets a pattern upon which a future conduct may be based. One of the basic principles of administration of justice is, that the cases should be decided alike K. Ajit Babu v. Union of India 1997 (7) SCC 24.
2.5-2 Precedents keep the law predictable - Precedents keep the law predictable and so more or less ascertainable. Lord Chancellor Hailsham very appropriately summed up the English practice when he said in Broome v. Cassel Co.1 that the use of precedent should be regarded as an indispensable foundation upon which to decide what is the law and its application to individual case. It provides at least some degree of certainty upon which individuals can rely in the conduct of their affairs as well as a basis for orderly development of legal rules. The correct ‘law’, it was pointed out by the Supreme Court in Indian & Eastern Newspaper Society v. CIT2, is to include ‘norms of guiding principles having legal effect and legal consequences law may be statutory law or judge-made law’. The declaration set forth in a judgment or exposition in itself bears the character of law.
In M.A. Murthy v. State of Karnataka  7 SCC 517, the Supreme Court held :
“. . . The doctrine of binding precedent helps in promoting certainty and consistency in judicial decisions and enables an organic development of the law besides providing assurance to the individual as to the consequences of transactions forming part of the daily affairs. . . .” (p.521)
Article 141 of the Constitution says that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. In this context, it is well to remind oneself of the succinct observation of Viscount Cave, LC’s decision in Jones v. South West Lancashire Coal Owners’ Association Ltd.3 that when a question of law has been clearly decided, it is undesirable that the decision should be weakened or frittered away by fine distinctions.
2.6 The decision of the Supreme Court is binding on all concerned whether they were parties to the judgment or not. To intend that the conclusion applies to the parties before the Supreme Court, is to destroy the efficacy and integrity of the judgment and to make the mandate of article 141 illusory.4 The binding effect of the decision also does not depend upon whether a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided.5 The Supreme Court may, however, state that an order passed by it should not be created as precedent. It would mean that the said decision is not in accordance with Law - State of Punjab v. Rajesh Syal  8 SCC 158.
It cannot be assailed on the ground that certain aspects were not considered by or that relevant provisions were not brought to the notice of the Supreme Court - Pradeep Kumar Biswas v. Indian Institute of Chemical Biology  5 SCC 111.
In the case of D.K. Yadav v. J.M.A. Industries Ltd.  3 SCC 259, it has been held that once an authoritative law is laid down after considering all the relevant provisions and the previous precedents, it is no longer open to recanvass the same on new grounds or reasons that they may be put forth in its support, unless the court deems it appropriate to refer it to a larger Bench in the public interest to advance the cause of justice. Every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. It does not lose its authority merely because it was badly argued, inadequately considered and falliciously reasoned - Mehta Vegetables (P.) Ltd. v. Union of India  96 Taxman 521 (Raj.)
Precedent - decisions of the High Court Binding on Authorities Functioning within its Territorial Jurisdiction
2.7 The Bombay High Court in K. Subramanian, ITO v. Siemens India Ltd.1 held that so far as the legal position is concerned, the income-tax officer would be bound by a decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is functioning irrespective of pendency of any appeal or special leave application against that judgment.
The decision of High Court is binding upon the authorities, Tribunals and Courts functioning within its territorial jurisdiction, but such decisions have merely persuasive force in other jurisdictions. This view finds expression in Patil Vijaykumar v. Union of India2 where it was observed that any decision of a High Court striking down a parliamentary enactment or an all-India enactment, operates only in the territorial area of that High Court and does not operate in any other territorial area, however incongruous that may be, unlike in the case of a decision rendered by the Supreme Court. Further, any decision rendered by a High Court either on the validity or the construction of an all-India enactment, will only be binding on that High Court, the Courts and the Tribunals functioning in the territorial area over which it exercises jurisdiction and not on other High Courts, and the Courts and the Tribunals functioning in the territorial area of that other High Court.
A somewhat different theory, however, appears to have been expounded by the High Court of Bombay in CIT v. Smt. Godavaridevi Saraf3, namely, that once a provision is declared ultra vires by a competent High Court, that decision has to be accepted by the Tribunal wherever constituted, that is, even in the jurisdiction of another High Court, implying thereby that the decisions of the High Courts would be binding upon Tribunals beyond their jurisdiction too. The court, in this case, was dealing with a reference under section 256 of the Income-tax Act, which was in the following terms : Whether, on the facts and in the circumstances of the case and in view of the decision in the case of A.M. Sali Maricar v. ITO1, the penalty imposed on the assessee under section 140A(3) of the Income-tax Act, 1961 was legal ? The court observed that until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. When the Tribunal set aside the order of penalty, it did not go into the question of intra vires or ultra vires.
It did not go into the question of constitutionality of section 140A(3). That section was already declared ultra vires by a competent High Court in the country and an authority like an Income-tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question.
The above-quoted view denotes a departure from the well-established principle that a decision of the High Court is binding only upon Courts and Tribunals functioning within its territorial jurisdiction, but is merely of persuasive value elsewhere. Here, it makes the judgment of the High Court binding upon Courts and Tribunals in other jurisdictions too, though it is to be treated to be so only for a limited period, namely, so long as there is no contrary decision of another High Court.
The decision of the High Court is binding only on the authorities and Tribunals within its jurisdiction. No Tribunal beyond such jurisdiction can treat or hold as constitutionally invalid any provision of the Income-tax Act, solely for the reason that a High Court of another State may have declared the said provision to be ultra vires.2
2.7-1 Precedent - Decision of the Income-tax Tribunal binding - Though the revenue Tribunal is not a court of record and therefore its decisions cannot be taken precedents in the strict sense, they are held by the Supreme Court and High Courts to be binding on all the revenue authorities functioning under the jurisdiction of the Tribunal. The principle of judicial discipline requires that orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities - Agrawal Warehousing and Leasing Ltd. v. CIT 257 ITR 235 (MP). The Supreme Court in the case of Union of India v. Kamlakshi Finance Corporation Ltd. AIR 1992 SC 711;  55 ELT 433 (SC) observed as follows :
“It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not ‘acceptable’ to the Department - in itself an objectionable phrase - and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to the assessee and chaos in administration of tax laws.”
2.7-2 Precedent - Doctrine of merger - The doctrine of merger is relevant for ascertaining as to which is the final executable order. It has nothing to do with precedents. The doctrine of merger is not a doctrine of rigid and universal application. The application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate or the revisional jurisdiction. Basically, therefore, unless the appellate authority has applied its mind to the original order or issue arising in appeal while passing the appellate order, one should be careful in applying the doctrine of merger to the appellate order - State of Orissa v. Krishna Stores  3 SCC 246. That part of the judgment which is not reversed, would be binding as a proposition of law. The part of the judgment of a High Court which is not overruled by the Supreme Court would continue to remain intact and binding on subordinate and co-ordinate Bench as held by the Gujarat High Court in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality AIR 1988 Guj. 124. The Court observed :
“Mr. Nanavati tries to justify his submission by propounding the principle that, that when a decision of one court is reversed in appeal by another court, then the decision of the Appellate Court gets substituted by the decision of the other court and the decision so reversed has no legal existence. We are unable to agree that any such principle is applicable for determining the binding nature of a decision of a court. The principle, undoubtedly, applies vis-a-vis decrees of the higher and lower courts. It may apply to the decisions of the same two courts on the identical questions. But, it is difficult to uphold the contention that any such principle is applicable in regard to a part of the judgment solemnly pronounced by a court, which has not been overruled and kept expressly open by the Appellate Court. The binding nature of the decisions arises from the fact that the point of law raised and considered therein has been decided by the court concerned and it is obvious that so long as that decision remains intact, it is binding on all courts and Tribunals which are subordinate or co-ordinate to the court recording the decision.”
Thus, when a judgment or order has been dealt with by a superior forum resulting in confirmation, reversal or modification, what merges is the operative part, i.e., the mandate or decree issued by the lower forum, expressed either in positive or negative form. Reasons given in the judgment of the lower forum can only be said to have been merged if the superior court either adopts or reiterates the reasoning or expressly records its approval of the reasoning - S. Shanmugavel Nadar v. State of Tamil Nadu  8 SCC 361. The Supreme Court in that case also held that where order of a Division Bench of High Court has merged with the order of the Supreme Court after confirmation by the Supreme Court, but on different reasoning, the reasoning contained in the judgment of Division Bench would continue to remain the decision of the High Court and would be a binding precedent on subsequent Benches of the co-ordinate or lower court.
2.8 The sanctitiy attached to a precedent is largely derived from the collective wisdom which is enshrined in it and even dissenting opinions are part of the wisdom because it is ‘appeal to the brooding spirit’ of law, to the intelligence of a future day, when a later decision may possibly correct the error into which the dissenting judge believes the Court to have been betrayed.
2.9 The Courts are as much human institutions as any other and share all human susceptibilities to error. Whenever decisions of one Court are reviewed by another, a percentage of them is reversed. That reflects a difference in outlook normally found between personnel comprising different Courts. However, reversal by a higher Court is not proof that justice is thereby better done. “There is no doubt that if there were a super-Supreme Court, a substantial portion of our reversals of State Courts would also be reversed. We are not final because we are infallible, but we are infallible only because we are final”1. It is inevitable in a hierarchical system of Courts that there are decisions of the Supreme Appellate Tribunal, which do not attract the unanimous approval of all members of the judiciary. But the judicial system only works if someone is allowed to have the last word and if that last word, once spoken, is loyally accepted.2
Judge Learned Hand referred to as one of the most profound legal minds in the jurisprudence of the English speaking world, commended the Cromwellian intellectual humility and desired these words of Cromwell be “written over the portals of every church, over court house and at every cross-road in the nation I beseech ye. . . think that ye may be mistaken”.
While infallibility is an unrealisable ideal, ‘correctness’ is often a matter of opinion. An erroneous decision must be as binding as a correct one. It would be an unattainable ideal to require the binding effect of a judgment to depend on its being correct in the absolute, for the test of correctness would be resorted to in another Court, the infallibility of which is again subject to a similar further investigation. No self-respecting judge would wish to act if he did so at the risk of being called usurper whenever he failed to anticipate and predict what another judge thought of his conclusions. Even infallibility would not protect him, he would need the gift of prophecy ability to anticipate the fallibility of others as well. A proper perception of means and ends of the judicial process, that is, in the interest of finality, it is inevitable to make some compromise between the ambitions of ideal justice in absolute terms and its limitations.1
A co-ordinate Court cannot refuse to follow an earlier decision by opining that in its view the earlier decision had wrongly understood or improperly applied a decision of a higher Court.2 In other words, an interpretation of a judgment of the Supreme Court made by one Division Bench of a High Court cannot be ignored or brushed aside by another Division Bench on the ground that that interpretation is not correct.3 Speaking in another context, Mr. Justice Krishna Iyer in Ambika Prasad Mishra v. State of U.P. AIR 1980 SC 1762, pointed out the importance of following earlier precedents. In his characteristic language, he pointed out as follows (p. 1764) :
“Every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. In this view, other submissions sparkling with creative ingenuity and presented with high-pressure advocacy, cannot persuade us to reopen what was laid down for the guidance of the nation as a solemn proposition by the epic fundamental rights case.”
If the precedents which are established are allowed to be too easily reconsidered or disturbed, it “may well be a kind of judicial destabilisation of State action too dangerous to be indulged in save where national crisis of great moment to the life, liberty and safety of this country and its millions are at stake, or the basic direction of the nation itself is in peril of a shake-up.” Referring to Salmond’s Jurisprudence (11th edn.), the learned judge reminded that it was wise to remember that fatal flaws silenced by earlier rulings cannot survive after death because a decision does not lose its authority merely because it was badly argued, inadequately considered and fallaciously reasoned.
Binding nature of the Supreme Court decision cannot be assailed on the ground that certain aspects were not considered by, or that relevant provisions were not brought to the notice of the Supreme Court see Director of Settlements v. M.R. Apparao  4 SCC 638.
Precedents are not disturbed unless shown to be palpably wrong or to have ceased to be good law as a result of the amendment of statute concerned or a subsequent declaration of law Shri Sant Sadguri Janardhan Swami Sahakari Dugdha Utpadak Sanstha v. State of Maharashtra  8 SCC 509 and precedents are not a ground for not giving effect to the correct position of law - Balchandara Anant Rao Rakvi v. Ramchandra Tukaram  8 SCC 616.
2.10 Though the doctrine of judicial consistency has been gathering momentum since the beginning of the common law, there should be an intelligent technique in the use of precedent. The reason and spirit of a case make the law, not letter of particular precedent.1 Even though individual judges are not bound by each other’s decision, the principle of judicial courtesy and judicial loyalty requires that a judge does not dissent from the considered opinion of another judge or another Bench. The Court of Appeal in England considered itself bound by its own previous decision. Even in respect of decisions which are sometimes disliked for certain positive reasons, as some decisions of some superior courts might have not been brought to its notice or specific provision of law was not noticed, nevertheless it is respected and not infrequently followed with the expression of hope that it might be overruled by House of Lords.2 But to some, all these are too trivial with the main indictment that out of respect for precedent, a principle of law may be followed which is known to be wrong and that a judge may be compelled to apply an established rule contrary to his own sense of justice. It is against this possibility, a judge has to guard himself. It must be admitted that in strict theory it is difficult to justify the doctrine Communis Error Facit Jus. The Courts do, however, admit this doctrine, though with caution in the belief that unless the erroneous rule is working some manifest hardship, it is better not to interfere with it when it is adopted as the basis of frequent transactions. Where the decisions of inferior Courts have put a construction on an Act of Parliament and have thus made a law which men ‘follow in their daily dealings, it is better to adhere to the course of decisions than to reverse them, because of the mischief which would result from such proceeding3. Thus even in England precedent is to be followed even though it was based on the principle of law which was known to be wrong.
It goes without saying that the seat of justice inspires and fosters public confidence. Even the symbol of justice blind fold-figure brooding over arms of balance machine is itself illusion, rather it is the figure of public respect and confidence. As we approach the figure of justice in a rational way, the balance of machine can be made to work in a different way according to the facts and circumstances of the particular cases and the principles of law consistent with the socially acceptable manner by which the symbol of justice keeps its eyes upon the fingers of every thread of social pulse. The respectability of the task of doing justice according to law calls for a very great deal of confidence to be reposed in the judiciary.1
2.11 Where a Division Bench decision is given in an appeal from an original suit or in a writ petition, the ratio is binding on the subsequent Division Bench and the subsequent Division Bench cannot refuse to follow the same because it was hearing a writ petition and the decision of the earlier Division Bench was given in an appeal from an original suit. One Division Bench must follow as a rule the decision given by another Division Bench of the same High Court, though the two Division Benches were deciding the question in different capacities.2 An interpretation (and equally a misinterpretation) of a binding decision of the Supreme Court is itself binding subsequently on co-ordinate courts and can be corrected only by a higher court.3
2.12 A question arises as to whether the opinion rendered by the Supreme Court in the exercise of its advisory jurisdiction under article 143(1) of the Constitution is binding as law declared by the Supreme Court within the meaning of article 141 of the Constitution. In the cases of Powers of Federal Legislature to Levy Estate Duty Bill AIR 1944 FC 73, U.P. Legislative Assembly AIR 1965 SC 745 and Ahmedabad St. Xaviers College v. State of Gujarat AIR 1974 SC 1389, the view was expressed that advisory opinions do not have the binding force of law. In Attorney-General for Ontario v. Attorney-General for Canada4, it was even said by the Privy Council that the opinions expressed by the Court in its advisory jurisdiction “will have no more effect than the opinions of the law officers”. On the other hand, the High Court of Calcutta in Ram Kishore Sen v. Union of India5 and the High Court of Gujarat in Chhabildas Mehta v. Legislative Assembly, Gujarat State6 have taken the view that the opinion rendered by the Supreme Court under article 143 is a law declared by it within the meaning of article 141. In Province of Madras v. Boddu Paidanna7, the Federal Court discussed the opinion rendered by it in the Central Provinces and Berer Sales of Motor and Lubricants Taxation Act, In re 8 in the same manner as one discusses a binding judgment. The Supreme Court expressed the view that though it is always open to the Supreme Court to re-examine the question already decided by it and to overrule, if necessary, the view earlier taken by it, insofar as all other courts in the territory of India are concerned, they ought to be bound by the view expressed by Supreme Court even in the exercise of its advisory jurisdiction under article 143(1) of the Constitution.
It would be strange that a decision given by the Supreme Court on a question of law in a dispute between two private parties should be binding on all Courts in this country that the advisory opinion should bind no one at all, even if it is given after issuing notice to all interested parties, after hearing everyone concerned who desired to be heard and after a full consideration of the question raised in the reference.1
2.13 The Supreme Court under its rules of business ordinarily sits in divisions and not as a whole one. Each Bench, whether small or large, exercises the powers vested in the Court and decisions rendered by the Benches irrespective of their size are considered as decisions of the Court. The practice has developed that a larger Bench is entitled to overrule the decision of a smaller Bench notwithstanding the fact that each of the decision is that of the Court. Single Judges are bound by the decisions of the larger Benches such as the Division Benches and Full Benches. The learned Single Judge has to follow the decision of the larger Bench. That is the position even if the learned Single Judge is inclined to take a view different from the one taken by the Division Bench. That is the discipline which the judges are subject to.2
There was some debate on the question whether a Division Bench of two judges is obliged to follow the law laid down by a Division Bench of a larger number of judges. Doubt has arisen on the point because of certain observations made by O. Chinnappa Reddy J. in Javed Ahmed Abdul Hamid Pawala v. State of Maharashtra AIR 1985 SC 231. Earlier, a Division Bench of two judges, of whom he was one, had expressed the view in T.V. Vatheeswaran v. State of Tamil Nadu AIR 1983 SC 361, that delay exceeding two years in the execution of a sentence of death should be considered sufficient to entitle a person under sentence of death to invoke article 21 of the Constitution and demand the quashing of the sentence of death. This would be so, he observed, even if the delay in the execution was occasioned by the time necessary for filing an appeal or for considering the reprieve of the accused or some other cause for which the accused himself may be responsible. This view was found unacceptable by a Bench of three judges in Sher Singh v. State of Punjab AIR 1983 SC 465, where the learned Judges observed that no hard and fast rule could be laid down in the matter. In direct disagreement with the view in T.V. Vatheeswaran v. State of Tamil Nadu AIR 1983 SC 361, the learned Judges said that account had to be taken of the time occupied by proceedings in the High Court and in the Supreme Court and before the executive authorities, and it was relevant to consider whether the delay was attributable to the conduct of the accused. As a member of another Bench of two judges, in Javed Ahemd Abdul Hamid Pawala v. State of Maharashtra AIR 1985 SC 231, O. Chinnapa Reddy J. questioned the validity of the observations made in Sher Singh AIR 1983 SC 465, and went on to note, without expressing any concluded opinion on the point, that it was a serious question (AIR 1985 SC 231, 236) “Whether a Division Bench of three Judges could purport to overrule the judgment of a Division Bench of two Judges merely because three is larger than two. The Court sits in Divisions of two and three judges for the sake of convenience and it may be inappropriate for a Division Bench of three judges to purport to overrule the decision of Division Bench of two judges. Vide Young v. Bristol Aeroplane Co. Ltd.  2 All ER 293 (CA). It may be otherwise where a Full Bench or a Constitution Bench does so”. It is pertinent to record here that because of the doubt cast on the validity of the opinion in Sher Singh AIR 1983 SC 465, the question of the effect of delay on the execution of a death sentence was referred to a Division Bench of five Judges, and in Smt. Triveniben v. State of Gujarat AIR 1989 SC 142, the Constitution Bench overruled T.V. Vatheeswaran v. State of Tamil Nadu AIR 1983 SC 361.
