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Whether the Judgment Of The Constitution Bench in National Insurance Company Limited v/s Prannay Sethi: Is Necessarily Retrospective In Nature

The Principle Of Retrospectivity Of Judgments

A retrospective (from Latin retrospectare, "look back"), generally, is a look back at events that took place, or works that were produced, in the past. The meaning of the word retrospective is backdated or to look back. Therefore, the retrospective law is a law that has backdated effect or is effective since before the time it is passed. The retrospective law is also referred to as ex post facto law.

Retrospective laws are laws that change what people's rights and responsibilities were in the past. In other words, they are laws that are passed today that change what was legal or illegal yesterday. Retrospective laws may undermine the rule of law by unfairly changing the laws relating to certain situations. If a subsequent decision changes the earlier one, the latter decision does not make law but only discovers the correct Principle of law. The result of this view is that it is necessarily retrospective in operation.

Development of Law vis-a-vis Retrospectivity Of Judgments

In [Kleinwort Benson Ltd Vs Lincoln City Council, (l998) 3 WLR 1095], Lord Browne-Wilkinson observed that:

The theoretical position has been that judges do not make or change law; they discover and declare the law which is throughout the same. According to this theory, when an earlier decision is overruled the law is not changed; its true nature is disclosed, having existed in that form all along. This theoretical position is ... a fairy tale in which no one any longer believes ... But while the underlying myth has been rejected, its progeny - the retrospective effect of a change made by Judicial decision – remain

The change made by a Judicial decision may be in relation to some Rule or Principle of Common Law; it may be in relation to the interpretation of legislation or a constitutional instrument. In some cases the change will have been brought about by the overruling of prior Judicial decisions. In some cases the change will consist of an extension or modification of prior Law.

Supreme Court on Retrospectivity Of Judgments

The principles of prospective and retrospective overruling were considered by the Supreme Court Of India for the first time in the famous case of [I. C. Golak Nath & Ors. Vs. State of Punjab & Anr, (1967) 2 SCR 762] (a Bench of Eleven Judges) in the following manner:

45. There are two doctrines familiar to American Jurisprudence, One is described as Blackstonian Theory and the other as Prospective Over-ruling. Blackstone in his Commentaries, 69 (15th Edn., 1809) stated the Common Law Rule that the duty of the Court was not to pronounce a New Rule but to maintain and expound the Old One. It means the Judge does not make law but only discovers or finds the True Law.

The Law has always been the same. If a subsequent decision changes the earlier one, the latter decision does not make law but only discovers the correct principle of law. The result of this view is that it is necessarily retrospective in operation. But Jurists, George F. Canfield, Robert Hill Freeman, John Henry Wigmore & Cardozo have expounded the doctrine of Prospective Over-ruling and suggested it as

A Useful Judicial Tool. In the words of Canfield the said expression means:
… a Court should recognize a duty to announce a new and better rule for future transactions, whenever, the Court has reached the conviction that on Old Rule (as established by the Precedents) is unsound even though feeling compelled by Stare Decisis to apply the Old and condemned Rule to the instance case and to transactions which had already taken place.

Cardozo, before he became a Judge of the Supreme Court of the United States of America, when he was the Chief Justice of New York State addressing the Bar Association said thus:
The Rule (the Blackstonian Rule) that we are asked to apply is out of tune with the life about us. It has been made discordant by the forces that generate a living law. We apply it to this case because the repeal might work hardship to those who have trusted to its existence. We give notice, however, that any one trusting to it hereafter will do at his peril.

The Supreme Court of the United States of America in the year 1932, after Cardozo became an Associate Justice of that Court in [Great Northern Railway Vs. Sunburst Oil & Ref. Co., 1932 SCC OnLine US SC 165], applied the said doctrine to the facts of that case. In that case the Montana Court had adhered to its previous construction of the statute in question but had announced that that interpretation would not be followed in the future.

It was contended before the Supreme Court of the United States of America that a decision of a Court overruling earlier decision and not giving its ruling retroactive operation violated the due process clause of the 14th Amendment. Rejecting that plea, Cardozo said:
This is not a case where a Court in overruling an earlier decision has come to the new ruling of retroactive dealing and, thereby, has made invalid what was followed in the doing. Even that may often be done though litigants not infrequently have argued to the contrary…. This is a case where a Court has refused to make its ruling retroactive, and the novel stand is taken that the Constitution of the United States is infringed by the refusal.

We think that the Federal Constitution has no voice upon the subject. A state in defining the elements of adherence to precedent may make a choice for itself between the principle of forward operation and that of relation backward. It may be so that the decision of the highest courts, though later overruled, was law nonetheless for intermediate transactions….

On the other hand, it may hold to the ancient dogma that the law declared by its Courts had a platonic or ideal existence before the act of declaration, in which event, the discredited declaration will be viewed as if it had never been and to reconsider declaration as law from the beginning……The choice for any state may be determined by the juristic philosophy of the Judges of her Courts, their considerations of law, its origin and nature. The opinion of Cardozo tried to harmonize the doctrine of prospective over-ruling with that of stare decisis.

