Law of Unintended Consequences

Some judicial rulings overlook broader economic impacts, unintentionally causing sectoral disruptions, as seen in telecom and steel sector cases, writes Jugal Mohapatra.

- Jugal Mohapatra

A couple of years ago, a senior serving judge of the Apex court had candidly confided in a private conversation that many of his colleagues in the High Courts and even the supreme Court are remarkably uninformed about the broader economic implications of issues relating to trade and commerce, taxation, functioning of the markets, competition and market infrastructure institutions.

This is despite the fact that Economics of Law has evolved as a sub-field of mainstream Economics since the 1990s. Quite possibly, adequate exposure to this field is still not being given in our graduate programmes in Law, nor perhaps our post-recruitment training programmes for the judicial officers sufficiently cover this knowledge gap. Unsurprisingly, therefore, we come across judicial verdicts in some seminal cases, which might be unassailable in terms of strict interpretation of the statute book, but have, nevertheless, unleashed severe economy-wide cascading effects.

Undoubtedly, the judges in these instances have diligently and scrupulously applied the strict standards of the relevant law in settling the issues under dispute. The most glaring recent instance of this relates to the Supreme Court's judgement invalidating JSW Steel's acquisition of Bhushan Steel & Power Limited (JSW-BSPL case, in short) in a proceeding under the Insolvency and Bankruptcy Code, 2016 (IBC). Before I discuss the impact of this ruling, let me discuss another recent judicial verdict that has unintendedly created serious market disequilibrium in a critical sector of the economy, i.e. telecom, which has forced the Central government to intervene with significant fiscal involvement to mitigate the market distortions.