What then should be the position in regard to the effect of the law pronounced by a Division Bench in relation to a case raising the same point subsequently before a Division Bench of a smaller number of judges ? There is no constitutional or statutory prescription in the matter and the point is governed entirely by the practice in India of the Courts sanctified by repeated affirmation over a century of time. It cannot be doubted that in order to promote consistency and certainty in the law laid down by a superior court, the ideal condition would be that the entire Court should sit in all cases to decide questions of law, and for that reason the Supreme Court of the United States does so. But, having regard to the volume of work demanding the attention of the Court, it has been found necessary in India as per rule of practice and convenience that the Court should sit in Divisions, each Division being constituted of judges whose number may be determined by the exigencies of judicial need, by the nature of the case including any statutory mandate relative thereto, and by such other considerations which the Chief Justice, in whom such authority devolves by convention, may find most appropriate. It is in order to guard against the possibility of inconsistent decision on points of law by different Division Benches that the rule has been evolved, in order to promote consistency and certainty in the development of the law and its contemporary status, that the statement of the law by a Division Bench is considered binding on a Division Bench of the same or lesser number of judges. This principle has been followed in India for several generations by judges. A few of the recent cases on the point may be referred to. In John Martin v. State of West Bengal  3 SCR 211, a Division Bench of three judges found it right to follow the law declared in Haradhan Saha v. State of West Bengal  1 SCR 778, decided by a Division Bench of five judges, in preference to Bhut Nath Mate v. State of West Bengal AIR 1974 SC 806, decided by a Division Bench of two judges. Again, in Smt. Indira Nehru Gandhi v. Shri Raj Narain  2 SCR 347, Beg J. held that the Constitution Bench of five Judges was bound by the Constitution Bench of thirteen Judges in His Holiness Kesavananda Bharthi Sripadagalavaru v. State of Kerala  Suppl. SCR 1. In Ganapati Sitaram Balvalkar v. Waman Shripad Mage (Decd. through Lrs.)  4 SCC 143, the court expressly stated that the view taken on a point of law by a Division Bench of four Judges of the Court was binding on a Division Bench of three Judges. And in Muttulal v. Radhe Lal  1 SCR 127, the Supreme Court specifically observed that where the view expressed by two different Division Benches of the Supreme Court could not be reconciled, the pronouncement of a Division Bench of a larger number of judges had to be preferred over the decision of a Division Bench of a smaller number of judges. The Supreme Court also laid down in Acharya Maharajshri Narendra Prasadji Anandprasadji Maharaj v. State of Gujarat  2 SCR 317, that even where the strength of two differing Division Benches consisted of the same number of judges, it was not open to one Division Bench to decide the correctness or otherwise of the views of the other. The principle was reaffirmed in Union of India v. Godfrey Philips India Ltd.  158 ITR 574 (SC); which noted that a Division Bench of two Judges of Supreme Court in Jit Ram Shiv Kumar v. State of Haryana  3 SCR 689, had differed from the view taken by an earlier Division Bench of two Judges in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P.  118 ITR 326; on the point whether the doctrine of promissory estoppel could be defeated by involving the defence of executive necessity, and, by holding that to do so was wholly unacceptable, reference was made to the well-accepted and desirable practice of the later Bench referring the case to a larger Bench when the learned Judges found that the situation called for such reference.
The Supreme Court in CIT v. Smt. P.K. Kochammu Amma 125 ITR 624, commented on its earlier decision in V.D.M.RM. M. RM.Muthaiah Chettiar v. CIT 74 ITR 183, “With the greatest respect to the learned judges who decided this case, we do not think, for reasons already discussed, that this decision lays down the correct law on the subject. . .” It also observed that the said decision was binding on the Bench as it was a three Judges Bench decision. In Sub-Committee of Judicial Accountability v. Union of India  4 SCC 97, the Constitutional Bench of the Supreme Court held that “no co-ordinate Bench of this Court can even comment upon, let alone sit in judgment over the discretion exercised or the judgment rendered in a cause or matter before another co-ordinate Bench”.
The Supreme Court observed as follows in the case of Pradip Chandra Parija v. Pramod Chandra Patnaik  254 ITR 99; (2002) 1 SCC 1 :
“Judicial discipline and propriety demands that a Bench of two judges of the Supreme Court should follow a decision of a Bench of three judges. If the Bench of two judges concludes that an earlier judgment of a Bench of three judges is so very incorrect that in no circumstances can it be followed, the proper course for the Bench of two judges to adopt is to refer the matter before it to a Bench of three judges, setting out the reasons why it could not agree with the earlier judgment. If,then, the Bench of three judges also comes to the conclusion that the earlier judgment of three judges is incorrect, reference to a Bench of five judges is justified.” (headnote 254 ITR)
The Supreme Court also held that a reference by a Bench of two learned Judges to Constitution Bench would not be justified unless the provisions of clause (3) of article 145 are attracted.
The Supreme Court in State of Punjab v. Devans Modern Breweries Ltd. (2004) 13 ILD 481, observed :—
“296. Judicial discipline envisages that a coordinate Bench follow the decision of earlier coordinate Bench. If a coordinate Bench does not agree with the principles of law enunciated by another Bench, the matter may be referred only to a larger Bench - Pradip Chandra Parija v. Pramod Chandra Patnaik  1 SCC 1 at paras 6 and 7; followed in State of Tripura v. Roop Chand Das  7 SCC 273 at para 2. But no decision can be arrived at contrary to or inconsistent with the law laid down by the coordinate bench.” (p. 580)
In Vijay Laxmi Sadho v. Jagdish 2001 (1) JT 382, it has been observed as follows :
“As the learned Single Judge was not in agreement with the view expressed in Devilal case AIR 1960 SC 936 :  3 SCR 378 it would have been proper, to maintain judicial discipline, to refer the matter to a larger Bench rather than to take a different view. We note it with regret and distress that the said course was not followed. It is well-settled that if a Bench of coordinate jurisdiction whether on the basis of ‘different arguments’ or otherwise, on a question of law, it is appropriate that the matter be referred to a larger Bench for resolution of the issue rather than to leave two conflicting judgments to operate, creating confusion. It is not proper to sacrifice certainty of law. Judicial decorum, not less than legal propriety forms the basis of judicial procedure and it must be respected at all costs.”
In State of Bihar v. Kalika Kuer (2003) 4 JT 489, it was observed :—
“. . . The earlier judgment may seem to be not correct yet it will have the binding effect on the latter bench of coordinate jurisdiction. Easy course of saying that earlier decision was rendered per incuriam is not permissible and the matter will have to be resolved only in two ways - either to follow the earlier decision or refers the matter to a larger Bench to examine the issue, in case it is felt that earlier decision is not correct on merits.”
A pronouncement of law by a Division Bench of the Supreme Court is binding on a Division Bench of the same or a smaller number of judges and in order that such decision be binding, it is not necessary that it should be a decision rendered by the Full Court or a Constitution Bench of the Court.1
In the hierarchical system of Courts which exist in our country, it is necessary for each lower tier to accept loyally the decision of the higher tier.2
It is, therefore, well-settled that whenever a previous decision is overruled by a larger Bench, the previous decision is completely wiped out and article 141 will have no application to the decision which has already been overruled, and the Court would have to decide the cases according to law laid down by the latest decision of this Court and not by the decision which has been expressly overruled1.
2.14 Overruling, however, when made by a larger Bench of an earlier decision of a smaller one is intended to take away the precedent value of the decision without affecting the binding effect of the decision in the particular case.2
Precedent - Retrospective or prospective application (overruling) - two views (Blackstonian and Cardozo views)
2.14A Whether a decision has the effect of retrospective overruling or the prospective overruling, there are two views; one is Blackstonian view, and the other, Cardozo view. Adherence to precedents and retrospective overruling has the legacy from the declaratory theory of precedent pronounced by Blackstone that the duty of the court is not to “pronounce a new law but to maintain and expound the old one” and that “if it is to be found that the former decision is manifestly unjust or absurd, it is declared, not that such sentence was not the bad law, but that it was not the law.” Steadfast adherence to stare decisis is being advocated for stability, consistency and certainty as inherent values on the premise that it is much more conducive to the law’s self-respect and it provides greatest deterrence to judicial creativity tampering with the restraining influence of certainty.
However, Justice Cardozo is the proponent of the articulation and efficacy of prospective overruling or prospective application of a new principle laid down by the Court. He said, “I owe that it is a good deal of mystery to me how judges, of all persons in the world, should put their faith in dicta. A brief experience on the Bench was enough to reveal to me all sorts of cracks and crevices and loopholes in my opinion when picked up a few months later after delivery and re-read with due consideration.”
Prof. Louis L. Jafee said in English and American Judges as Law Makers (1969 Oxford Edn.) that if law is to function as a control, it is to set the limits within which innovation is to take place, the judge should rationalise his decision. We have to believe that where discretion is exercised, be it by administrator or judge, the requirement of rationalisation is crucial. In submitting himself to this discipline, the judge alerts himself to the limits of his power, laying the basis for objective criticism, and enables the citizenary to anticipate and so to conform its conduct to the potentialities of the decision. This process imposes two requirements :
- First, the decision must be upon a principle already found in existing law. It may be a constitutional provision or a statute or a principle derived by the judges from common law rulings. The decision should be logically consistent with the tests on which it is founded.
- Second, logical consistency does not suffice to establish legitimacy. Since the authoritative legal tests will usually allow more than one conclusion, the choice must be rational in terms consistent with accepted modes of legal reasoning.
It was further stated that there are occasions where judicial innovation is valuable and appropriate. The Legislatures are not perfectly organised to make law; they are not always well informed, articulate majorities inciting our Legislatures to action. It may be true that judicial intervention occasionally relieves the Legislatures of tasks better performed by them. The solution appears to be to overrule only prospectively.
Though by far the Legislature must be responsible for the formulation and promulgation of principles of conduct which are of general nature, and prospective applicability to a given community for an indeterminate number of situations, adminstrators must apply such general and often specific principles within the community - even though administrative orders and regulations often have certain legislative aspects, and the courts must also apply the perceptions of the legislators, or the generalized principles deduced from a series of precedents to individual disputes see Managing Director ECIL v. B. Karunakar AIR 1994 SC 1074.
2.14B The middle of both the above two views is followed by the judges. A judge cannot retain his earlier passive role when he administers the law under the Constitution to give effect to the constitutional ideas. The extra-ordinary complexity of modern litigation requires him not merely to declare the rights to citizens but also to mould the relief under given facts and circumstances and often command executive and other agencies to enforce and give effect to the order, writ or direction or prohibit them to do unconstitutional acts. In this ongoing complex of adjudicatory process, the role of the judge is not merely to interpret the law but also to lay new norms of law and to mould the law to suit the changing social and economic scenario to make the ideals enshrined in the Constitution meaningful and real. The society demands active judicial roles which were formerly considered exceptional but now a routine see C. Ravichandran Iyer v. Justice A. M. Bhattacharjee  5 SCC 457.
2.15 A binding decision rendered by the Court is always retrospective and the decision which is overruled was never the law. The overruling decision should be deemed to have been in force even on the day when the order sought to be rectified is passed1. The theory of case law is that a judge does not make law; he merely declares it, and overruling a previous decision is a declaration that the supposed rule never was the law. Any intermediate transactions made on the strength of the supposed rule are governed by the law established in the overruling decision. The overruling is retrospective except as regards matters that are res judicata or accounts that have been settled in the meantime. An order of assessment, based upon interpretation or application of law which is ultimately found to be wrong in the light of judicial pronouncements rendered subsequently, discloses a mistake apparent from the record. When the court decides a matter, it does not make the law in any sense but what it does is that it interprets the law and states what the law has always been and must be understood to have been. When an order is made by an authority, on the basis of a particular decision, the reversal of such decision in further proceedings will justify a rectification of the order based on that decision.2 Thus, a subsequent binding decision taking a different view in law is a good ground for review which constitutes an error on the face of the record within the meaning of Order 47, rule 1, Civil Procedure Code.3 But the decision of the Supreme Court resolving conflict of judicial opinion on a particular point though settles the debate, doubt or conflict, does not obliterate the existence of such debate, doubt or conflict that existed prior to the decision of the Supreme Court.4 A decision of the jurisdictional High Court rendered after the completion of an assessment constitutes ‘information’ for reopening assessment under section 147(b) of the Income-tax Act.5 ‘Information’ is not limited to factual information as to the true and correct state of law, but also covers information as to relevant judicial decisions.6 But where once an assessment is reopened on the basis of the High Court decision which is subsequently reversed by the Supreme Court, that decision of the Supreme Court would not have the effect of rendering the reassessment ab initio void, since at the time of reopening of assessment, the High Court’s decision is the relevant judicial interpretation as to the concerned law.7 Though the Supreme court does not make the law from the date it is pronounced but declares it to be so from the very inception, the knowledge about that law is not always there. And the decision of the High Court at the time of reopening the assessment does not cease to be ‘Information’.
2.15A Prospective overruling limits the future situations and excludes application to situations which have arisen before the decision was made. The benefit of the decision is given to the parties before a court even though applied to future cases from that date prospectively would not be extended to parties whose adjudication either had become final or matters are pending trial or in appeal. The crucial cut off date for giving retrospective operation is the date of judgment and not the date of the cause of action of a particular litigation giving rise to the principle culminated in the overruling decision. There is no distinction between civil and criminal litigation. Equally, no distinction could be made between claims involving constitutional rights, statutory right or common law right. It also emerges that the new rules would not be applied to the ex post facto laws nor acceded to plea of denial of equality. The court would adopt retroactive or non-retroactive effect of a decision not as a matter of constitutional compulsion but as a matter of judicial policy determined in each case after evaluating the merits and demerits of the particular case by looking to the prior history of the rule in question, its purpose and effect and whether retroactive operation will accelerate or retard its operation. The reliance on the old rule and cost of burden of the administration are equally germane and be taken into account in deciding to give effect to prospective or retrospective operation.
In L.C. Golak Nath v. State of Punjab AIR 1967 SC 1643, dealing with the question as to whether the decision in that case should be of prospective or retrospective operation, the court took into consideration the fact that between 1950 and 1967, as many as twenty amendments were made in the Constitution and the Legislature and various States had made laws bringing about an agrarian revolution in the country. These amendments and legislation were made on the basis of the correctness of the decisions in Shankari Prasad Singh Deo v. Union of India (AIR 1951 SC 458) and Sajjan Singh v. State of Rajasthan (AIR 1965 SC 845), viz., that the Parliament has the power to amend the fundamental rights and that acts in regard to estates are outside the judicial scrutiny on the ground that they infringe the said rights. The court then stated that as the highest court in the land it must evolve some reasonable principle to meet the said extraordinary situation. The court pointed out the following :
(1) There is an essential distinction between the Constitution and the statutes. The courts are expected to and they should interpret the terms of the Constitution without doing violence to the language to suit the expanding needs of the society. In the process and in the real sense, they make laws. Though it is not admitted, such role of the Supreme Court is effective and cannot be ignored. Even in the realm of ordinary statutes, the subtle working of the process is apparent, though the approach is more conservative and inhibitive. To meet the extraordinary situation that may be caused by the said decision, the court felt that it must evolve some doctrine which have roots in reason and precedents so that the past may be preserved and the future protected. The court then referred to two doctrines familiar to American Jurisprudence, viz.,
- Blackstonian view that the court is not to pronounce a new rule but to maintain and expound the old one and, therefore, the judge does not make law but only discovers and finds the true law. That view would necessarily make the law laid down by the courts retrospective in operation.
- Cardozo view which tried to harmonise the doctrine of prospective overruling with that of stare decisis expressed in Great Northern Railway v. Sunburst Oil &Refining Co. (1932) 287 US 358, 77 Led 360.
(2) The court after referring to the decision subsequent to Sunburst and to the “Practice Statement (Judicial Precedent)” issued by the House of Lords recorded in  1 WLR 1234 pointed out that the modern doctrine as opposed to Blackstonian theory is suitable for the fast moving society. It is a pragmatic solution. It finds law but restricts its operation to the future and thus enables the courts to bring about a smooth transition by correcting its errors without disturbing the impact of those errors on the past transactions. It is left to the discretion of the court to prescribe the limit of retroactivity. Thereby, it enables the court to mould the reliefs to meet the ends of justice.
(3) The court then pointed out that there is no statutory prohibition against the court refusing to give retroactivity to the law declared by it. The doctrine of res judicata precludes any scope of retroactivity in respect of a subject-matter that has been finally decided between the parties.
(4) The court pointed out that the courts by interpretation may reject retroactivity of statutory provisions though couched in general terms on the ground that they affect vested rights.
(5) The court pointed out that articles 141 and 142 of the Constitution are couched in such wide and elastic terms as to enable the Supreme court to formulate legal doctrine to meet the ends of justice. The only limitation therein is the reason, restraint and injustice. These articles are designedly made comprehensive to enable the Supreme Court to declare law and to give such direction or pass such order as is necessary to do complete justice. The court then held that in the circumstances to deny the power to the Supreme Court to declare the operation of law prospectively on the basis of some outmoded theory that the court only finds the law but does not make it is to make ineffective a powerful instrument of justice placed in the hands of the highest judiciary of the land.
(6) The court laid down the following propositions:
- The doctrine of prospective overruling can be invoked only in matters arising under our Constitution;
- it can be applied only by the highest court of the country, i.e., the Supreme Court as it has the constitutional jurisdiction to declare law binding on all the courts in India;
- the scope of retroactive operation of the law declared by the Supreme Court superseding its earlier decisions is left to its discretion to be moulded in accordance with the justice of the cause or matter before it.
(7) The court declared that the said decision will not affect the validity of the Constitution (Seventeenth) Amendment Act, 1964 or other amendments made to the Constitution taking away or abridging the fundamental rights. The court also declared that in future Parliament will have no power to amend Part III of the Constitution so as to take away or abridge the fundamental rights.
Accepting the lead given in the above decision, the Court has since extended the doctrine to the interpretation of ordinary statute as well as in Waman Rao v. Union of India AIR 1986 SC 271; Atam Prakash v. State of Haryana AIR 1986 SC 859; Orissa Cement Ltd. v. State of Orissa AIR 1991 SC 1676. In Orissa Cement, the Court held that the levy of royalty and related charges for mining lease was invalid, since its inception, that finding regarding the invalidity need not automatically result in a direction for refund of the collections thereof made earlier. In Atam Prakash, the court held the Punjab Pre-emption Act, 1913 ultra vires of the Constitution, but it gave a direction that the decrees which had become final would be binding inter parties.
In Victor Linkletter v. Victor G. Walker  381 US 618; 14 Law ed. 2d 601, it was held that a ruling which is purely prospective does not apply even to parties before the court. The court held that in appropriate cases a court may in the interest of justice make its ruling prospective and this applies in the constitutional area where the exigencies of the situation require such an application.
precedent - Conflict between two judgments of supreme court, judgment later in time not binding if earlier better in law
2.16 The question when there is a direct conflict between two decisions of the Supreme Court, rendered by co-equal Benches which of them should be followed by the High Courts and the Courts below, is more oftenly asked.
When judgments of the superior Courts are of co-equal Benches, and, therefore, a matching authority, then their weight inevitably must be considered by the rational and the logic thereof and not by the mere fortuitous circumstance of the time and date on which they were rendered. Equally, the fact that the subsequent judgment failed to take notice of the earlier one or any presumption that a deviation therefrom could not be intended, cannot possibly be conclusive. Vital issues, pertaining to the vital questions of the certainty and uniformity of the law, cannot be scuttled by such legal sophistry. It is manifest that when two directly conflicting judgments of the superior court and of equal authority exist, then both of them cannot be binding on the Courts below. A choice, however difficult it may be, has to be made in such a situation and the date cannot be the guide. However, on principle, the Court must follow the judgment which would appear to lay down the law more elaborately and accurately. The mere incidence of time, whether the judgments of co-equal Benches of the superior Court are earlier or later, and whether the later one missed consideration of the earlier, are matters hardly relevant, and, in any case, not conclusive.1
If faced with two judgments of equal weight which are in conflict, the Court should follow the one as being better on point of law.2 The Court is at liberty to decide of its own which of the two conflicting decisions will it follow, in case of a clear divergence of the opinion in the earlier precedents.3 Thus in the interest of the administration of justice, the Court ought to follow the one out of the two conflicting judgments which is better in point of law than in point of time,4 and which appears to it to state the law more elaborately and accurately.5
Exceptions to Rule of Precedent
2.17 There are two broad exceptions to the rule of precedent; (1) the doctrine of per incuriam; (2) doctrine of sub-silentio (discussed later)
‘Incuria’ literally means ‘carelessness’. In practice, per incuriam appears to mean per ignoratum.