51. As this Court for the first time has been called upon to apply the doctrine evolved in a different country under different circumstances, we would like to move warily in the beginning.

We would lay down the following propositions:

  1. The doctrine of prospective overruling can be invoked only in matters arising under our Constitution;
  2. 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;
  3. The scope of the 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.

The principle of retrospectivity of Judgments was again restated in [Ramdas Bhikaji Chaudhari Vs. Sadanand & Ors., (1980) 1 SCC 550] when it was held:
5. … Lastly it was argued that under Article 141 since the earlier case decided by this Court in [Rajaldas Gurunamal Pamanani Vs. State of Maharashtra, (1975) 3 SCC 375] held the field, it must be held that it was the law laid down by this Court under Article 141 of the Constitution.

It is 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 overruled.

The principle of retrospectivity was again referred to in a Judgment of the Supreme Court in [Asstt. Commissioner Vs. Saurashtra Kutch Stock Exchange, (2008) 14 SCC 171], wherein, it is held as under:

35. In our Judgment, it is also well settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a New Rule but to maintain and expound the Old One. In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make New Law.

It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood.

36. Salmond in his well- known work states: The theory of case law is that a Judge does not make law; he merely declares it; and the overruling of a previous decision is a declaration that the supposed rule never was law. Hence 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 judicatae or accounts that have been settled in the meantime.

37. It is no doubt true that after a historic decision in [I. C. Golak Nath & Ors. Vs. State of Punjab & Anr, (1967) 2 SCR 762] this Court has accepted the doctrine of prospective overruling. It is based on the philosophy: The past cannot always be erased by a new judicial declaration. It may, however, be stated that this is an exception to the general rule of the doctrine of precedent.

The doctrine of prospective overruling was first made applicable in constitutional matters. However, it has subsequently been applied to cases where statutes were involved as well.

By prospective overruling the law declared by the Court applies to the cases in future. The application to cases which have attained finality is saved because the repeal would otherwise work hardship on those who had trusted its existence. Invocation of the doctrine of prospective overruling is now left to the discretion of the Court but it is the exception.

Courts have taken a view to follow the principles of prospective overruling, however, it is only applied in cases where the need is so felt, as in cases for example where revenue is involved due to the State or Government and in other emergent situations. This has been elaborated in [Somaiya Organics (India) Ltd. & Anr. Vs. State of U.P & Anr., (2001) 5 SCC 519] by a Bench of Five Judges of the Supreme Court:

Ruma Pal, J. (concurring)-While I respectfully concur with the reasoning and conclusions reached by my learned Brother Kirpal, J., I wish to add my views on an aspect of the prospective overruling which was sought to be effected by the decision of the Constitution Bench of this Court in [Synthetics and Chemicals Ltd. Vs. State of U.P. (1990) 1 SCC 109];

45. One of the arguments of the appellant as noted by my learned Brother was that the Court in Synthetics case (supra) by resorting to prospective overruling had in fact sought to uphold a law up to the period of the judgment which law had held to have been passed without competence.

It is submitted that the finding that the States were not competent to levy tax on industrial alcohol meant that the State Acts were non est and that the Court could not by giving prospective effect to its judgment breathe life into a dead statute up to the date of the judgment. It was also contended by the appellant that even under Article 142, the Court could not whittle down or act in derogation of any constitutional provision.

By declaring that the statute was valid up to the date of the judgment, according to the appellant, the specific constitutional provisions, namely, Article 246 and Article 245 were infringed. Reliance has been placed on the decision of this Court in [Prem Chand Garg Vs. Excise Commr., U.P., 1963 Supp (1) SCR 885] and [Supreme Court Bar Assn. Vs. Union of India & Anr., (1998) 4 SCC 409].

46. The argument of the appellant proceeds on a misunderstanding of the effect of prospective overruling. As has been elaborately stated in my Learned Brother's Judgment, by prospective overruling the Court does not grant the relief claimed even after holding in the claimant's favour. In this case, the Court held that the statutory provision imposing vend fee was invalid.

Strictly speaking, this would have entitled the appellant to a refund from the respondents of all amounts collected by way of vend fee. But because, as stated [Synthetics and Chemicals Ltd. Vs. State of U.P. (1990) 1 SCC 109] itself, over a period of time imposts and levies had been imposed by virtue of the earlier decision and that the States as well as the petitioners and manufacturers had adjusted their rights and their positions on that basis, this relief was denied.

The Court did not, by denying the relief, authorize or validate what had been declared to be illegal or void nor did it imbue the legislature with competence up to the date of the Judgment.

Prospective overruling has also been expressed as a power which is inherent in the Supreme Court as explained in [Kailash Chand Sharma Vs State of Rajasthan & Ors., (2002) 6 SCC 562]:

40. Arguments were addressed before us on the contours and limitations of the doctrine of prospective overruling applied in our country for the first time in [I. C. Golak Nath & Ors. Vs. State of Punjab & Anr, (1967) 2 SCR 762] in the context of invalidity of certain constitutional amendments and extended gradually to the laws found unconstitutional or even to the interpretation of ordinary statutes.