English Courts have developed this principle in relaxation to the rule of stare decisis. The “quotable in law” is avoided and ignored if it is rendered “in ignoratum of a statute or other binding authority” (Young v. Bristol Aeroplane Co. Ltd.  1 KB 718; (1944) 2 All ER 293). The same has been accepted, approved and adopted by the Supreme Court of India while interpreting article 141 of the Constitution which embodies the doctrine of precedents as a matter of law (State of UP v. Synthetics and Chemicals Ltd.  4 SCC 139).
In Punjab Land Development and Reclamation Corporation v. Presiding Officer Labour Court  77 FJR 17; (1990) 3 SCC 684, it was observed :
“The Latin expression ‘per incuriam’ means through inadvertence. A decision can be said generally to be given per incuriam when this court has acted in ignorance of a previous decision of its own or when a High Court has acted in ignorance of a decision of this court.”
It further observed:
“As regards the judgments of the Supreme Court allegedly rendered in ignorance of a relevant constitutional or other statutory provisions on the subjects covered by them, it is true that the Supreme Court may not be said to ‘declare the law’ on those subjects if the relevant provisions were not really present to its mind.”
In an exceptional case, where a Division Bench of a Court gives a decision without noticing a very important provision of law which would have affected its decision, or gives a decision failing to follow a binding authority, a subsequent Division Bench may consider that the earlier decision is not binding upon it. In Mamleshwar Prasad v. Kanahaiya Lal,1 it was stated that the importance of certainty of the law, consistency of rulings and comity of courts - all flowering from the same principle - converge to the conclusion that a decision once rendered must later bind like cases. However, in exceptional cases, where, by obvious inadvertence or oversight, a judgment fails to notice a plain statutory provision or obligatory authority running contrary to the reasoning and result reached, it may not have the sway of binding precedents. It should be a glaring case, and obtrusive omission. What was pointed out in Mamleshwar’s case (supra) is in effect a case of a judgment delivered per incuriam. The concept of a judgment per incuriam has been explained in Salmond’s Jurisprudence (12th edition), page 148, et seq. It is based upon a judgment in Cassell & Co. Ltd. v. Broome.2
A decision is given per incuriam when the Court has acted in ignorance of a previous decision of its own or of a larger Bench or when it has acted in ignorance of the decision of the final Court. While referring to the exception to the rule or stare decisis, it was observed that, no doubt, any Court would decline to follow a case decided by itself or any other Court (even one of superior jurisdiction), if the judgment erroneously assumed the existence or non-existence of a statute and that assumption formed the basis of the decision. This exception to the rule of stare decisis is probably best regarded as an aspect of a broader qualification of the rule, namely, that the courts are not bound to follow decisions reached per incuriam.
The proposition that a decision per incuriam need not be followed as a binding precedent is well-established. The decision of the Court of Appeal in Young v. Bristol Aeroplane Co. Ltd.3 is referred to, where Lord Greene, M.R. observed as follows:
“When the Court has construed a statute or a rule having the force of a statute, its decision stands on the same footing as any other decision on a question of law. But where the court is satisfied that an earlier decision was given in ignorance of the terms of a statute or a rule having the force of a statute, the position is very different. It cannot, in our opinion, be right to say that in such a case the Court is entitled to disregard the statutory provision and is bound to follow a decision of its own given when that provision was not present to its mind. Cases of this description are examples of decisions given per incuriam.”
The Supreme Court in Jaisri Sahu v. Rajdewan Dubey,1 has also quoted with approval the observations Halsbury’s Laws of England, 3rd edition, Vol. 22, para 1687, which are as follows :
“The court is not bound to follow a decision of its own if given per incuriam. A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of a co-ordinate jurisdiction which covered the case before it, or when it has acted in ignorance of a decision of the House of Lords. In the former case it must decide which decision to follow, and in the latter it is bound by the decision of the House of Lords.” (p. 88).
In Halsbury’s Laws of England (Fourth Edition) Vol. 26, at pages 297-298, para 578, it is stated :
“A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of coordinate jurisdiction which covered the case before it, in which case it must decide which case to follow Young v. Bristol Aeroplane Co. Ltd.  1 KB 718 at 729;  2 All ER 293 at 300. In Hudderfield Police Authority v. Waton  KB 842;  2 All ER 193 or when it has acted in ignorance of a House of Lords decision in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force Young v. Bristol Aeroplane Co. Ltd.  1 KB 718 at 729;  2 All ER 293 at 300. See also Lancaster Motor Col. London Ltd. v. Bremith Ltd.  1 KB 675. For a Divisional Court decision disregarded by that court as being per incuriam - See Nicholas v. Penny  2 KB 466; 1950 2 All ER 89. A decision should not be treated as given per incuriam, however, simply because of a deficiency of parties. Morvelle Ltd. v. Wakeling  2 QB 379;  1 All ER 708 or because the court had not the benefit of the best argument, Bryers v. Canadian Pacific Streampships Ltd.  1 QB 134;  3 All ER 560 CA Per Singleton LJ, affd Sub nom. Canadian Pacific Streamships Ltd. v. Bryers  AC 485;  3 All ER 572 and, as a general rule, the only cases in which decision should be held to be given per incuriam are those given in ignorance of some inconsistent statute or binding authority A. and J. Mukclow Ltd. v. IRC  Ch. 615  2 All ER 508 CA, Morelle Ltd. v. Wakeling  2 QB 379,  1 All ER 708 CA, see also Bonsor v. Musicians Union  Ch. 479,  1 All ER 822 CA, where the per incuriam contention was rejected and on appeal to the House of Lords although the House overruled the case which bound the Court of Appeal, the House agreed that court had been bound by it see  AC 104;  3 All ER 518 HL. Even if a decision of the Court of Appeal has misinterpreted a previous decision of the House of Lords, the Court of Appeal must follow its previous decision and leave the House of Lords to rectify the mistake. Williams v. L. Glasbrook Bros. Ltd.  2 All ER 884 CA.”
However, the decision of the Constitution Bench of the Supreme Court cannot be brushed aside as having been passed “Sub Silentio” or on the basis of doctrine of “Per incuriam” (see State of Punjab v. Devans Breweries Ltd. (2004) 13 ILD 481 (SC), page 580, para 294).
To the type of cases referred to in the passage from the Halsubry’s Laws of England cited above, must also be added decisions which are rendered without noticing the crucial and relevant statutory provisions or the provisions of the rules governing the relevant statutory provisions or the provisions of the rules governing the relevant controversy.1
2.18 The precedents should not be followed mechanically as observed by Chandrachud, CJ in Deena alias Deen Dayal v. Union of India2
“. . . Any case, even a locus classicus is an authority for what it decides. It is permissible to extend the ratio of a decision to cases involving identical situations, factual and legal, but care must be taken to see that this is not done mechanically, that is, without a close examination of the rationale of the decision which is cited a precedent. Human mind, trained even in the strict discipline of law, is not averse to taking the easy course of relying on decisions which have become famous and applying their ratio to supposedly identical situations. . .” (p. 1166)
There is no need to match the colour of the case with that of any other case decided earlier by courts.3 Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive.4 Precedents are not a ground for not giving effect to the correct position of law (Balchandra Anant Rao Rakvi v. Ramchandra Tukaram  8 SCC 616. In Jaya Sen v. Sujit Kumar Sarkar  1 ILR A and N 145 it was held:
“It is now well known that a decision is an authority for what it decides and not what can logically be deduced therefrom. It is also well known that even a slight distinction in fact or an additional fact may make a lot of difference in decision-making process (see Quinn v. Leatham (1890-1903) AER (Rep) 1, Krishena Kumar v. Union of India  4 SCC 207, CIT v. Sun Engineering Works (P.) Ltd. 198 ITR 297;  4 SCC 363; AIR 1963 SC 43, Regional Manager v. Pawan Kumar Dubey AIR 1976 SC 1766 and Municipal Corporation of Delhi v. Gurnam Kaur  1 SCC 101.”
It is also settled law that a decision is not an authority on point, which was not argued (see Mittal Engineering Works (P.) Ltd. v. Collector of Central Excise,  1 SCC 203).
In A-One Granites v. State of UP AIR 2001 SCW 848 it is observed:
“The first question which falls for consideration of this court is as to whether the question regarding applicability of rule 72 of the Rules in relation to the present lease is concluded by the earlier decision of this court rendered in Prem Nath Sharma v. State of UP  4 SCC 552; 1997 AIR SCW 2121; AIR 1997 2252; (1997) A LJ 1201. From a bare perusal of the said judgment of this court it would be clear that the question as to whether rule 72 was applicable or not was never canvassed before this court and the only question which was considered was whether there was violation of the said rule.
This question was considered by the Court of Appeal in Lancaster Motor Co. (London) Ltd. v. Bremith Ltd.  1 KB 675, and it was laid down that when no consideration was given to the question, the decision cannot be said to be binding and precedent sub silentio and without arguments are of no moment.”
In Arnit Das v. State of Bihar AIR 2000 SC 2264; (2000) 5 SCC 488, the Apex Court observed:
“A decision not expressed, not accompanied by reasons and not proceeding on a conscious consideration of an issue cannot be deemed to be a law declared to have a binding effect as is contemplated under article 141. That which has escaped in the judgment is not the ratio decidendi. This is the rule of sub silentio, in the technical sense when a particular point of law was not consciously determined”.
2.18-1 Decisions not read as Euclid’s theorems - Observations of the courts are not to be read as Euclid’s theorems nor as provisions of the statute. These observations must be read in the context in which they appear. The courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed [see Haryana Financial Corporation v. Jagdamba Oil Mills  110 Comp. Cas. 20 (SC)].
2.18-2 Precedent - Ceases to be law - Changed circumstances or law - As aforesaid, doctrine of precedent is a well-accepted principle. A ruling is generally considered to be binding on lower courts and courts having a smaller Bench structure :
“A precedent influences future decisions. Every decision is pronounced on a specific set of past facts and from the decision on those facts a rule has to be extracted and projected into the future. No one can foresee the precise situation that will arise, so the rule has to be capable of applying to a range of broadly similar situations against a background of changing conditions. It has therefore to be in general terms and ‘malleable’. . . No word has one proper meaning, nor can anyone seek to fix the meaning of words for others, so the interpretation of the rule remains flexible and open-ended (see Dias Jurisprudence, 5th Edition, page 136).”
However, although a decision has neither been reversed nor overruled it may cease to be ‘law’ owing to changed conditions and changed law. This is reflected by the principle ‘cessante ratione cessat ipsa lex’ :
“. . . It is not easy to detect when such situations occur, for as long as the traditional theory prevails that judges never make law, but only declare it, two situations need to be carefully distinguished. One is where a case is rejected as being no longer law on the ground that it is now thought never to have represented the law, the other is where a case, which is acknowledged to have been the law at the time, has ceased to have that character owing to altered circumstances. (See Dias Jurisprudence, 5th Edition, pages 146-147).”
It is the latter situation which is often of relevance. With changes that are bound to occur in an evolving society, the judiciary must also keep abreast of these changes in order that the law is considered to be good law. This is extremely pertinent especially in the current era of globalization when the entire philosophy of society, on the economic front, is undergoing vast changes. (See State of Punjab v. Devans Breweries Ltd.  13 ILD 481 (SC); 580) :
“. . . The judiciary may not cling to age-old notions of any underlying philosophy behind interpretation. It has to move with the times. As Willes CJ once said ‘When the nature of things changes, the rules of law must change too’—Davies v. Powell  Willes 46 at 51. This is a truism in that the Legislature and, within limits, the courts should change rules to keep the law abreast of change. (See Dias Jurisprudence, 5th Edition, page 147).
In Francis Bennion Interpretation of Statutes, Fourth edition at page 771, it is stated :
“Changes in social conditions.—Where relevant social conditions have changed since the date of enactment, what was then classed as a social mischief may not be so regarded today. It is very difficult for the court to apply an enactment so as to “remedy” what is no longer regarded as a mischief. The consequence is an interpretation that minimizes the coercive effect of the enactment and gives great weight to criteria such as the principle against doubtful penalisation.”
While interpreting such a situation, one must take into consideration the flexibility in law as has been highlighted by the Supreme Court in M.V. Al Quamar v. Tsavliris Salvage (International) Ltd.  8 SCC 278 wherein it was opined :
‘43. The two decisions noted above in our view deal with the situation amply after having considered more or less the entire gamut of judicial precedents. Barker, J’s judgment in the New Zealand case  1 NZLR 104 (NZSC) very lucidly sets out that the Court has to approach the modern problem with some amount of flexibility as is now being faced in the modern business trend. Flexibility is the virtue of the law Courts as Roscoe Pound puts it. The pedantic approach of the law Courts are no longer existing by reason of the global change of outlook in trade and commerce. The observations of Barker, J. and the findings thereon in the New Zealand’s case (supra) with the longish narrations as above, depicts our inclination to concur with the same, but since issue is slightly different in the matter under consideration, we, however, leave the issue open, though the two decisions as above cannot be doubted in any way whatsoever and we feel it expedient to record that there exists sufficient reasons and justification in the submission of Mr. Desai as regards the invocation of jurisdiction under section 44A of the Code upon reliance on the two decisions of the New Zealand and Australian Courts.” (p.308)
There cannot be any doubt whatsoever that a law which was at one point of time was constitutional may be rendered unconstitutional because of passage of time - Kapila Hingorani’s case (supra) and John Vallamattom v. Union of India JT 2003 (6) SC 37.
In People’s Union for Civil Liberties v. Union of India  4 SCC 399 it held :
“. . . It is established that fundamental rights themselves have no fixed content, most of them are empty vessels into which each generation must pour its content in the light of its experience. The attempt of the Court should be to expand the reach and ambit of the fundamental rights by process of judicial interpretation. The Constitution is required to be kept young, energetic and alive. . .” (p.403)
Even the public policy may vary. The change in circumstances may require re-interpretation of law.
The Supreme Court in Murlidhar Agarwal v. State of UP  1 SCR 575 while dealing with the concept of “public policy” observed thus :
“. . . Public policy does not remain static in any given community. It may vary from generation to generation and even in the same generation. Public policy would be almost useless if it were to remain in fixed moulds for all time.”
“. . . The difficulty of discovering what public policy is at any given moment certainly does not absolve the judges from the duty of doing so. In conducting an enquiry, as already stated, Judges are not hide bound by precedent. The Judges must look beyond the narrow field of past precedents, though this still leaves open the question, in which direction they must cast their gaze.”
2.19 A question relating to the jurisdiction of a court cannot be deemed to have been finally determined by an erroneous decision of Court. If by an erroneous interpretation of the statute, the Court holds that it has no jurisdiction, the question does not, operate as res judicata. Similarly, by an erroneous decision, if the Court assumes jurisdiction which it does not possess under the statute, the question cannot operate as res judicata between the same parties, whether the cause of action in the subsequent litigation is the same or otherwise. It is true that in determining the application of the rule of res judicata, the Court is not concerned with the correctness or otherwise of the earlier judgment. The matter in issue, if it is one purely of fact, decided in the earlier proceeding by a competent court, must in a subsequent litigation between the same parties, be regarded as finally decided and cannot be re-opened. A mixed question of law and fact determined in the earlier proceeding between the same parties may not, for the same reason, be questioned in a subsequent proceeding between the same parties.1
Precedent - judgment given in the context of particular proved or assumed facts cannot be taken exposition of law
2.20 A decision of the Supreme Court is not to be read as statute.2 The danger of construing precedents as if they were statutes, and assuming every passing observation therein as if it were the ratio thereof was first highlighted by Earl of Halsbury Lord Chancellor in Quinn v. Leathem3 that every judgment must be read as applicable to the particular facts proved or assumed to be proved since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. A case is an authority for what it actually decides. It can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all.
A decision is a decision in the case before the Court while the principle underlying the decision would be binding as precedent in a case which comes up for decision subsequently. Hence, while applying the decision in a later case, the Court which is dealing with it should carefully try to ascertain the true principle laid down by the previous decision. A decision often takes its colour from the questions involved in the case in which it is rendered. The scope and authority of a precedent should never be expanded unnecessarily beyond the needs of a given situation.4
In Sreenivasa General Traders v. State of AP,5 it was held that a case is an authority only for what it actually decides and not for what may logically follow from it. Observations in the judgment which are really not necessary for the purpose of the decision and go beyond the occasion have no binding authority and merely have persuasive value.
2.20-1 Every observation not to be followed - A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it. It is not a profitable task to extract a sentence here and therefrom a judgment and to build upon it.1 An identical view has been reiterated by the Court in H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India.2
One must recall the rule in Quinn v. Leathem3 that what is relevant in a judgment is the ratio of the case and what it actually decides and not every passing observation therein or what may logically flow therefrom. Equally relevant is the reiteration of this view by their Lordships in State of Orissa v. Sudhansu Sekhar Misra,4 holding that it is idle to build upon a sentence or a line in judgment. Specious reliance on a passing observation de hors its contexts is of no avail.
What is considered binding on all the Courts is the ratio decidendi of the decision which is to be gathered from the statements of principles of law applicable to the legal problems disclosed by the facts of the case decided by the Supreme Court. The Supreme Court in Dalbir Singh v. State of Punjab5 has also uttered a warning to the effect that the greatest possible care must be taken to relate the observations of a Judge to the precise issue before him and confine such observations, even though expressed in broad terms in the general compass of the questions before him. It is, therefore, evident that the decision of the Supreme Court is only an authority for what is actually decided and the observations made in the judgment should be restricted to the context in which they are made after relating the observations to the precise issue before the Court taking care to interpret the observations in the context of the question before the Court even though the same are expressed in broad terms. It can scarcely be doubted that before culling out the ratio of a decision, the Court must of necessity examine the precise question or the precise issue which arose before the Court and identify the principle of law applied by the Court in resolving the issue and make a further effort to find out what is the proposition of law which emerges from the decision of the Court.6
2.21 The Supreme Court could not be said to have declared law if it is rendered per incuriam. The question is whether this principle could be extended and applied to a conclusion of law, which was neither raised nor preceded by any consideration. In other words, can such conclusions be considered as declaration of law? The English courts have carved out an exception to the rule of precedents. It has been explained as the rule of sub-silentio. A decision passes sub-silentio when the particular point of law is not perceived by the court or present to its mind. The court may not feel bound by the earlier decision if it was rendered “without argument, without reference to the crucial words of the rule and without any citation of the authority” [Lancaster Motor Company (London) Bermuth Ltd.  1 KB 675;  2 All ER 11; (1942) 12 Comp. Cas. 26 (CA)]. It was approved by the Supreme Court in Municipal Corporation of Delhi v. Gurnam Kaur  1 SCC 101. The Bench held that, “precedents sub-silentio and without argument are of no moment.” The courts have taken recourse to this principle for relieving from injustice perpetrated by unjust precedents. The Supreme Court observed as follows in State of UP v. Synthetics and Chemicals Ltd.  4 SCC 139; (1991) 3 JT 268:
‘A decision which is not express and is not founded on reasons nor it proceeds on consideration of issue cannot be deemed to be a law declared to have binding effect as is contemplated by article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgment without any occasion is not ratio decidendi. In B. Sharma v. Union Territory of Pondicherry AIR 1987 SC 1480, 2 SCR 650, 20 STC 215, it was observed, “it is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles laid down therein”. Any declaration or conclusion arrived at without application of mind or preceded without any reason cannot be deemed to be declaration of law of authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for the sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law.’
Thus, a decision passes sub-silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the Court or present to its mind. The court may consciously decide in favour of one party because of point A, which it considers and pronounces upon. It may be shown, however, that logically the Court should not have decided in favour of a particular party unless it also decided point B in his favour; but point B was not argued or considered by the Court. In such circumstances, although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B, point B is said to pass sub-silentio.1
In Hindustan Machine Tools Ltd. (No. 3) v. CIT 2 this doctrine came for discussion. Learned Judge did not favour to apply the ratio of the decision of the Supreme Court in Travancore-Cochin Chemicals Ltd. v. CIT 3 in the circumstances and on the facts of the case before the High Court on the issue whether amount contributed for the construction of road not belonging to to it gave an advantage of enduring nature to the trade of the assessee and this represented capital expenditure. The learned judge held that the decision in Travancore-Cochin Chemical’s case is a ‘precedent sub-silentio’ as the Supreme court considered the first point of the Lord Cave’s test stated in British Insulated & Helsby Cables Ltd. v. Atherton.1 The second point was not considered by the Supreme Court.
J. Rama Jois, however, expressed disagreement on the question of application of the principle of ‘precedent sub silentio’. According to him, a judgment of the Supreme Court in which a question of law has been decided does not lose its binding authority as a precedent just because a particular aspect or point was not urged before the Supreme Court. The binding effect of a decision does not depend upon whether a particular argument was considered therein or not, provided the point with reference to which an argument was subsequently advanced was actually decided.2 It is impermissible for the Court to disregard a binding decision of the Supreme Court on a question of law on the ground that some of the points bearing on the question decided by the Supreme Court were not argued before it.3 In view of article 141 of the Constitution, it is not open to the High Courts to decide to follow a decision of the Supreme Court on a question of law regarding it as a ‘precedent sub-silentio’4. The decision of the Supreme Court is binding on the lower Courts and the Courts cannot ignore it because they think that the relevant provisions are not brought to the notice of the Supreme Court.5 Thus, a declaration of law made by the Supreme Court on a given point cannot be brushed aside by the process of examining the basis of its reasoning and ascertaining whether the said basis has been undermined by some pronouncements made in different contexts in another decision of the Supreme Court6. Mere circumstance or fact that the Supreme Court has not considered the effect of several decisions which existed on a particular point would not detract from the weight or the binding effect of the decision of the Supreme Court7 and even if certain aspects of question were not brought to the notice of the Court, the Court would decline to enter upon re-examination of the question.8
Precedents - Limitations
2.22 Justice Holmes said, “The principle of precedent was the outcome of a quest of probabilities. Principles and precedents thus generated, carry throughout their lives the birth-marks of their origin. They are in truth provisional hypothesis born in doubt and travail, expressing adjustment which commended itself at the moment between the competing possibilities” (quoted in Percy Pinto v. R.T.A.D.K. Mangalore AIR 1990 Kar. 117)
The law should be made clear, certain and consistent. But certitude is not the test of certainty and consistency does not mean that there should be no word of new content. The principle of law may develop side by side with new content but not with inconsistencies. There could be waxing or waning of the principle depending upon the pragmatic needs and moral yearnings. Such development of law particularly is inevitable in our developing society. The truth is that the law is always approaching but never reached consistency. It is forever adopting new principles from life at one end, and it always retains old ones from history at the other, which have not yet been absorbed or sloughed off. It will become entirely consistent only when it ceases to grow - Sundarjas Kanyalal Bhatija v. Collector  183 ITR 130 (SC). Like all principles evolved by man for the regulation of the social order, the doctrine of binding precedent is circumscribed in its governance by perceptible limitations, limitations arising by reference to the need for readjustment in a changing society, a readjustment of legal norms demanded by a changed social context. This need for adapting the law to new urges in society brings home the truth of the Holmesian aphorism, that “the life of the law has not been logic, it has been experience”1, and again when he declared in another study that2 “the law is forever adopting new principles from life at one end,” and “sloughing off” old ones at the other. Explaining the conceptual import of what Holmes has said, Julius Stone elaborated that it is by the introduction of new extra-legal propositions emerging from experience to serve as premises, or by experience-guided choice between competing legal propositions, rather than by the operation of logic upon existing legal propositions, that the growth of law tends to be determined.3
2.22-1 Precedents cannot limit legal compulsions - Legal compulsions cannot be limited by existing legal propositions, because there will always be, beyond the frontiers of the existing law, new areas inviting judicial scrutiny and judicial choice-making which could well affect the validity of existing legal dogmas. The search for solutions responsive to a changing social era involves a search not only among competing propositions of law, or competing versions of a legal proposition, or the modalities of an indeterminacy such as “fairness” or “reasonableness”, but also among propositions from outside the ruling law, corresponding to the empirical knowledge or accepted values of present time and place, relevant to the dispensation of justice within the new parameters [Union of India v. Raghubir Singh  178 ITR 548 (SC)].
2.22-2 Precedent cannot limit changed perception - The universe of problems presented for judicial choice-making at the growing points of the law is an expanding universe. The areas brought under control by the accumulation of past judicial choice may be large. Yet the areas newly presented for still further choice, because of changing social, economic and technological conditions, are far from inconsiderable. It has also to be remembered that many occasions for new options arise by the mere fact that no generation looks out on the world from quite the same vantage-point as its predecessor, not for that matter with the same perception. A different vantage point of a different quality or perception often reveals the need for choice-making where formerly no alternatives, and no problems at all, were perceived. The extensiveness of the areas for judicial choice at a particular time is a fall-out not only of the accumulation of past decisions, not only of changes in the environment, but also of new insights and perspectives both on old problems and on the new problems thrown up by changes entering the cultural and social heritage.
2.22-3 Precedent - Judicial conscience persuades change - Not infrequently, in the nature of things, there is a gravity-heavy inclination to follow the groove set by precedential law. Yet, a sensitive judicial conscience often persuades the mind to search for a different set of norms more responsive to the changed social context. The dilemma before the judge poses the task of finding a new equilibrium, prompted not seldom by the desire to reconcile opposing mobilities. The competing goals, according to Dean Roscoe Pound, invest the judge with the responsibility “of proving to mankind that the law was something fixed and settled, whose authority was beyond question, while at the same time enabling it to make constant readjustments and occasional radical changes under the pressure of infinite and variable human desires.”1 The reconciliation suggested by Lord Reid in “The judge as Law-Maker”2 lies in keeping both objectives in view, “that the law shall be certain, and that it shall be just and shall move with the times.” An elaboration of his opinion is contained in Myers v. Director of Public Prosecutions  AC 1001, 1021 (HL), where he expressed the need for change in the law by the Court and the limits within which such change could be brought about. He said:
“I have never taken a narrow view of the functions of this House as an Appellate Tribunal. The common law must be developed to meet changing economic conditions and habits of thought, and I would not be deterred by expressions of opinion in this House in old cases. But there are limits to what we can or should do. If we are to extend the law, it must be by the development and application of fundamental principles. We cannot introduce arbitrary conditions or limitations: that must be left to legislation. And if we do in effect change the law, we ought, in my opinion, only to do that in cases where our decision will produce some finality or certainty.”
Whatever the degree of success in resolving the dilemma, the Court would do well to ensure that although the new legal norm chosen in response to the changed social climate represents a departure from the previously ruling norm, it must, nevertheless, carry within it the same principle of certainty, clarity and stability.
The profound responsibility which is borne by Supreme Court in its choice between earlier established standards and the formulation of a new code of norms is all the more sensitive and significant because the response lies in relation to a rapidly changing social and economic society. In a developing society such as in India, the law does not assume its true function when it follows a groove chased amidst a context which has long since crumbled. There will be found among some of the areas of the law, norms selected by a judicial choice educated in the experience and values of a world which had passed away 40 years ago. The social forces which demand attention to the cauldron of change from which a new society is emerging appear to call for new perceptions and new perspectives.1 The recognition that the times are changing and that there is occasion for a new jurisprudence to take birth is evidenced by what the Court said in Bengal Immunity Co. Ltd. v. State of Bihar  2 SCR 603, when it observed that it was not bound by its earlier judgments and possessed the freedom to overrule its judgments when it thought it fit to do so, to keep pace with the needs of changing times. The acceptance of this principle ensured the preservation and legitimation provided to the doctrine of binding precedent, and therefore, certainty and finality in the law, while permitting necessary scope for judicial creativity and adaptability of the law to the changing demands of society.
Precedents - Review by Supreme Court
2.23 The Courts regard the use of precedents as an indispensable foundation upon which to decide what is the law and its application to individual cases. It provides at least some degree of certainty upon which individuals could rely in the conduct of their affairs, as well as basis for orderly development of legal rules. But too rigid adherence to precedent may lead to injustice in a particular case and also unduly restrict the proper development of the law. The precedent practice is, therefore, modified while treating the former decision as normally binding, the Supreme Court may depart from a previous decision when it appears right to do so. The Court bears in mind the danger of disturbing retrospectively the basis on which the contracts, settlements of property and fiscal arrangements have been entered into and also the special need for certainty as to the criminal law.
Law is regarded as an instrument of social engineering. But law can sustain social order and hold together human beings constituting the society if it keeps pace with changing social concepts and values. Law which is not dynamic dies out. Dynamic law strives on harmonious adjustment of human relations by removing social tensions and conflicts and in the process of development, it must adapt itself and be responsive to the needs of society. For it deals not only with principles but also with people and affects their lives.
The Draconian concept of law can no longer be said to be guiding factor in the modern set up. It has changed in the past, it is changing now and will continue to change in the future. It is an experience developed by reason. It is a product of civilisation. It must keep on changing from time to time, otherwise, the law will not be able to cope with the needs of the people. It is a social process and it must go on changing. Bhagwati J. of the Supreme Court observed as follows in Motilal Padmapatar Sugar Mills Co. Ltd. v. State of UP, AIR 1979 SC 621; 118 ITR 326; 44 STC 42:
“It must be remembered that law is not a mausoloum. It is not an antique to be taken down, dusted, admired and put back on the shelf. It is rather like an old but vigorous tree, having its roots in history, yet continuously taking new grafts and putting out new sprouts and occasionally dropping dead woods. It is essentially a social process, the end product of which is justice and hence, it must keep on growing and developing with changing social concepts and values. Otherwise, there will be estrangement between law and justice and law will cease to have legitimacy.”
2.23-1 Criterion for overruling - These are grouped in countrywise as follows:
In England - The House of Lords has framed guidelines in a series of cases decided up to 1975 and the guidelines have been summarised in Dr. Alan Paterson’s “Law Lords”  pp. 156-157. He refers to several criteria articulated by Lord Reid in those cases:
1. The freedom granted by the 1966 Practice Statement ought to be exercised sparingly (the “use sparingly” criterion) [Jones v. Secretary of State for social Services  AC 944 (HL)].
2. A decision ought not to be overruled if to do so would upset the legitimate expectations of people who have entered into contracts or settlements or otherwise regulated their affairs in reliance on the validity of that decision (the “legitimate expectations” criterion) (Ross-Smith v. Ross-Smith  AC 280, 303 (HL) and Indyka v. Indyka  1 AC 33, 69.
3. A decision concerning questions of construction of statutes or other documents ought not to be overruled except in rare and exceptional cases (the “construction” criterion*).
4. (a) A decision ought not to be overruled if it would be impracticable for the Lords to foresee the consequences of departing from it (the “unforeseeable consequences” Criterion) [Steadman v. Steadman  AC 536, 542 (HL)].
(b) A decision ought not to be overruled if to do so would involve a change that ought to be part of a comprehensive reform of the law. Such changes are best done “by legislation following a wide survey of the whole field” (the “Need for comprehensive reform” criterion) [DPP v. Myers  AC 1001, 1022 (HL); Cassell and Co. Ltd. v. Broome  AC 1227, 1086 (HL); Haughton v. Smith  AC 476, 500 (HL)].
5. In the interest of certainty, a decision ought not to be overruled merely because the Law Lords consider that it was wrongly decided. There must be some additional reasons to justify such a step (the “precedent merely wrong” criterion) Kunuller v. DPP  AC 435, 455].
6. A decision ought to be overruled if it causes such great uncertainty in practice that the parties’ advisers are unable to give any clear indication as to what the Courts will hold the law to be (the “rectification of uncertainty” criterion**)
7. A decision ought to be overruled if, in relation to some broad issue or principle, it is not considered just or in keeping with contemporary social conditions or modern conceptions of public policy (the “unjust or outmoded” criterion***).
Dr. Paterson noted that between the years 1966 and 1988, there were twenty-nine cases in which the House of Lords was invited to overrule one of its own precedents, that the House of Lords did so in eight of them, while in further ten cases, at least one of the Law Lords was willing to overrule the previous House of Lords precedent. In a considerable number of other cases, however, the Law Lords seemed to prefer to distinguish the earlier decisions rather than overrule them.
In Australia - The High Court of Australia, the highest court in the Commonwealth, has reserved to itself the power to reconsider its own decision, but has laid down that the power should not be exercised upon a mere suggestion that some or all the members of the later Court would arrive at a different conclusion if the matter were res integra. In the Tramways case  18 CLR 54, Griffith C.J., while doing so, administered the following caution (see AIR 1955 SC 697):
“In my opinion, it is impossible to maintain as an abstract proposition that the Court is either legally or technically bound by previous decisions. Indeed, it may, in a proper case, be its duty to disregard them. But the rule should be applied with great caution, and only when the previous decision is manifestly wrong, as, for instance, if it proceeded upon the mistaken assumption of the continuance of a repealed or expired statute, or is contrary to a decision of another Court which this Court is bound to follow; not, I think, upon a mere suggestion, that some or all of the members of the later Court might arrive at a different conclusion if the matter was res integra. Otherwise there would be grave danger of want of continuity in the interpretation of law.”
In the same case, Barton J. observed at p. 69 (see AIR 1955 SC 697):
“. . . I would say that I never thought that it was not open to this Court to review its previous decisions upon good cause. The question is not whether the Court can do so, but whether it will, having due regard to the need for continuity and consistency of the judicial decisions. Changes in the number of appointed justices can, I take it, never of themselves furnish a reason of review. . . But the Court can always listen to argument as to whether it ought to review a particular decision, and the strongest reason for an overruling is that a decision is manifestly wrong and its maintenance is injurious to the public interest.”
In USA - The Supreme Court has explicitly overruled its prior decision in a number of cases and reference will be found to them in the judgment of Brandeis J. in State of Washington v. Dawson & Co.  264 U.S. 219; 68 L. Ed. 646, where he said (see AIR 1955 SC 671):
“The doctrine of stare decisis should not deter us from overruling that case and those which follow it. The decisions are recent ones. They have not been acquiesced in. They have not created a rule of property around which vested interest have clustered. They affect solely matters of a transitory nature. On the other hand, they affect seriously the lives of men, women and children, and the general welfare. Stare decisis is ordinarily a wise rule of action. But it is not a universal, inexorable command. The instances in which the Courts have disregarded its admonition are many.”
Elaborating his point in his dissenting judgment in David Burnel v. Coronado Oil and Gas Co.  285 US 393; 76 L.Ed. 815, Brandeis J. observed (see AIR 1955 SC 671):
“Stare decisis is usually the wise policy, because in most matters it is more important that the applicable rule of law be settled right. Compare - National Bank of Genesse v. Whitney  103 US 99; 26 L. Ed. 443-444. This is commonly true even where the error is a matter of serious concern, provided correction can be had by legislation. But in cases involving the Federal Constitution, where correction through legislative action is practically impossible, this Court has often overruled its earlier decisions. The Court bows to the lessons of experience and the force of better reasoning recognising that the process of trial and error, so fruitful in the physical sciences, is appropriate also in the judicial function.”
The Judicial Committee of the Privy Council also took the view that it was not bound in law by its earlier decisions, but In re Compensation to Civil Servants  AC 242; AIR 1929 PC 84, 87, it is declared that it “would hesitate long before disturbing a solemn decision by a previous Board, which raised an identical or even a similar issue for determination” and reiterated that reservation in Attorney-General of Ontario v. Canada Temperance Federation AIR 1946 PC 88, and Phanindra Chandra Neogy v. The King AIR 1949 PC 117; 76 IA 10.
In India - These cases from England, Australia and the United States were considered by the Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar AIR 1955 SC 661, perhaps the first recorded instance of the Supreme Court in this country being called upon to consider whether it could overrule an earlier decision rendered by it. A Bench of seven judges assembled to consider whether the majority decision of a Constitution Bench of five judges in State of Bombay v. United Motors (India) Ltd.  SCR 1069 should be reconsidered. Four judges of the Bench of seven said it should and voted to overrule the majority decision in United Motors’ case  SCR 1069. The remaining three voted to the contrary. Das, Acting C.J., speaking for himself and on behalf of Bose, Bhagwati and Jafar Imam JJ. preferred the approach adopted by the United States Supreme Court since, in the view of that learned judge, the position in India approximated more closely to that obtaining in the United States rather than to the position in England, where Parliament could rectify the situation by a simple majority, and to that in Australia, where the mistake could be corrected in appeal to the Privy Council. The learned judge observed (at p. 672) :
“There is nothing in our Constitution which prevents us from departing from a previous decision if we are convinced of its error and its baneful effect on the general interest of the public.” And reference was made to the circumstances that Article 141 of the Constitution made the law declared by this Court binding on all Courts in India. Speaking with reference to the specific case before the Court, the learned judge referred to the far-reaching effect of the earlier decision in United Motors’ case  SCR 1069, on the general body of the consuming public, and stated that the error committed in the earlier decision would result in perpetuating a tax burden erroneously imposed on the people, giving rise to a consequence “manifestly and wholly unauthorised.”
The learned judge observed (at p. 673) :
“It is not an ordinary pronouncement declaring the rights of two private individuals ‘inter se’. It involves an adjudication on the taxing power of the States as against the consuming public generally. If the decision is erroneous, as indeed we conceive it to be, we owe it to the public to protect them against the illegal tax burdens which the States are seeking to impose on the strength of that erroneous recent decision.”
Cautioned that the Court should not differ merely because a contrary view appeared preferable, the learned judge affirmed that “we should not lightly dissent from a previous pronouncement of this Court.” But if the previous decision was plainly erroneous, he pointed out, there was a duty of the Court to say so and not perpetuate the mistake. The appeal to the principle of stare decisis was rejected on the ground that (a) the decision intended to be overruled was a very recent decision and it did not involve overruling a series of decisions, and (b) the doctrine of stare decisis is not an inflexible rule, and must, in any event, yield where following it would result in perpetuating an error to the detriment of the general welfare of the public or a considerable section thereof.
2.23-2 Overruling - Change in contextual values - Since then, the question as to when the Supreme Court should overrule its own decision has been considered in several cases. Relying on the Bengal Immunity case, AIR 1955 SC 661, Khanna J. remarked that certainty in the law, which was an essential ingredient of the rule of law, would be considerably eroded if the highest Court of the land lightly overruled the view expressed by it in earlier cases. One instance where such overruling could be permissible was a situation where contextual values giving birth to the earlier view had altered substantially since. In Maganlal Chhagganlal (P.) Ltd. v. Municipal Corporation of Greater Bombay  1 SCR 1, 26, (AIR 1974 SC 2009, 2042), it was explained :—
“Some new aspects may come to light and it may become essential to cover fresh ground to meet the new situations or to overcome difficulties which did not manifest themselves or were not taken into account when the earlier view was propounded. Precedents have a value and the ratio decidendi of a case can no doubt be of assistance in the decision of future cases. At the same time, we have to, as observed by Cardozo, guard against the notion that because a principle has been formulated as the ratio decidendi of a given problem, it is, therefore, to be applied as a solvent of other problems, regardless of consequences, regardless of deflecting factors, inflexibly and automatically, in all its pristine generality (see Selected Writings, p. 31). As in life, so in law, things are not static.”
2.23-3 Overruling - Compelling and substantial reasons - Adherence to precedent, stare decisis, is a wise policy for use of law unless there are compelling and substantial reasons for its reconsideration in the larger public interest. Reconsideration of earlier view is not due to an act of judicial fallibility but an index of supremacy of law. The obvious error committed by the Court leading to miscarriage of justice would need correction by article 142 of the Constitution and section 114, read with Order 47, Rule 1 or section 151 of the Code of Civil Procedure. But by itself it is not a licence to unsettle the settled law or keep the law at variance at pleasure or whim (see Krishna Swamy v. Union of India AIR 1993 SC 1407). For review, there should be compelling reasons. For example, when all the relevant provisions of law or material aspects of the case or binding precedent were not brought to the notice of court and their impact on the general administration of law, it would need reconsideration. While dealing with the case of Distributors (Baroda) (P.) Ltd. v. Union of India  155 ITR 120 (SC), the Court had come to the conclusion that the view adopted by it in the case of Cloth Traders (P.) Ltd. v. Addl. CIT  118 ITR 243 (SC) does not lay down the correct law. In such a situation, at page 124 of the Report, the Court observed : “To perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience.” The Court also referred to the inspiring words of Justice Bronson in Pierce of Delameter (A.M.Y. p. 18) : “a judge ought to be wise enough to know that he is fallible and, therefore, ever ready to learn : great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead : and courageous enough to acknowledge his error.” Further, at page 140 of the Report, the court referred to the dissenting opinion of Justice Jackson in Massachusetts v. United States (333 US 611 quoted in Assurance Co. Ltd. v. Kanchan Bewa  80 Comp. Cas. 461 (Orissa) (FB) : “I see no reason why I should be consciously wrong today because I was unconsciously wrong yesterday.” Reference was also made to the observations of Lord Denning in Ostime v. Australian Mutual Provident Society  AC 459, 480 : “The doctrine of precedent does not compel your Lordships to follow the wrong path until you fall over the edge of the cliff.” Therefore, precedent that was long standing would not save it from being overruled if on determination it is found plainly erroneous. Mistake is not to be perpetuated (see Pradeep Kumar Biswas v. Indian Institute of Chemical Biology  5 SCC 111)
q In Khajoor Singh v. Union of India  2 SCR 828, the majority of the Supreme Court emphasised that the Court should not depart from an interpretation given in an earlier judgment of the Court unless there was a fair amount of unanimity that the earlier decision was manifestly wrong.
q In Keshav Mills Co. Ltd. v. CIT  56 ITR 365 (SC);  2 SCR 908, 921, Supreme Court observed that a revision of its earlier decision would be justified if there were compelling and substantial reasons to do so.
q In Sajjan Singh v. State of Rajasthan  1 SCR 933, 947; AIR 1965 SC 845, 855, the Court laid down the test : “Is it absolutely necessary and essential that the question already decided should be reopened?”, and went on to observe : “the answer to this question would depend on the nature of the infirmity alleged in the earlier decision, its impact on public good and the validity and compelling character of the considerations urged in support of the contrary view.” There can be no doubt, as was observed in Girdhari Lal Gupta v. D.N. Mehta  3 SCR 748, that where an earlier relevant statutory provision has not been brought to the notice of the Court, the decision may be reviewed, or as in Pillani Investment Corporation Ltd. v. ITO 83 ITR 217 (SC);  2 SCR 502, if a vital point was not considered. A more compendious examination of the problem was undertaken in Keshav Mills Co. v. CIT  56 ITR 365/377;  2 SCR 908, where the Court pointed out :
“It is not possible or desirable, and in any case it would be inexpedient to lay down any principles which should govern the approach of the Court in dealing with the question of reviewing and revising its earlier decision. It would always depend upon several relevant considerations : What is the nature of the infirmity or error on which a plea for a review and revision of the earlier view is based? On the earlier occasion, did some patent aspects of the question remain unnoticed, or was the attention of the Court not drawn to any relevant and material statutory provision, or was any previous decision of this Court bearing on the point not noticed? Is the Court hearing such plea fairly unanimous that there is such an error in the earlier view? What would be the impact of the error on the general administration of law or on public good? Has the earlier decision been followed on subsequent occasions either by this Court or by the High Courts? And, would the reversal of the earlier decision lead to public inconvenience, hardship or mischief? These and other relevant considerations must be carefully borne in mind whenever this Court is called upon to exercise its jurisdiction to review and revise its earlier decisions. These considerations become still more significant when the earlier decision happens to be a unanimous decision of the Bench of five learned judges of this Court.”
Much importance has been laid on observing the finality of decisions rendered by the Constitution Bench of the Supreme Court and in Ganga Sugar Corpn. Ltd. v. State of Uttar Pradesh  1 SCR 769, 782; AIR 1980 SC 286, 294, the Court held against the finality only where the subject was “of such fundamental importance to national life or the reasoning is so plainly erroneous in the light of later thought that it is wiser to be ultimately right rather than to be consistently wrong”.
The Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India1 observed that ordinarily the Supreme Court would be reluctant to overturn a decision given by a Bench of the Court, because it is essential that there should be continuity and consistency in judicial decisions and the law should be certain and definite. It is almost as important that the law should be settled permanently as that it should be settled correctly. But there may be circumstances, where public interest demands that the previous decision be reviewed and reconsidered. The doctrine of stare decisis should not deter the Court from overruling an earlier decision if it is satisfied that such decision is manifestly wrong or proceeds from a mistaken assumption in regard to the existence or continuance of a statutory provision or is contrary to another decision of the Court.
2.23-4 Overruling earlier decision - Guidelines - It is not necessary to refer to all the cases on the point. The broad guidelines are easily deducible from what has gone before. The possibility of further defining these guiding principles can be envisaged with further juridicial experience, and common jurisprudential values linking different national systems of law may make a consensual pattern possible. But that lies in future.1 The guidelines are :—
(1) The Supreme Court has inherent jurisdiction to consider and revise its earlier decisions. In exercising this inherent power, however, the Court would naturally like to impose certain reasonable limitations and would be reluctant to entertain pleas for the reconsideration and revision of its earlier decisions, unless it is satisfied that there are compelling and substantial reasons to do so.
(2) It is general judicial experience that in matters of law involving questions of construing statutory or constitutional provisions, two views are often reasonably possible and when a judicial approach has to make a choice between the two reasonably possible views, the process of decision-making is often very difficult and delicate. When the Supreme Court hears appeals against decisions of the High Courts and is required to consider the propriety or correctness of the view taken by the High Courts on any point of law, it would be open to the Supreme Court to hold that, though the view taken by the High Court is reasonably possible, the alternative view which is also reasonably possible is better and should be preferred. In such a case, the choice is between the view taken by the High Court whose judgment is under appeal; and the alternative view which appears to the Supreme Court to be more reasonable; and in accepting its own view in preference to that of the High Court, the Supreme Court would be discharging its duty as a Court of Appeal. But different considerations must inevitably arise where a previous decision of the Supreme Court has taken a particular view as to the construction of a statutory provision. When the Supreme Court decides questions of law, its decisions are, under article 141, binding on all Courts within the territory of India, and so, it must be constant endeavour and concern of the Court to introduce and maintain an element of certainty and continuity in the interpretation of law in the country.
(3) Frequent exercise by the Court of its power to review its earlier decisions on the ground that the view pressed before it later appears to the Court to be more reasonable, may incidentally tend to make law uncertain and introduce confusion which must be consistently avoided. That is not to say that if on subsequent occasion, the Court is satisfied that its earlier decision was clearly erroneous, it should hesitate to correct the error; but before a previous decision is pronounced to be plainly erroneous, the Court must be satisfied with a fair amount of unanimity amongst its members that a revision of the said view is fully justified.
(4) It is not possible or desirable, and in any case it would be inexpedient to lay down any principles which should govern the approach of the Court in dealing with the question of reviewing and revising its earlier decisions. It would always depend upon several relevant considerations : What is the nature of infirmity or error on which a plea for a review or revision of the earlier view is based? On the earlier occasion, did some patent aspects of the question remain unnoticed, or was the attention of the Court not drawn to any relevant and material statutory provision, or was any previous decision of the Supreme Court bearing the point not noticed? Is the Court hearing such plea fairly unanimous that there is such an error in the earlier view? What would be the impact of the error on the general administration of law or a public good? Has the earlier decision been followed on subsequent occasions either by the Supreme Court or by the High Courts; and, would the reversal of the earlier decision lead to public inconvenience, hardship or mischief. These and other relevant considerations must be carefully borne in mind whenever the Court is called upon to exercise its jurisdiction to review and revise its earlier decisions. These considerations still become more significant when the earlier decision happens to be a unanimous decision of a Bench of five learned judges of the Court.
(5) The principle of stare decisis no doubt cannot be pressed into service in cases where the jurisdiction of the Supreme Court to reconsider and revise the earlier decisions is involved, but nevertheless the normal principle that judgments pronounced by the Court would be final, cannot be ignored and unless considerations of a substantial and compelling character make it necessary to do so, the Court should and would be reluctant to review and revise its earlier decisions.1
(6) Enlightened litigative policy must accept as final the pronouncements of the Supreme Court by a Constitution Bench unless the subject is of such fundamental importance to the national life or reasoning is so plainly erroneous in the light of the later thought that it would be wiser to be ultimately right rather than to be consistently wrong. Pronouncement by Constitution Benches are not treated so cavalierly as to be revised frequently.2
2.24 The full form of the principle of stare decisis is “stare decisis et non quieta movere” which means “to stand by decisions and not to disturb what is settled”, which was put by Lord Coke in his classical version as : “Those things which have been so often adjudged ought to rest in peace.” A precedent by long recognition matures into the rule of stare decisis (Union of India v. Dhanwanti Devi  6 SCC 44). The Supreme Court in Sakshi v. Union of India  18 ILD 888 observed :—
“Stare decisis is a well-known doctrine in legal jurisprudence. The doctrine of stare decisis, meaning to stand by decided cases, rests upon the principle that law by which men are governed should be fixed, definite and known, and that, when the law is declared by court of competent jurisdiction authorised to construe it, such declaration, in absence of palpable mistake or error, is itself evidence of the law until changed by competent authority. It requires that rules of law when clearly announced and established by a Court of last resort should not be lightly disregarded and set aside but should be adhered to and followed. What it precludes is that where a principle of law has become established by a series of decisions, it is binding on the Courts and should be followed in similar cases. It is a wholesome doctrine which gives certainty to law and guides the people to mould their affairs in future.” (p. 905)
The Supreme Court in Muktul v. Mst. Manbhari AIR 1958 SC 918 explained the scope of the doctrine of stare decisis with reference to Halsbury’s Laws of England and Corpus Juris Secundum in the following manner :
“The principle of stare decisis is thus stated in Halsbury’s Laws of England, 2nd Edn. :
‘Apart from any question as to the courts being of coordinate jurisdiction, a decision which has been followed for a long period of time, and has been acted upon by persons in the formation of contracts or in the disposition of their property, or in the general conduct of affairs, or in legal procedure or in other ways, will generally be followed by courts of higher authority than the court establishing the rule, even though the court before whom the matter arises afterwards might not have given the same decision had the question come before it originally. But the Supreme Court will not shrink from overruling a decision, or series of decisions which establish a doctrine plainly outside the statute and outside the common law, when no title and no contract will be shaken, no persons can complain, and no general courts of dealing be altered by the remedy of a mistake.’”
According to Justice Frankfurter, the doctrine of stare decisis is not “an imprisonment of reason” as observed in US International Boxing Club  348 US 236 (see paragraph 48 of Waman Rao v. Union of India AIR 1981 SC 271). Under this rule a principle of law which has become settled by a series of decisions is generally binding on the Courts and should be followed in similar cases. This rule is based on expediency and public policy and although generally it should be strictly adhered to by the Court, it is not universally applicable. This rule is not so imperative or inflexible as not to permit a departure therefrom in any case. Therefore, its application has to be determined in each case by the discretion of the Court and the previous decisions need not be followed to the extent that error may be perpetuated and grievous wrong may result.1 The doctrine stare decisis is a very valuable doctrine and cannot possibly be departed from unless there are extraordinary or special reasons to do so.1 It is not a ritual of convenience but a rule with limited exception.2
The principle of stare decisis really is that the Court must always hesitate to overrule decisions which are not manifestly erroneous or mischievous and which have stood for many years unchallenged and which from their nature, may reasonably be supposed to have affected the conduct of a large portion of the community in matters relating to rights of property.
For invoking the doctrine of stare decisis, it is sufficient that a certain decision is arrived at on a question or is argued, no matter on what reasons the decision rests or what is the basis of the decision. In other words, an entire decision may be overruled if the court comes to the conclusion that it is manifestly wrong and not on mere suggestion that if the matter was res integra, the Court on later occasion could come to a different conclusion. It cannot be doubted that an unlimited and perpetual threat of litigation leads to disorder, sense of insecurity and uncertainty. May be, there are isolated cases of hardship but there must be some reservation about limitation on the court’s power in the public interest (see G.C. Gupta v. N.K. Pandey AIR 1988 SC 654).
2.24-1 Stare decisis - Not inflexible as to preclude departure - The doctrine is thus explained in Corpus Juris Secundum—
‘Under the stare decisis rule, a principle of law which has become settled by a series of decisions generally is binding on the courts and should be followed in similar cases. This rule is based on expediency and public policy, and, although generally it should be strictly adhered to by the courts, it is not universally applicable.’
Be it noted however that Corpus Juris Secundum adds a rider that :—
“. . . previous decisions should not be followed to the extent that grievous wrong may result; and, accordingly, the courts ordinarily will not adhere to a rule of principle established by previous decisions which they are convinced is, erroneous. The rule of stare decisis is not so imperative or inflexible as to preclude a departure therefrom in any case, but its application must be determined in each case by the discretion of the court, and previous decisions should not be followed to the extent that error may be perpetuated and grievous wrong may result.”
While commenting on the above, the Supreme Court in Mishri Lal v. Dhirendra Nath 1999 (4) SCC 11 observed :
“16. The statement though deserves serious consideration in the event of a definite finding as to the perpetration of a grave wrong but that by itself does not denude the time-tested doctrine of stare decisis of its efficacy. Taking recourse to the doctrine would be an imperative necessity to avoid uncertainty and confusion. The basic feature of law is its certainty and in the event of there being uncertainty as regards the state of law - the society would be in utter confusion the resultant effect of which would bring about a situation of chaos, a situation which ought always to be avoided.”
21. In this context reference may also be made to two English decisions :
(a) in Admiralty Commrs. v. Velverda (Owners) 1938 AC 173 (AC at p. 194) wherein the House of Lords observed that even long established conveyancing practice, although not as authoritative as a judicial decision, will cause the House of Lords to hesitate before declaring it wrong and
(b) in Button v. Director of Public Prosecution 1966 AC 591 the House of Lords observed :
“In Corpus Juris Secundum a contemporary statement of American Law, the stare decisis rule has been stated to be a principle of law which has become settled by a series of decisions generally, is binding on the courts and should be followed in similar cases. It has been stated that this rule is based on expediency and public policy and should be strictly adhered to by the courts. Under this rule courts are bound to follow the common law as it has been judicially declared in previously adjudicated cases and rules of substantive law should be reasonably interpreted and administered. This rule has to preserve the harmony and stability of the law and to make as steadfast as possible judicially declared principles affecting the rights of property, it being indispensable to the due administration of justice, especially by a court of last resort, that a question once deliberately examined and declared should be considered as settled and closed to further argument. It is a salutary rule, entitled to great weight and ordinarily should be strictly adhered to by the courts. The courts are slow to interfere with the principle announced by the decision, and it may be upheld even though they would decide otherwise were the question a new one, or equitable considerations might suggest a different result and although it has been erroneously applied in a particular case. The rule represents an element of continuity in law and is rooted in the psychologic need to satisfy reasonable expectations, but it is a principle of policy and not a mechanical formula of adherence to the latest decision, however recent and questionable when such adherence involves collision with a prior doctrine more embracing in its scope, intrinsically sounder and verified by experience.” (p.18)
The House of Lords made a departure from its past practice when a statement was made to the following effect :
“Their lordships regard the use of precedent as an indispensable foundation upon which to decide what is the law and its application to individual cases. It provides at least some degree of certainty upon which individuals can rely in the conduct of their affairs, as well as a basis for orderly development of legal rules.
Their lordships nevertheless recognise that too rigid adherence to precedent may lead to injustice in a particular case and also unduly restrict the proper development of the law. They propose therefore to modify their present practice and, while treating former decisions of this House as normally binding, to depart from a previous decision when it appears right to do so.
In this connection they will bear in mind the danger of disturbing retrospectively the basis on which contracts, settlements of property and fiscal arrangements have been entered into and also the especial need for certainty as to the criminal law.
This announcement is not intended to affect the use of precedent elsewhere than in this House.”
Departure from the previous decision should be rare (as discussed in the following paragraph) only when it appears right to do so.
2.25 In Bengal Immunity Co. Ltd. v. State of Bihar1, the Supreme Court held that it had the power, in appropriate cases, to reconsider a previous decision given by it. While concurring in this conclusion, Venkatarama Ayyar, J. sounded a note of warning of consequences :
“The question then arises as to the principles on which and the limits within which this power should be exercised. It is of course not possible to enumerate them exhaustively, nor is it even desirable that they should be crystallised into rigid and inflexible rules. But one principle stands out prominently above the rest, and that is that in general, there should be finality in the decisions of the highest Courts in the land, and that is for the benefit and protection of the public. In this connection, it is necessary to bear in mind that next to legislative enactments, it is decisions of Courts that form the most important source of law. It is on the faith of decisions that rights are acquired and obligations incurred, and States and subjects alike shape their course of action. It must greatly impair the value of the decisions of this Court, if the notion came to be entertained that there was nothing certain or final about them, which must be the consequence if the points decided therein came to be reconsidered on the merits every time they were raised. It should be noted that though the Privy Council has repeatedly declared that it has the power to reconsider its decisions, in fact, no instance has been quoted in which it did actually reverse its previous decision except in ecclesiastical cases. If that is the correct position, then the power to reconsider is one which should be exercised very sparingly and only in exceptional circumstances, such as when a material provision of law has been overlooked, or where a fundamental assumption on which the decision is based turns out to be mistaken. In the present case, it is not suggested that in deciding the question of law as they did in State of Bombay v. United Motors (India) Ltd.1, the learned Judges ignored any material provisions of law, or were under any misapprehension as to a matter fundamental to the decision. The arguments for the appellant before us were in fact only a repetition of the very contentions which were urged before the learned Judges and negatived by them. The question then resolves itself to this. Can we differ from a previous decision of this Court, because a view contrary to the one taken therein appears to be preferable? I would unhesitatingly answer it in the negative, not because the view previously taken must necessarily be infallible but because it is important in public interest that the law declared should be certain and final rather than that it should be declared in one sense or the other. That, I conceive, is the reason behind article 141. There are questions of law on which it is not possible to avoid difference of opinion, and the present case is itself a signal example of it. The object of article 141 is that the decisions of this Court on these questions should settle the controversy, and that they should be followed as law by all the Courts, and if they are allowed to be reopened because a different view appears to be the better one, then the very purpose with which article 141 has been enacted will be defeated, and the prospect will have been opened of litigants subjecting our decisions to a continuous process of attack before successive Benches in the hope that with changes in the personnel of the Court, which time must inevitably bring, a different view might find acceptance. I can imagine nothing more damaging to the prestige of this Court or to the value of its pronouncements. In James v. Commonwealth,2 it was observed that a question settled by a previous decision should not be allowed to be reopened “upon a mere suggestion that some or all of the Members of the later Court might arrive at a different conclusion if the matter was res integra. Otherwise, there would be grave danger of want of continuity in the interpretation of the law (per Griffiths, C.J. at p. 58). It is for this reason that Article 141 invests decisions of this Court with special authority, but the weight of that authority can only be what we ourselves give to it.” (pp. 743-44)
Even in the context of a power of review, properly so called, Venkataramiah, J. had this to say in Sheo Nandan Paswan v. State of Bihar.3
“The review petition was admitted after the appeal had been dismissed only because Nandini Satpathy cases4 had been subsequently referred to a larger Bench to review the earlier decisions. When the earlier decisions are allowed to remain intact, there is no justification to reverse the decision of this Court by which the appeal had already been dismissed. There is no warrant for this extraordinary procedure to be adopted in this case. The reversal of the earlier judgment of this Court by this process strikes at the finality of judgments of this Court and would amount to the abuse of the power of review vested in this Court, particularly in a criminal case. It may be noted that no other Court in the country has been given the power of review in criminal cases. I am of the view that the majority judgment of Baharul Islam and R.B. Misra, JJ. should remain undisturbed. This case cannot be converted into an appeal against the earlier decision of this Court.”
Granting that the power of review is available, it is one to be sparingly exercised only in extraordinary or emergent situations when there can be no two opinions about the error or lack of jurisdiction in the earlier order and there are adequate reasons to invoke or resort to an unconventional method of recalling or revoking the same.1
2.25-1 Stare decisis - Taxing statutes - Interpretation of a provision in a taxing statute rendered years back and accepted and acted upon by the department should not be easily departed from. It may be that another view of law is possible, but law is not a mere mental exercise. The Courts while reconsidering decisions rendered long-time back, particularly under taxing statutes, cannot ignore the harm that is likely to happen by unsettling law that has been once settled CIT v. Balkrishna Malhotra 81 ITR 759 (SC).
2.25-2 Judgment not signed - Modified sparingly - Even where a judgment has not been signed but delivered, the Court should exercise the power to alter and modify judicially, sparingly and for adequate reasons. When a judgment is pronounced in an open Court, parties act on the basis that it is a judgment of the Court and the signing is a formality to follow.2
2.25-3 Judgment modified - To remedy an injustice - As far as possible, the anxiety and endeavour of the Court should be to remedy an injustice when it is brought to its notice, rather deny relief to an aggrieved party on purely technical and narrow procedural grounds.3 To perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience.4 A judge ought to be wise enough to know that he is fallible and, therefore, ever ready to learn; great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead; and courageous enough to acknowledge his errors.5
The party cannot suffer for the mistake of the authority and the authority concerned cannot perpetuate illegality and miscarriage of justice, rather it is a judicial compulsion to rectify one’s own mistake.6 Thus, quasi-judicial authorities exercising statutory powers cannot act contrary to law nor can they take advantage of their own illegality.7 Justice Krishna Iyer in Palace Administration Board v. Rama Varma Bharathan Thampuran8 observed, “We, in the Supreme Court, do ‘nod’ despite great care to be correct, and once a clear error in our judgment is revealed, no sense of shame or infallibility complex obsesses us or dissuades this Court from the anxiety to be right, not consistingly wrong.”
2.25-4 Judicial fallibility - Our legal system acknowledges the fallibility of judges and, hence, provides appeals and revisions. But there is no appeal or revision against the decision of the Supreme Court which is final and is the law of the land, under article 141 of the Constitution. Review can be undertaken under compelling situations, as already discussed. Our knowledge changes, our perception of truth also changes; so also of the Judges of the Supreme Court. They are also fallible.
Justice Jackson in Brown v. Allen  344 US 443 said :
“Whenever decisions of one court are reviewed by another, a percentage of them are reversed. That reflects a difference in outlook normally found between personnel comprising different courts. However, reversal by a higher court is not a proof that justice hereby is better done. There is no doubt that if there were a super Supreme Court, a substantial proportion of our reversals of State Courts would also be reversed. We are not final because we are infallible but we are infallible only because we are final.”
In S.P. Gupta v. President of India AIR 1982 SC 149, the Supreme Court observed :
“We are all human beings with our own likes and dislikes, our own predilections and prejudices and our mind is not so comprehensive as to be able to take in all aspects of a question at one time and moreover sometimes, the information on which we base our judgments may be incorrect or inadequate and our judgments may also sometimes be imperceptibly influenced by extraneous or irrelevant considerations”
“Many of our decisions are emotional. The rational part of us supplies the reasons for supporting our predilections” (see Samsher Singh v. State of Punjab AIR 1974 SC 2192; P.A. Jacob v. Superintendent of Police AIR 1993 Ker. 1). Swift condemned precedents as decisions rendered contrary to reasons and preserved carefully. The famous judge Cardozo1 in his inimitable language, had once observed :
“I owe that it is a good deal of a mystery to me how judges, of all persons in the world, should put their faith in dicta. A brief experience on the Bench was enough to reveal to me all sorts of cracks and crevices and loopholes in my own opinion when picked up a few months after delivery and re-read with due consideration.” (p. 29)
2.25-5 Law never reaches consistency - Roscoe Pound observed that law must be stable and yet it cannot standstill. Justice Holmes joined by saying that the truth is that the law is always approaching and never reaching consistency. It forever adopts new principles from life at one end, and it always retains old ones from history at the other, which have not yet been absorbed or sloughed off. It will become entirely consistent only when the common law ceases to grow. Precedent keeps the law predictable and so more or less ascertainable. A lawyer cannot always say with confidence exactly how a judge will decide a point of law. But he can put the decision between fairly narrow limits. In any matter of novelty he will know that the boldest judge will not move more than a small distance beyond that which has already been decided.1 A judge-made change in the law rarely comes out of a blue sky. Rumblings from Olympus in the form of obiter dicta will give warning of unsettled weather. Unsettled weather is itself, of course, bound to cause uncertainty, but inevitably it precedes the acceptance of a change.2
Lord Delvin once observed that “I am not one of those who believe that the only function of law is to preserve the status quo. Rather, I should say that law is the gatekeeper of the status quo. There is always a host of new ideas galloping around the outskirts of society’s thought. All of them seek admission but each must first win its spurs; the law at first resists, but will submit to a conqueror and become his servant. In a changing society the law acts as a valve. New policies must gather strength before they can force an entry. When they are admitted and absorbed into the consensus, the legal system should expand to hold them as also it should contract to squeeze out old policies which have lost the consensus they had obtained.3
Special Leave Petition
2.26 Article 136 of the Constitution empowers the Supreme Court to grant special leave against the orders of the High Court or another Court or Tribunal in the following circumstances :
q Where substantial or grave injustice is shown to have been done.
q Where the case presents features of special gravity, i.e., where substantial question of law or public interest is involved.4
q Where the Lower Court or Tribunal has either exceeded its jurisdiction or has approached the question referred to it in a manner which is likely to result in injustice or has adopted a procedure which runs counter to the well-established rules of natural justice.5
The ingredients of that power are :
- it is discretionary,
- it is of widest amplitude,
- it is exceptional and exercised sparingly,
- it is exercised for the purpose of satisfying the demands of justice,
(see Narpat Singh v. Jaipur Development Authority  4 SCC 666). Its scope is discussed in the following paragraph.
Article 142 is another provision which empowers the Supreme Court to pass order for doing complete justice in any cause or matter pending before it, which order is enforceable throughout the territory of India. The Supreme Court may take suo motu judicial notice of glaring injustice. The Supreme Court observed in the case of State of Andhra Pradesh v. S. Vishwanatha Raju  3 SCC 327 thus :—
“. . . It cannot be said that in appropriate cases this Court is prevented to take suo motu judicial notice of glaring injustice having recourse to article 142 of the Constitution for serving the ends of justice. The very purpose of the Land Reforms (Ceiling on Agricultural Holdings) Act, 1973 is to prescribe the maximum holding so that the excess land becomes available for distribution among the landless persons so as to serve the object of socio-economic justice envisaged in the Preamble to the Constitution and its Directive Principles of State Policy. When a large extent of land of about 900 acres is sought to be taken out of the purview of the Act by the device of agreements of sale and the officers overlook the same because of their negligence or otherwise in not carrying out the orders of authorities in revision and when the facts came to the notice, this Court having taken suo motu notice of the same, mete out justice. Accordingly suo motu notice is taken of the cases concerned and they are treated as special leave petitions against the orders passed by the appellate authority and considered its legality by granting leave. Hence, we hold that the lands covered under Ex-A-1 and Ex.A-4 should be treated as lands held by the vendor and the vendee. The Land Reforms Tribunal concerned is, therefore, directed to reopen the CCs filed by the respective partners and the managing partners of the company and determine the surplus lands according to law and then pass the appropriate orders according to law”. (p.329)
The Supreme Court in that case took suo motu notice of the cases concerned and treated as special leave petition against the orders passed by the appellate authority and considered its legality by granting leave.
2.26-1 Special leave petition - Scope - What exactly is the nature of an appeal by special leave? In Durga Shankar Mehta v. Raghuraj Singh1 Mukherjea J., (as he then was) speaking for a Bench of five Judges observed that powers under article 136 are in the nature of special or residuary powers which are exercisable outside the purview of ordinary law in cases where needs of justice demand interference by the Supreme Court of the land. Article 136 is worded in the widest terms possible. It rests in the Supreme Court plenary jurisdiction in the matter of entertaining and hearing appeals, by granting special leave, against any kind of judgment or order made by a Court or Tribunal in any case or matter and the powers could be exercised in spite of the specific provisions for appeal contained in the Constitution or other laws. In C.S.D. Swami v. The State1, the Supreme Court observed that it is not a Court of criminal appeal. In Matru v. State of U.P. 2, the Court observed that article 136 does not confer a right of appeal on any party. It only confers a discretionary power on the Supreme Court to see whether any substantial or grave injustice has been done to a party and if so satisfied, to interfere. In Ramniklal Gokoldas Oza v. State of Gujarat3 Bhagwati, J. (as he then was) speaking for the Bench observed that the Supreme Court is not a regular Court of appeal which an accused may approach as of right in criminal cases. It is an extraordinary jurisdiction which the Supreme Court exercises when it entertains an appeal by special leave. In Arunachalam v. P.S.R. Setharathnam4, the Court cautioned that the power vested in the Supreme Court under article 136 is not to be confused with ordinary appellate power exercised by appellate Courts and Tribunals under special statutes. It is plenary power exercisable outside the purview of ordinary law and meant to meet the pressures of demand of justice. It neither confers on anyone the right to invoke nor inhibits anyone invoking the jurisdiction of the Supreme Court. Power is vested in the Supreme Court but right to invoke the Court’s jurisdiction is vested in no one. The Supreme Court further observed :—
“The exercise of the power of the Supreme Court is not circumscribed by any limitation as to who may invoke it. Where a judgment of acquittal by the High Court has led to a serious miscarriage of justice, the Supreme Court cannot refrain from doing its duty and abstain from interfering on the ground that a private party and not the State has invoked the Court’s jurisdiction.”
The decision in Arunachalam’s case (supra) was challenged through a petition under article 32 of the Constitution of India. It was contended that the Supreme Court had no power to grant special leave to the brother of the deceased. A Constitution Bench of this Court in P.S.R. Sadhanantham v. Arunachalam  3 SCC 141 dismissed the writ petition upholding the right of a private person to file petition under article 136 of the Constitution of India against an order of acquittal. It was observed ‘in express terms article 136 does not confer a right of appeal on a party as such but it confers a wide discretionary power on the Supreme Court to interfere in suitable cases; it is residuary power and is extraordinary in its amplitude. But the Constitution makers intended in the very terms of article 136 that it shall be exercised by the highest judges of the land with scrupulous adherence to judicial principles well-established by precedents in our jurisprudence. - See Narendra Nath Kharware v. Parasnath Kharware (2003) 5 SCC 488; AIR 2003 SC 2325; (2003) 5 ILD 982. In Sita Ram v. State of U.P.1, the Court was considering the legality of rule 151(1)(c) of Order XXI, Supreme Court rules providing for summary disposal of appeal. The appeal was against judgment of the High Court convicting some of the accused in reversal of acquittal by the Sessions Court. The appeal was listed for preliminary hearing as contemplated by the above rule. The accused demanded full-fledged hearing after notice and challenged vires of the Rule. The Court considered the scope of article 136 and noticed that it has no resemblance to an absolute right of appeal while article 134 gives a constitutional right of appeal. The Court further observed that under article 136, it is only after leave is granted that the appeal is born and article 134 stands on a higher footing than article 136. The Court finally read down rule 15 and upheld its validity.
2.27 As regards the question that the Supreme Court should not interfere with the findings of fact recorded by the High Court and the Trial Court, the Supreme Court in Ganga Bishan v. Jai Narain2 observed that while ordinarily the Court is averse to interfere under article 136 of the Constitution with the concurrent findings of fact recorded by the High Court and the Trial Court, but it cannot decline to interfere merely on the ground that the findings in question are findings of fact where there are material irregularities affecting the said findings or where the Court feels that justice has failed and the findings are likely to result in unduly excessive hardship, or where the decision of the High Court or the Trial Court turned on probabilities and the surrounding circumstances which had been unjustifiably disregarded by the High Court and the Trial Court.3
The Supreme Court in State of Maharashtra v. Mayer Hans George4 observed :
“It is the settled rule of the Supreme Court that it would not interfere with the sentence passed by the Courts below unless there is an illegality in it or the same involves any question of principle.”
This principle was followed in Gopal v. State of Tamil Nadu5
2.28 The Supreme Court in Dhakeswari Cotton Mills Ltd. v. CIT6 observed that to define with any precision the limitations on the exercise of the discretionary jurisdiction vested in the Court by article 136 of the Constitution, is not possible. The limitations are implicit in the nature and the character of the power itself. This is an overriding and exceptional power and should be exercised sparingly with caution and only in special and extraordinary situations. Beyond this no set formula or rule can stand in the way or fetter the exercise of the power of the Supreme Court. All that can be said is that the Constitution having trusted the wisdom and good sense of the Judges of the Supreme Court, in this matter, that itself is sufficient safeguard and guarantee that the power will only be used to advance the course of justice, and that its exercise will be governed by well established principles, which govern the exercise of overriding constitutional power. This power is not hedged in by technical hurdles like the finality of finding of fact or otherwise, when it is called in aid against any arbitrary adjudication or for advancing the course of justice or for giving fair deal to litigant so that injustice may not be perpetrated or perpetuated. Conclusiveness or finality given to any decision by domestic law cannot deter the Supreme Court from exercising the power under article 136 of the Constitution.
The power of the Supreme Court in appeal under article 136 is not intended to be exercised for complying with an idle formality of law, such as directing the ITAT to refer a question of law for the decision of the Court, when the matter was concluded by the authority.1
Thus, unless the Supreme Court at the hearing of the petition is satisfied that the appeal raises a question that justifies the exercise of its discretionary jurisdiction under article 136, the appeal is liable to be dismissed without further investigation into the merits of the case.2 That satisfaction depends upon the existence of circumstances such as substantial and grave injustice has been done and the case in question presents features of sufficient gravity to warrant review of the decision appealed against.3 If the Supreme Court refuses to grant SLP, it does not, therefore, ipso facto mean that the judgment sought to be appealed against is confirmed as to its ratio and/or the conclusion, particularly when there is no speaking order. Even after hearing on merits, if the Supreme Court is satisfied that there has been no failure of justice, it may dismiss the appeal without deciding the main question sought to be raised.4
2.29 In the case of Kunhayammed v. State of Kerala 245 ITR 360 the Supreme Court gave reasons for dismissal of special leave petition, it observed :—
“A petition seeking grant of special leave to appeal may be rejected for several reasons. For example, it may be rejected (i) as barred by time, or (ii) being a defective presentation, (iii) the petitioner having no locus standi to file the petition, (iv) the conduct of the petitioner disentitling him to any indulgence by the court, (v) the question raised by the petitioner for consideration by this court being not fit for consideration or deserving being dealt with by the Apex Court of the country and so on.”
Sometimes the Supreme Court refuses to interfere in the High Court’s judgment because of the heavy backlog of work and the necessity to restrict the intake of fresh cases by strictly following the criteria mentioned above. Sometimes dismissal may be on account of the absence of the copy of judgment appealed against, along with the petition. The Allahabad High Court in Sahu Govind Prasad v. CIT1 observed as follows at page 863, when presented with an argument that the Supreme Court had dismissed SLP filed against the decision of the Andhra Pradesh High Court in CIT v. Sanka Sankaraiah2 and, thus, the ratio of that decision was confirmed by the Highest Court of the country.
“The Supreme Court dismissed the Special Leave Petition. No reason is mentioned. May be, the case was dismissed for lack of a copy of the judgment. Special Leave is a discretionary jurisdiction of the Supreme Court. It cannot be predicted that by dismissing the Special Leave Petition the Supreme Court affirmed the decision of the Andhra Pradesh High Court on its merits.”
Reasons for dismissal of SLP may be varied other than the merit itself. For example, if the amount involved in appeal is meagre (Collector of Customs v. Madras Rubber Factory  5 SCC 439; and Eicher Goodearth Ltd. v. CCE  5 SCC 443).
2.30 The only effect of non-granting of special leave is that the legal position enunciated by the judgment of the Court sought to be appealed against is one where the Supreme Court for valid reasons declines to interfere.3 It would be unsafe to say that the effect of non-granting of the special leave, even where the Court has in its order refusing to grant the leave stated that special leave petition was dismissed on merits, (since there is no practice to state the reasons while refusing the leave), that it would be tantamount to confirming the judgment sought to be appealed against on the matter of principle involved and/or the conclusion reached - CIT v. Indradaman Amratlal.4 The Gujarat High Court went on saying “This contention has not commended itself to us because otherwise it would amount to saying that the decision is binding impliedly without having the benefit of the detailed consideration being stated by the Supreme Court. The contention should, therefore, be rejected. . . .”
The Supreme Court observed as follows in Kunhayammed v. State of Kerala 245 ITR 360 :—
“The expression often employed by this court while disposing of such petitions are—‘heard and dismissed’, ‘dismissed’, ‘dismissed as barred by time’ and so on. May be that at the admission stage itself the opposite party appears on caveat or on notice and offers contest to the maintainability of the petition. The court may apply its mind to the meritworthiness of the petitioner’s prayer seeking leave to file an appeal and having formed an opinion may say ‘dismissed on merits’. Such an order may be passed even ex parte, that is, in the absence of the opposite party. In any case, the dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the special leave petition. Even if the merits have been gone into, they are the merits of the special leave petition only. In our opinion neither the doctrine of merger nor article 141 of the Constitution is attracted to such an order. Grounds entitling exercise of review jurisdiction conferred by Order 47, rule 1 of the Code of Civil Procedure or any other statutory provision of allowing review of an order passed in exercise of writ or supervisory jurisdiction of the High Court (where also the principles underlying or emerging from Order 47, rule 1 of the Code of Civil Procedure act as guidelines) are not necessarily the same on which this court exercises discretion to grant or not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of a special leave petition does not take away the jurisdiction of the court, the Tribunal or forum whose order forms the subject-matter of petition for special leave to review its own order if grounds for exercise of review jurisdiction are shown to exist. Where the order rejecting a special leave petition is a speaking order, that is, where reasons have been assigned by this court for rejecting the petition for special leave and are stated in the order still the order remains one rejecting the prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate jurisdiction of this court. Here also the doctrine of merger would not apply. But the law stated or declared by this court in its order shall attract applicability of article 141 of the Constitution. The reasons assigned by this court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, Tribunal or authority to express any opinion in conflict with or in departure from the view taken by this court because permitting it to do so would be subversive of judicial discipline and an affront to the order of this court. However, this would be so not by reference to the doctrine of merger. . .
To sum up, our conclusions are : . . .
(iv) An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the court was not inclined to exercise its discretion so as to allow the appeal being filed.
(v) If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the Court, Tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.”
Similarly view was taken by the Apex Court in the case of Supreme Court Employees’ Welfare Association v. Union of India AIR 1990 SC 334.
The Calcutta High Court, after referring to the said above and other decisions of the Supreme Court held in Brooke Bond India Ltd. v. CIT 269 ITR 232, that dismissal of the special leave petition even on the merits in respect of the judgment of this High Court did not amount to a declaration of law by the Supreme Court thereby making it binding under article 141 of the Constitution.
2.30-1 Indian Oil Corporation case - In Indian Oil Corporation v. State of Bihar1, the Supreme Court stressed again its view about the dismissal of Special Leave Petition without reasoning or by a non-speaking order, that such a dismissal is not the decision on merit, on the issue raised in the petition.
In this case an officer of the Oil Corporation was dismissed from service in 1969. On being reinstated by the Labour Court, the officer demanded promotion, which was refused, with effect from the date of the promotion of his juniors. The refusal led to another series of litigation. The Labour Court decided the dispute in favour of the Officer. Special Leave Petition filed by the Corporation against this decision was dismissed summarily. However, the Patna High Court on a petition by the Corporation, stayed the order of the Labour Court. It was now the turn of the officer to move SLP in the Supreme Court, which was also dismissed. Subsequently, the writ filed by the Corporation came up for hearing in the High Court. The contention of the officer that since the Supreme Court had dismissed the SLP of the Corporation, it (the Corporation) could not move the High Court in the same case, was accepted by the High Court. The High Court held that the doctrine of election was applicable in the case and the Corporation having chosen the remedy of approaching the superior Court and failing in that attempt, could not thereafter resort to the alternative remedy of approaching the High Court under article 226. Thereupon, the Corporation again appealed to the Supreme Court.
The Supreme Court held that High Court was wrong on that point. It observed :
“The effect of a non-speaking order of dismissal of a Special Leave Petition without anything more indicating the grounds or reasons of its dismissal must by necessary implication, be taken to be that this Court had decided only that it was not a fit case where special leave should be granted.”
The Supreme Court also held that the question which can be said to have been decided by it expressly, implicitly or even constructively while dismissing the SLP cannot, of course, be reopened in a subsequent writ proceeding before the High Court. But, neither on the principle of res judicata nor on any principle of public policy analogous thereto, would the order of the Court dismissing SLP operate to bar the trial of identical issues in a writ petition in the High Court, merely on the basis of an uncertain presumption that the issues must have been decided by the Supreme Court at least by implication.
The Supreme Court had earlier also held similarly in Workmen of Cochin Port Trust v. Board of Trustees of the Cochin Port Trust1 and Ahmedabad manufacturing and Calico Printing Co. Ltd. v. Workmen2.
2.31 A party moving the Supreme Court for leave to appeal under article 136 of the Constitution has no right as a matter of course to get the leave. Special leave is granted sparingly and in exceptional cases where substantial and grave injustice is shown to have been done. Refusal of leave to appeal would not constitute an implied approval of the decision challenged, and thus upholding the law propounded therein (P. Nallammal v. State  6 SCC 559). Conversely, the fact that leave to appeal is given is not itself an indication that the judgments below are thought to be wrong. It may well be that leave is given so that the relevant law may be authoritatively restated in clearer terms. (See also paragraph 2.30)
2.31-1 Special leave petition - Dismissal in limine does not furnish ratio decidendi - Dismissal of special leave petition in limine does not furnish any ratio decidendi for being followed (Om Prakash Gargi v. State of Punjab  11 SCC 399), nor as res judicata in other cases (Kriloskar Bros. Ltd. v. Employees’ State Insurance Corp.  2 SCC 682). No inference can be drawn either by implication or otherwise that contentions raised in the special leave petition on merits, were rejected by the Supreme Court; it simply reads that special leave petition is rejected - Medchl Chemicals and Pharmaceuticals v. M.M.T.C. Ltd.  108 Comp. Cas. 24 (Mad.). The dismissal at the admission stage does not constitute a binding precedent (Sun Export Corporation v. Collector of Customs AIR 1997 SC 2658). Further, dismissal by a non-speaking order which does not contain reasons for dismissal does not amount to acceptance of the correctness of the decision sought to be appealed against (State of Manipur v. Thingujam Brojen Meetei AIR 1996 SC 2124).
2.31-2 Special leave petition - Refusal and doctrine of merger - After rejection of the special leave petition whether the order of the High Court merges with the order of the Supreme Court? The issue was considered by the Supreme Court in Kunhayammed v. State of Kerala  245 ITR 360 (SC). While concluding the issue of merger, their Lordships have observed at page 382 as under :
“(ii) The jurisdiction conferred by article 136 of the Constitution is divisible into two stages. The first stage is up to the disposal of the prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and the special leave petition is converted into an appeal.
(iii) The doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of the jurisdiction exercised by superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under article 136 of the Constitution, the Supreme Court may reverse or modify or affirm the judgment-decree or the order appealed against, while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of a petition for special leave to appeal. The doctrine of merger can, therefore, be applied to the former and not the latter.
(iv) An order refusing special leave to appeal may be non-speaking order or speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed.”
At page 383, their Lordships further observed as under :
“The order is non-speaking and unreasoned order. All that can be spelt out is that the court was not convinced of the need for exercising its appellate jurisdiction. The order of the High Court dated July 18, 1982, did not merge in the order dated July 18, 1983, passed by this Court. So it is available for review by the High Court.”
Precedent - Decisions of Foreign Courts
2.32 While considering the applicability of the English case law interpreting the British Income-tax Act, to interpret the provisions of the Indian Income-tax Act, the caution administered by the Supreme Court shall always be borne in mind.
This is what the Supreme Court has said in CIT v. Vazir Sultan & Sons1 :
“While considering the case law, it is necessary to bear in mind that the Indian Income-tax Act is not in pari materia with the British Income-tax statutes, it is less elaborate in many ways, subject to fewer refinements and in arrangement and language, it differs greatly from the provision with which the Courts in England have had to deal. Little help can, therefore, be gained by attempting to construe the Indian Income-tax Act in the light of decisions bearing upon the meaning of the Income-tax Legislation in England. But on analogous provisions, fundamental concepts and general principles unaffected by the specialities of the English Income-tax Statutes, English authorities may be useful guides.”
In Kilpest (P.) Ltd. v. Shekhar Mehra  87 Comp. Cas. 615, it was observed :
“Where words used in both the Indian and English statutes were identical, English decisions might throw light and their reasons might be persuasive, but the proper course was to examine the language of the statute and ascertain its true meaning. It was apposite, having regard to the background, conditions and circumstances of the present Indian society and the needs and requirements of the country that a somewhat different treatment be adopted. The Courts would have to adjust and adopt, limit or extend the principles derived from English decisions, entitled as they were to great respect, suiting the conditions of Indian society and the country in general. . .”
The provisions of the Indian Income-tax Act shall be construed on their own terms without drawing any analogy from English Statutes whose terms may superficially appear to be similar but on a deeper scrutiny, may reveal differences not only in the wording but also in the meaning of a particular expression acquired in the context of the development of law in that country.2 The English decisions interpreting provisions containing the words ‘profits and gains’ in the British Income-tax Statutes are no more relevant.3 Similarly those decisions of the English Courts disallowing the claim of an assessee to deduct tax paid as an expenditure, on the ground that the tax is not an expenditure for the purpose of earning profits have no relevance in construing section 37 containing the expression “for the purpose of the business”, in view of the decision of the Supreme Court in CIT v. Malayalam Plantations Ltd.4 case. As held by the Supreme Court while explaining the expression “for the purpose of earning profits”, any expenditure which is incidental to the carrying on of the business is an allowable expenditure.
The Supreme Court recently in M.C. Mehta v. Union of India1 had observed, “. . . we no longer need the crutches of a foreign legal order. We are certainly prepared to receive light from whatever source it comes but we have to build up our own jurisprudence. . .”
In fact the law in India relating to constitutional law, administrative and public law has forged ahead of the law in England, guided as our Courts are by our Constitution and uninhibited as they are by technical rules which have hampered the development of English Law.2
Precedent - Res Judicata and Issue Estoppel
2.33 To prevent repeated litigations over the same matter and thereby protect the parties from undue harassment and expenses, our legal system has devised the doctrine of res judicata and issue estoppel. They prevent subsequent trials as such.
A part of the principle of the res judicata is embodied in section 3 of the Civil Procedure Code, which applies only to suits. But section 11 of the said Code is not exhaustive. The wider principle of res judicata is a part of English Common Law and is applicable to India as a rule of “justice, equity and good conscience” which has been equated with the principles of English Law. It continues to apply to India as “Law in force in the territory of India immediately before the commencement of the Constitution” by virtue of Article 372(1) of the Constitution.
Thus, res judicata is a plea available in civil proceedings in accordance with section 11 of the Code of Civil Procedure. It is a doctrine applied to give finality to ‘lis’ in original or appellate proceedings. The doctrine in substance means that an issue or a point decided and attaining finality should not be allowed to be reopened and re-agitated twice over. The literal meaning of res is everything that may form an object of rights and includes objects, subject-matter or status and res judicata literally means : ‘a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by judgment.’ Section 11 of CPC engrafts this doctrine with a purpose that ‘a final judgment rendered by a Court of competent jurisdiction on the merits is conclusive as to the rights of the parties and their privies, and, as to them, constitutes an absolute bar to a subsequent action involving the same claim, demand or cause of action’. See Black’s Law Dictionary at pages 1304-1305. See Escorts Farms Ltd. v. Commissioner, Kumanon Division (2004) 4 SCC 281/AIR 2004 SC 2186/ 18 ILD 943 (SC).
2.33-1 Res judicata - General principles - The general principle of res judicata is based, first, on public policy, and, secondly, on private justice both of which apply to all judicial proceedings whether civil, criminal or otherwise. Public policy requires that in the general interest of the community, litigation must come to an end and its conclusion must have a finality. Private justice requires that an individual should be protected from vexatious multiplication of suits and prosecutions at the instance of an opponent whose superior power and resources may enable him to abuse the process of Court. The principles of res judicata or estoppel do not apply where to give effect to them would be to counter statutory direction or prohibition. The statutory direction or prohibition cannot be overridden or defeated by previous judgment between the parties (P.G. Eshwarappa v. M. Rudrappa  6 SCC 96). The principles should, apply equally to civil and criminal proceedings inasmuch as the decisions of the Courts in both the proceedings are justified by and rest upon the same theoretical basis of public policy and private justice. But neither the principle of res judicata nor any principle of public policy analogous thereto, would let the order of the Supreme Court dismissing Special Leave Petition operate to bar the trial of identical issues in a separate proceeding, namely, the writ proceeding before the High Court merely on the basis of an uncertain assumption that the issues must have been decided by the Supreme Court at least by implication. It is not correct and safe to extend the principle of res judicata or constructive res judicata to such an extent as to found it on mere guess work.1
While the general principle of res judicata is treated as a part of the principle of estoppel, the principle is partially embodied in the different statutes, namely, section 11 of the Code of Civil Procedure, sections 40 to 43 of the Indian Evidence Act, and section 300 of the Code of Criminal Procedure. But none of these provisions exhausts the scope of the general principle of res judicata. Each of them is limited to its own purpose. None of them, therefore, cuts down the rest of the principle of res judicata.
2.33-1A Res judicata - Judgments invalidating action on the basis of law which is validated subsequently - When a Court renders a Judgment invalidating action on the basis of existing law, the subsequent amendment of the law cannot validate the action by merely declaring that the judgment is not inconsonance with the amended law. Such an amendment would amount to an abortive attempt to legislatively overrule binding decision of the Court. The amending Act must remove the substratum of the judgment or the cause of invalidity with retrospective effect so as to displace the binding nature of the judgment. Such judgment operates as res judicata (K. Sankaran Nair v. Deoki Amma Malathy Amma  11 SCC 428)
2.33-1B Res judicata - Dismissal of special leave petition - Dismissal of special leave petition without laying any law does not operate as res judicata (Kirloskar Brothers Ltd. v. Employees’ State Insurance Corpn.  2 SCC 682).
2.33-2 Res judicata - Essentials - The three essentials of the general principle of res judicata may be stated as follows:
u A decision by a competent judicial Tribunal which is final is binding in subsequent litigation.
u If it determines the same questions as are sought to be controverted in the litigation in which, the plea of res judicata is raised.
u Parties to the proceedings in which the plea of res judicata is raised must be the same as are parties to the decision which acts as res judicata.
Only an issue directly and substantially in issue in an earlier suit operates as res judicata, not just any finding regarding an incident or a collateral question reached for the purpose of arriving at the final decision which would constitute res judicata (Mahila Bajrangi v. Badribai  2 SCC 464).
Thus, when section 40 of the Evidence Act says that the existence of any judgment, order or decree which by law prevents any Court from taking cognizance of a suit or holding a trial is a relevant fact when the question arises whether such Court ought to take cognizance of such suit or to hold such trial, it refers not only to the statutory law but also to the non-statutory general law of res judicata. Therefore, either the general principle of res judicata is not cut down by sections 40 to 43 or it is expressly recognised by section 40. It could be argued that the principle of res judicata in criminal proceedings is confined to section 300 of the Code of Criminal Procedure. In other words, it is only if a person is convicted or acquitted of an offence that he cannot be again tried for the same offence or on the same facts for any other offence for which a different charge from the one made against him might have been framed. This is based on the doctrine of autrefois acquit.
2.33-3 Judgment in rem binding in subsequent proceedings - Judgment of this Court, if it is a judgment in rem, is binding in subsequent proceedings on that issue though the parties may not be the same. But if it is a judgment in personam, it does not have any binding effect in subsequent proceedings. A judgment in rem means an adjudication pronounced on the status of a person or a thing, by a competent Court to the world generally. But it is not conclusive of the facts constituting the reasons for the decision. In such circumstances, this order is conclusive only as regards the status but not as regards the grounds on which it is based [see Hari Singh v. Governor, U.P.  17 ILD 542 (All.)]. Thus, it depends upon the nature of the proceedings and where the matters are of public nature, the judicial decision may be evidence though not conclusive of what they say, but where the matters are not of public nature, such evidence are not admissible as having binding effect. Therefore, decree like nullity of marriage or in probate or insolvency proceedings, determination of customary rights, being the matters of public nature, the judgments are in rem and, therefore, may be admissible but where the question of status of joint family or a suit of restitution of conjugal right, order in lunacy, judgment under section 42 of the Specific Relief Act or declaration of a person to be a partner in a firm or proceedings of partition suit or in case of adoption, are the judgments in personam, being judgments, not of a public nature and, therefore, not admissible if the parties are not the same [see Hari Singh case (supra)].
The Supreme Court summarised the law as under (see State of Bihar v. Sri Radha Krishna Singh AIR 1983 SC 684) :—
“1. A judgment in rem e.g., judgments or orders passed in admiralty, probate proceedings, etc., would always be admissible irrespective of whether they are inter-parties or not.
2. Judgments in personam not inter-parties are not at all admissible in evidence except for the three purposes mentioned above.
3. On a parity of aforesaid reasoning, the recitals in a judgment like findings given in appreciation of evidence made or arguments or genealogies referred to in the judgment would be wholly inadmissible in a case where neither the plaintiff nor the defendant were parties.
4. The probative value of documents which, however ancient they may be, do not disclose sources of their information or have not achieved sufficient notoriety is precious little.
5. Statements, declarations or dispositions etc., would not be admissible if they are post litem motam”. (p.710)
The Courts have held order passed on adjudication in the following proceeding binding even on those who are not parties to it, being judgment in rem :—
1. Insolvency (Mahomed Saddique Yousuf v. Official Assignee of Calcutta AIR 1943 PC 130)
2. Probate of the will (Surinder Kumar v. Gian Chand AIR 1957 SC 875)
3. Probate, insolvency, matrimonial, guardianship (State of Bihar v. Sri Radha Krishna Singh AIR 1983 SC 684)
4. Public trust of permanent nature (Sunni Central Board of Waqf v. Sirajul Haq Khan AIR 1954 All. 88)
5. Dissolution of marriage [Vempa Sunanda v. Vempa Venkata Subbarao AIR 1957 AP 424]
6. Trust of a public nature [Hari Singh v. Governor  17 ILD 542 (All.)].
Judgment in rem, though does not bind the persons who are not parties to it on the principles of res judicata, is a relevant circumstance to be taken note of what has been stated in section 42 of the Indian Evidence Act, 1872. The issue having been finally determined cannot be re-examined (see Virupakshayya Shankarayya v. Neelakanta Shivacharya Pattadadevaru AIR 1995 SC 2187). The Privy Council in that case had already declared that a particular person had to be accepted as Mathadhipati of a “Math” to which the plaintiff to the case before the Supreme Court was not a party and the plaintiff had sought declaration that he be declared as successor Mathadhipati as against the defendant. The Supreme Court held that the judgment of the Privy Council had finally determined and the issue could not be re-examined.
2.33-4 Judgment without jurisdiction, or obtained by fraud or collusion not binding - An order without jurisdiction or a void order is no order at all. It confers no right on the person in whose favour it professes to be. It in no way binds the person against whom it is made. Such an order would be treated as a nullity whenever and wherever and for whatever purpose it is sought to be used or relied on as a valid order (see Joginder Singh v. Smt. Nirmal Naini Mehra AIR 1986 Delhi 305). In Lazarus Estates Ltd. v. Beasley (1956) 2 QB 702, Lord Denning L.J. said (pp. 712-13):—
“No judgment of a Court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything.”
In the same judgment Lord Parker C.J. said (p. 722) :—
“‘Fraud’ vitiates all transactions known to this law of however high a degree of solemnity. The decision has been quoted with approval by the Supreme Court in S. Pratap Singh v. State of Punjab AIR 1964 SC 733. In Ram Chandra Singh v. Savitri Devi (2003) 8 SCC 319, the Supreme Court held :—
‘Fraud as is well known vitiates every solemn act. Fraud and justice never dwell together. Fraud is a conduct either by letter or words, which induces the other person or authority to take a definite determination stand as a response to the conduct of the former either by word or letter. It is also well-settled that mis-representation itself amounts to fraud. Indeed, innocent mis-representation may also give reason to claim relief against fraud. A fraudulent misrepresentation is called deceit and consists in leading a man into damage by wilfully and recklessly causing him to believe and act on falsehood. It is fraud in law if a party makes representations which he knows to be false, and injury ensues therefrom although the motive from which the representations proceeded may not have been bad. An act of fraud on Court is always viewed seriously. A collusion or conspiracy with a view to deprive the rights of others in relation to a property would render the transaction void ab initio. Fraud and deception are synonymous. Although in a given case a deception may not amount to fraud. Fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata’ ”. (p. 322)
[Also see Vijay Shekhar v. Union of India (2004) 4 SCC 666/(2004) 19 ILD 367 (SC)].
Withholding of a vital document in order to gain advantage amounts to playing fraud on Court as well as opposite party (see S.P. Chengalvaraya Naidu v. Jagannath AIR 1994 SC 853). Earlier judgment operates as res judicata between the same parties (section 11 of the Code of Civil Procedure). It could be challenged if proved by the adverse party as having been obtained by fraud or collusion or delivered by a Court not competent to deliver (see section 40 of the Indian Evidence Act, 1872). A third party can also so challenge (sections 41 & 42). The decree or the order can be so challenged in a collateral proceeding without any suit for setting it aside (Nachhittar Singh v. Smt. Jagir Kaur AIR 1986 Punj. & Har. 197). Such an order can be avoided in the proceedings in which it is sought to be relied upon and it is not necessary to have it set aside by instituting independent proceedings (see Asharfi Lal v. Smt. Koili AIR 1995 SC 1440). As aforesaid, fraud unravels everything. Fraud on count practised by a party to obtain an order or judgment renders that order or judgment void. Fraud by the Court in delivering it also so renders.
The Supreme Court in Express Newspapers (P.) Ltd. v. Union of India AIR 1986 SC 872 held :—
“1118. Fraud on power voids the order if it is not exercised bona fide for the end design. There is a distinction between the exercise of power in good faith and misuse in bad faith. The former arises when an authority misuses its power in breach of law, say, by taking into account bona fide, and with best of intentions, some extraneous matters or by ignoring relevant matters. That would render the impugned act or order ultra vires. It would be a case of fraud on powers. The misuse in bad faith arises when the power is exercised for an improper motive, say, to satisfy a private or personal grudge or for wreaking vengeance of a Minister as in S. Pratap Singh v. State of Punjab AIR 1964 SC 733. A power is exercised maliciously if its repository is motivated by personal animosity towards those who are directly affected by its exercise. Use of a power for an ‘alien’ purpose other than the one for which the power is conferred is mala fide use of that power. Same is the position when an order is made for a purpose other than that which finds place in the order. The ulterior or a lien purpose clearly speaks of the misuse of the power and it was observed as early as in 1904 by Lord Lindley in General Assembly of Free Church of Scotland v. Overtown 1904 AC 515, “that there is a condition implied in this as well as in other instruments which create powers, namely, that the power shall be used bona fide for the purpose for which they are conferred. It was said by Warrington C.J. in Short v. Poole Corpn. (1926) 1 Ch. 66 that :—
‘No public body can be regarded as having statutory authority to act in bad faith or from corrupt motives, and any action purporting to be of that body, but proved to be committed in bad faith or from corrupt motives, would certainly be held to be inoperative’.”
Thus, fraudulent act even in a judicial proceeding is not allowed to stand; whether it be of the party or the Court itself.
2.34 According to the doctrine of autrefois acquit a person cannot be prosecuted twice for the same offence. This doctrine has been codified in section 300 of the Code of Criminal Procedure. The exception is where the act for which a person has been tried leads to consequences which had not resulted earlier or were not known to the Court to have happened. Thus, if an employee is charged with theft and is acquitted, he cannot be then charged with having committed criminal breach of trust. But if a person causes a grievous hurt to another and is convicted for this, he may be tried again for culpable homicide if the injured person subsequently succumbs to his injuries.
2.35 Issue estoppel is a branch of the law of res judicata applied to criminal proceedings. The binding nature of a finding arrived at between the parties in previous litigation, in a subsequent litigation between the same parties as applied to criminal proceedings is called “issue estoppel”. The effect of a verdict of acquittal pronounced by a competent Court on a lawful charge and after a lawful trial is not completely slated by saying that the person acquitted cannot be tried again for the same offence. To that it must be added that the verdict is binding as conclusive in all subsequent proceedings between the parties to the adjudication. The maxim res judicata pro vertiate accipitur is no less applicable to criminal than to civil proceedings.1 The principle of issue estoppel outside the scope of section 300 of the Code of Criminal Procedure applies to India.2 It applies not only in favour of the accused but also against him. But in all criminal proceedings, the principle of res judicata or issue estoppel may come in conflict with another principle, namely, that the prosecution must prove that the accused is guilty and unless this is done the accused is presumed to be innocent. The principle of issue estoppel cannot override the principle of presumption of innocence of the accused. Similarly, the following special features of the criminal proceedings would further modify the application of issue estoppel.
u First, in a criminal case, there is no duty on the accused to adduce evidence in defence while in a civil case adverse inference may be drawn from the refusal of a party to adduce evidence in his possession or power.
u Secondly, the burden of proof to prove the guilt of the accused is more on the prosecution in a criminal case as compared to the burden of proof on the plaintiff to prove his case against the defendant in a civil case.
u Thirdly, certain evidence such as confession in certain circumstances cannot be proved in a criminal case against the accused though there is no such restriction between the parties to a civil proceeding.
u Lastly, a finding of fact arrived at in a civil proceeding may not be binding in a criminal proceeding against the accused.
Generally speaking, the principle of issue estoppel is invoked to bar adducing of evidence to proved facts which have been already adjudicated upon in a previous proceeding between the parties. It is easier to obtain a finding of fact for a plaintiff against a defendant in a civil proceeding than for the prosecution to do so against the accused in a criminal proceeding. Therefore, the finding of fact given in a previous civil proceeding may not act as res judicata in a subsequent criminal proceeding. For the same reasons, a finding of fact in a criminal proceeding against an accused person should act as res judicata in a subsequent civil proceeding between the same parties. In Hollington v. F. Hewthorn & Co. Ltd.1, the Court of Appeal in England, however, did not accord the effect of res judicata to a summary conviction of the accused for a traffic offence in a subsequent civil proceeding in which the accused was sued for damages by the person who was injured by the negligence of the accused in driving a car. Similarly, in Anil Behari Ghosh v. Smt. Latika Bala Dassi2, the conviction by a Criminal Court of a person for the murder of his father was not regarded as conclusive in a subsequent proceeding for revocation of the grant of probate under section 263 of the Succession Act. These decisions apparently did not attach importance to the fact that the rules of procedure and evidence are more favourable to the accused in criminal proceeding and, therefore, there should be no objection to a finding against the accused in a criminal proceeding acting as res judicata in a subsequent civil proceeding.
The Supreme Court in P. Jayappan v. S.K. Perumal, First ITO3 observed:
“...In the criminal case all the ingredients of the offence in question have to be established in order to secure the conviction of the accused. The Criminal Court no doubt has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in an appropriate case it may drop the proceedings in the light of an order passed under the Act. It does not, however, mean that the result of a proceeding under the Act would be binding on the Criminal Court. The Criminal Court has to judge the case independently on the evidence placed before it. Otherwise, there is a danger of a contention being advanced that whenever an assessee or any other person liable under the Act had failed to convince the authorities in the proceedings under the Act that he has not deliberately made any false statement or that he has not fabricated any material evidence, the conviction of such person should invariably follow in the criminal court. . .” (pp. 700, 701)
2.36 While autrefois acquit and res judicata bar any subsequent trial or suit, issue estoppel precludes evidence from being led to prove a fact at issue as regards which evidence has already been adduced and a specific finding is recorded at an earlier trial before a Court of competent jurisdiction. The principles of these doctrines will apply also to quasi-judicial and administrative actions which affect the rights of individuals, even if the Code of Criminal Procedure and Civil Procedure are not as such applicable.
Res judicata - Taxation matters
2.37 In matters of taxation, there can be no question of res judicata. The doctrine does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of assessment: the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another year, but they are not binding and conclusive. Generally, the doctrine of res judicata or estoppel by record does not apply to such decisions.1 Under the Income-tax Act, a year is a unit of assessment. The decision of an Income-tax Officer given in a particular year does not operate as a res judicata in the matter of assessment of the subsequent years. The jurisdiction of the Tribunals in the hierarchy created by the Act is no higher than that of the Income-tax Officer and it is also confined to the year of assessment.2 The decision rendered is a decision for the particular year.3 Thus, the principles of res judicata and estoppel are not at all applicable in tax jurisprudence. The orders in taxation proceedings and the enquiries held are concluded every year, is accepted as axiomatic.4
In M.M. Ipoh v. CIT5, the Supreme Court held that the doctrine of res judicata is not applicable. The assessment made in one year does not bind the assessment in the succeeding year. The facts found are conclusive only in the year of assessment when findings are recorded. Such a finding surely is cogent evidence or may even be a guide in subsequent years, when the same question or a similar question falls to be determined in another year, but nevertheless it is accepted as not binding and not conclusive. In CIT v. Brij Lal Lohia and Mahabir Prasad Khemka1, the application of the principle of res judicata was adverted to. This case is more on facts but it is a case where because of availability of evidence which was shown not to have been available in the preceding year and because of the surfeit of evidence in the year in question, the conclusion was varied. The importance of this case is that reason was shown for varying the earlier decision. In another case, Dwarkadas Kesardeo Morarka v. CIT2, the Supreme Court emphasised that under tax laws, assessment orders are separate and the taxing authorities cannot regard a complete order and a decision arrived at in a previous year is binding in the assessment for subsequent years.
An illustration is found in a Full Bench case of the Madras High Court in T.M.M. Sankaralinga Nadar and Bros. v. CIT3, wherein certain deposits made by the female members of the assessee were considered as loan in a particular year but in the following year the revenue intended to reopen and enquire into the truth or otherwise of the debts. The Madras High Court stated that the taxation authorities, no doubt, are entitled to reopen the question. But the Court qualified the power and stated that where income-tax officials have, after enquiry, proceeded to assess on a certain basis, though they may be entitled to reopen their order, they cannot arbitrarily vary the order simply on the ground that the succeeding officer does not agree with the preceding officer’s finding. The revenue officers may have power to reopen the enquiry, but the Court emphasised that they should reopen only where there were fresh facts to arrive at a different conclusion, otherwise, in the absence of fresh facts, exercise of power will be considered as arbitrary exercise of power. The Madras High Court used the expression “natural justice” to bar the exercise of power. The Court warned that revenue officers should not capriciously set aside or arbitrarily overlook the findings of their predecessors as findings are recorded after enquiries. It is, in that context that the Court said (at p. 215): “the Income-tax Officer cannot simply say that he would not be bound by the order of his predecessor affecting a question like the present, namely, whether a certain sum is the capital of the firm or a loan. But if on investigation any additional facts come to his notice which he considers sufficient, he would be entitled to act upon that additional information”. The Court considered a similar question in The Trustees, Nagore Durgah v. CIT4 and again the principle of natural justice was referred to and it was held that if there was a prior determination by the income-tax officials, ordinarily there should be no variation from that decision unless there are fresh circumstances to warrant a deviation from the previous decision.
l The Bombay High Court considered a like question in H.A. Shah and Co. v. CIT/EPT1. In that case, the principles of res judicata and estoppel were elucidated including the Madras Full Bench case. It was emphasised, on facts, that the conclusion reached in the preceding year was not determinative and final and conclusive in relation to the assessment for that year. A decision in an earlier year is not binding in a subsequent year. In that case, what are the constraints were stated as limitations. There should be finality and certainty in revenue proceedings, it was emphasised, like all litigations including litigation arising out of the Income-tax Act. A decision on a question cannot be reopened unless that decision in arbitrary or perverse. If no fresh facts are there, the earlier decision should be followed. Finally, it was stated that the effect of revising a decision in a subsequent year should be that Court must always be anxious to avoid injustice to the assessee. These aspects were highlighted as principles to be followed by the officers holding enquiries under taxing enactments.
l A similar question was considered by the Nagpur High Court in Tejmal Bhojraj v. CIT2 wherein it was held that the principle of res judicata does not operate on the decisions of taxing authorities. The orders in a previous year can be departed from in subsequent years and the Court enumerated the circumstances in which this may be done, namely, that: “if the previous decision is not arrived at after due enquiry”, “if the previous decision was arbitrary”, “if fresh facts were brought out in such cases”, a different conclusion from the one arrived at earlier is permissible. It was emphasised in this case that the Income-tax Officer cannot arbitrarily depart from the finding reached after due enquiry merely because the succeeding officer does not agree with the preceding officer’s findings.
l The Patna High Court considered this question in Kaniram Ganpat Rai v. CIT3 wherein it was held that if fresh facts are brought to light before an Income-tax Officer, a different conclusion in a subsequent year can be arrived at from that of his predecessor since power is vested in the officers of the revenue to reconsider a question, but if there are no fresh facts and the previous order was not arbitrary, it cannot be deviated from.
l The Allahabad High Court in Ram Datta Sita Ram of Basti, In re4 considered the principle of res judicata and estoppel and stated that if there are good and valid grounds for taking a different view, it is open to take a different view. In Kamlapat Motilal v. CIT5, that Court held that if a competent authority has enquired into the matter, such a decision must be held to be binding even if the decision was by implication.
Strictly speaking, as aforesaid, res judicata does not apply to income-tax proceedings. Each assessment year being a unit, what is decided in one year may not apply in the following year. But where a fundamental aspect is permeating through the different assessment years as a fact one way or the other, it would not at all be appropriate to allow the position to be changed in a subsequent year (see Radhasoami Satsang Saomi Bagh v. CIT 193 ITR 321 (SC); AIR 1992 SC 377). In the absence of any change in the circumstances, the revenue is bound by the previous decision. Thus, where the question relating to assessment does not vary with the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income, such questions if decided by a court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated (T.M.M. Sankaralinga Nadar & Bros. v. CIT AIR 1930 Mad. 209).
2.37-1 Res judicata - Revenue Authorities bound by earlier decision, if facts are same - There are two Privy Council cases on the subject. The two cases arose from Australia: one is a case in Broken Hill Proprietary Co. Ltd. v. Broken Hill Municipal Council1. In that case there was a previous decision where liability to tax was determined in the context of valuation of the subject-matter. The Privy Council stated that the earlier decision related to a different question. The decision on the subsequent year on facts was “a new question and therefore the principles of res judicata cannot apply”. These facts are considered necessary to understand the decision of the Privy Council; otherwise, the decision in that case ex facie or at the first blush appears contrary to another case rendered a year later by the Privy Council. The latter case, Hoystead v. Commr. of Taxation2 shows that the earlier decision was as to the status of six daughters of a testator under a trust created by him in the last testament and as to whether the six of them were joint owners or owned their shares as six individuals. If they were individual owners, they were entitled to separate deductions as against the charging authority. The full Court of the Australian High Court held that the daughters were not joint shareholders. In a subsequent year that conclusion was departed from. The Privy Council held “very numerous authorities were referred to. In the opinion of their Lordships, it is settled first that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view to obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new version which they present as to what should be the proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to cases where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also, a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken”. The same principle of setting parties’ right to rest applies and estoppel occurs. The decision of the Privy Council indicates what was pointed out as qualification, limitation or natural justice or justice in the case. Ordinarily, earlier decisions are not to be departed from. The comity of decisions is to be followed. The decisions reached after inquiry have to be respected and not to be departed from for the pleasure of doing so, a disease which is not unknown in India.
A question already decided cannot be reagitated and fresh litigation started merely—
(1) because the parties entertain new view of the law of the case, or
(2) new versions they present as to what should be proper apprehension by the court of the legal result of the construction of the document or the weight of certain circumstances, or
(3) where a point fundamental to the decision, taken or assumed, which is traversable has not been traversed by the concerned party.
The above principles have roots in public policy; (1) and (2) above, that litigation should have an end; and (3), that rights of litigants are settled at rest. The policy of law, as pointed out by the Supreme Court in Parashuram Pottery Works Co. Ltd. v. ITO (AIR 1977 SC 429/ 106 ITR 1), is—
- that there must be a point of finality in all legal proceedings,
- that stale issues should not be reactivated beyond a particular stage, and
- lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other sphere of human activity.
Assessments are quasi-judicial and the above observations are applicable.
There should, therefore, be some material justifying the revenue to take a different view of the matter. The question cannot be reopened and a different and contradictory stand taken to what had been decided earlier. Unless there is change of circumstances or valid reasons, the authorities shall not depart from previous decision [See Taraben Ramabhai Patel v. ITO 215 ITR 323 (Guj.)]. There, however, is no bar against the investigation by the Income-tax officer on the same facts on which a decision of the earlier year was arrived at, even though the said fact is a cogent factor in the determination of a similar question in the following year (Joint Family of Udayan Chinubhai v. CIT 63 ITR 416 (SC) and Dhansiram Agarwalla v. CIT 217 ITR 4 (Gauhati).
2.38 Thus the principle of res judicata or estoppel though cannot strictly apply to the decisions rendered in proceedings under the Income-tax Act, they have a binding effect both on the assessee as well as the revenue, if the point on which the decision has been given is the same. On the basis of this principle the Madras High Court1 held that the decision on the question whether a certain trust is charitable or not, has nothing to do with the fluctuations in the income, and that such questions, if decided by a Court on a reference made to it, would be res judicata and the same question cannot be subsequently reagitated. It may be stated that in that case, the question was already considered by the Supreme Court2 as to whether the assessee would be entitled to exemption, wherein the claim for deduction of the donation made to the assessee-trust was rejected by the Supreme Court on the ground that the assessee-trust could not be held to be entitled to the benefit of exemption because some of the objects of the trust were not charitable and the trustees had discretion to spend the income of the trust on charitable and non-charitable objects. The matter turned on the finding already arrived at by the Supreme Court as to whether the trust in question was a charitable one or not and so the question of exemption was based on the previous finding regarding the nature of the trust.
The Supreme Court in CIT v. Durga Prasad More3, held that though neither the principle of res judicata nor the rule of estoppel was applicable to the assessment proceedings, the fact that the assessee included the income of the premises in his returns for several years after objecting to its inclusion in the year 1942-43, was a circumstance which the taxing authorities were entitled to take into consideration in the absence of any specific explanation and that the Tribunal was right in holding that the house property was not the trust property. The Supreme Court proceeded to consider the question as to whether the finding of fact arrived at by the Tribunal was in any way vitiated and it was held that it was not in any way vitiated.
2.39 A different finding cannot be reached in the absence of fresh material. Fresh material4 may warrant a different finding. Where there is a fresh material produced warranting a different conclusion, the previous findings can be departed from although the broader proposition is that in assessment proceedings, the previous findings are generally not binding and conclusive both on the assessee as well as on the revenue. It may be that on the fresh material, the same conclusion can be arrived at which was arrived at earlier but a different conclusion can also be arrived at if the material is such which may warrant a different conclusion; then it would be essentially a finding of fact and such finding of fact cannot be interfered with either by the High Court or by the Supreme Court1. The orders in a previous year could be departed from in subsequent year, if the previous decision is not arrived at after the enquiry, or the previous decision was arbitrary or if fresh facts are brought out, different conclusions from the one arrived at earlier are permissible. The Income-tax Officer cannot arbitrarily depart from the findings reached after due enquiry merely because succeeding officer does not agree with the preceding officer’s finding.2 Perversity, arbitrariness, or disclosure of new facts may alone permit deviation from the decision arrived at earlier on the basis of enquiry. The Gauhati High Court in CWT v. N.R. Sirkar3 upheld this principle. The assessee in this case had advanced amount to his spouse on different dates in four years, which amounts were spent by his wife on the construction of a building. Particulars of the loan had been shown in the return filed by the assessee for the assessment years 1960-61, 1961-62, 1962-63, which were accepted by the department after due enquiry. The assessee had declared that his wife was the owner of the building. The Wealth-tax Officer (WTO) had accepted this declaration. A finding was recorded that she was the debtor and, the assessee was the creditor. These conclusions were arrived at after enquiry. The WTO in subsequent proceeding held that the value of the property had to be taken in the assessee’s hands in terms of section 4(1)(a)(i) of the Wealth-tax Act, 1957. The High Court held that since a finding had been recorded on enquiry that assessee’s wife was a debtor and the assessee, a creditor, such a finding cannot be departed from. If it is to be departed, a valid reason is to be recorded and should be shown and since in the present case no new facts were stated to have been discovered, the earlier finding would be binding.
The decision in Ramji Das Jaini & Co. In re4, Kamlapat Motilal v. CIT 5, CIT v. L.G. Ramamurthi 6 all took the same view. Though in New Jehangir Vakil Mills Co. Ltd. v. CIT 7 and CIT v. Brijlal Lohia 8, the view has been taken that the doctrine of res judicata or estoppel by record does not apply to the proceedings arising under the Income-tax Act, and, therefore, the finding or decision rendered in one year may be departed from in subsequent year, yet this view has been clarified in subsequent cases by saying that the Income-tax Officer is not bound by the rule of res judicata or estoppel by record and that he can reopen a question primarily decided only if fresh facts come to light on investigation that would entitle him to come to a conclusion different from the one previously reached or if the earlier decision has been rendered without taking into consideration material evidence.1
Section 147 of Income-tax Act and conditions for reopening thereunder support doctrine of res judicata
2.40 Conditions as laid down in section 147 of Income-tax Act for reopening the completed assessments in a way support the doctrine of res judicata. If an issue has been decided, estoppel in law arises. Merely because a different view is possible in law, the case cannot be reopened. If an Assessing Officer draws an inference which appears subsequently to be erroneous, change of opinion with regard to that inference would not justify initiation of action for reopening assessment.2 The admission of fundamental fact or a primary fact cannot be withdrawn and a fresh litigation cannot be started with a view to obtaining another assessment upon different assumption of facts.3 The law is, therefore, settled first that the admission of fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view to obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the quality of that fact. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they may present as to what should be a proper comprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle - namely, that of setting to rest right of litigants - applies to the case where a point fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. The same principle of setting parties right to rest applies and estoppel occurs.4 If, however, an issue has not been decided in an earlier proceeding and the case is reopened on that basis, no estoppel arises. In T. Rama Rao v. ITO5, the revenue held that the assessee had failed to disclose particulars of income relating to the minor. The Income-tax Officer had reopened the assessments. One R was the daughter of the assessee. She was married while a minor. She was inducted in the two partnership firms where the assessee was a partner. In an audit note it was alleged that for the assessment years 1975-76, 1976-77 and 1977-78, the assessee did not disclose his minor daughter’s income. The ITO construed the audit report as ‘information’ within the meaning of clause (a) of section 147. On writ, the assessee asserted that the Income-tax Officer had no jurisdiction to reopen the assessment in view of the Tribunal’s order setting aside the reopening of assessment under section 147(b). On appeal, order of the Income-tax Officer was reversed.
On second appeal, the Tribunal confirmed the Appellate Asstt. Commissioner’s order. An application under section 256(1) made by the revenue was dismissed. Thereafter, the Income-tax Officer sought to reopen the assessment under section 147(b) and, therefore, writ of prohibition should issue. Dismissing the writ, the High Court held that the Income-tax Officer was within his powers to reopen the assessment as the issue raised was not determined in the earlier proceedings. What was decided in the former proceedings was that no case was made out to invoke the power under clause (b) of section 147. In the case before the High Court the question raised was not that of jurisdiction, the question touched upon estoppel. As to estoppel, the assessee had not made out a case for the High Court to interfere under article 226.