The sum and substance of this innovative principle is that when the Court finds or lays down the correct law in the process of which the prevalent understanding of the law undergoes a change, the Court, on considerations of Justice and fair deal, restricts the operation of the new-found law to the future so that its impact does not fall on the past transactions.

The doctrine recognizes the discretion of the Court to prescribe the limits of retroactivity of the law declared by it. It is a great harmonizing principle equipping the Court with the power to mould the relief to meet the ends of Justice. Justification for invoking the doctrine was also found in Articles 141 and 142 which as pointed out in Golak Nath case are couched in such wide and elastic terms as to enable this Court to formulate legal doctrines to meet the ends of Justice.

In the aftermath of Golak Nath case we find quite an illuminating and analytical discussion of the doctrine by Sawant, J. in [Managing Director, ECIL Vs. B. Karunakar, (1993) 4 SCC 727]. The Learned Judge prefaced the discussion with the following enunciation: (SCC P. 760, Para 34) It is now well settled that the courts can make the law laid down by them prospective in operation to prevent unsettlement of the settled positions, to prevent administrative chaos and to meet the ends of justice.

The Supreme Court in [M. A. Murthy Vs State of Karnataka & Ors., (2003) 7 SCC 517] explained the rationale for prospective overruling as under:
8. The Learned Counsel for the appellant submitted that the approach of the High Court is erroneous as the law declared by this Court is presumed to be the law at all times. Normally, the decision of this Court enunciating a principle of law is applicable to all cases irrespective of its stage of pendency because it is assumed that what is enunciated by the Supreme Court is, in fact, the law from inception. The doctrine of prospective overruling which is a feature of American jurisprudence is an exception to the normal principle of law, was imported and applied for the first time in [I. C. Golak Nath & Ors. Vs. State of Punjab & Anr, (1967) 2 SCR 762].

In [Managing Director, ECIL Vs. B. Karunakar, (1993) 4 SCC 727], the view was adopted that prospective overruling is a part of the principles of constitutional canon of interpretation and can be resorted to by this Court while superseding the law declared by it earlier. It is a device innovated to avoid reopening of settled issues, to prevent multiplicity of proceedings, and to avoid uncertainty and avoidable litigation.

In other words, actions taken contrary to the law declared prior to the date of declaration are validated in larger public interest. The law as declared applies to future cases. [See Ashok Kumar Gupta & Ors. Vs State of U. P & Ors (1997) 5 SCC 201] and [Baburam Vs. C. C. Jacob & Ors, (1999) 3 SCC 362]. It is for this Court to indicate as to whether the decision in question will operate prospectively.

In other words, there shall be no prospective overruling, unless it is so indicated in the particular decision. It is not open to be held that the decision in a particular case will be prospective in its application by application of the doctrine of prospective overruling. 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.

That being the position, the High Court was in error by holding that the judgment which operated on the date of selection was operative and not the Review Judgment in Ashok Kumar Gupta & Ors. Vs State of U. P & Ors (1997) 5 SCC 201]. All the more so when the subsequent Judgment is by way of review of the first Judgment in which case there are no Judgments at all and the subsequent Judgment rendered on Review Petitions is the one and only Judgment rendered, effectively and for all purposes, the earlier decision having been erased by countenancing the Review Applications. (emphasis supplied)

In [V. George Vs State of Kerala & Anr., (2007) 3 SCC 557] it was held that the power for prospective overruling could also be exercised by the High Court:

14. For the views we propose to take, it is not necessary for us to consider all the decisions relied upon by Mr Rajan. The legal position as regards the applicability of doctrine of prospective overruling is no longer res integra. This Court in exercise of its jurisdiction under Article 32 or Article 142 of the Constitution of India may declare a law to have a prospective effect.

The Division Bench of the High Court may be correct in opining that having regard to the decision of this Court in [I. C. Golak Nath & Ors. Vs. State of Punjab & Anr, (1967) 2 SCR 762], the power of overruling is vested only in this Court and that too in constitutional matters, but the High Courts in exercise of their jurisdiction under Article 226 of the Constitution of India, even without applying the doctrine of prospective overruling, indisputably may grant a limited relief in exercise of their equity jurisdiction.

The net effect of the above analysis is that Judgments will take effect retrospectively unless specifically provided for to operate prospectively to cater to specific situations and for reasons to be stated therein.

Thus, where the question of law has been settled by the Courts, then it has to be held that the said Question of Law was in existence right from day one. However, where the rights of a party have been considered and declared, then the said proceedings cannot be re-opened on the ground that the Judgment on the basis of which, the rights were declared, has been overruled.

The Hon'ble Supreme Court in the case of [Union of India Vs Madras Telephone SC & ST Social Welfare Association, (2006) 8 SCC 662]; held as under:
21. Having regard to the above observations and clarification we have no doubt that such of the applicants whose claim to seniority and consequent promotion on the basis of the principles laid down in the Allahabad High Court's Judgment in Parmanand Lal case have been upheld or recognised by the Court or the Tribunal by Judgment and Order which have attained finality will not be adversely affected by the contrary view now taken in the Judgment in Madras Telephones.

Since the rights of such applicants were determined in a duly constituted proceeding, which determination has attained finality, a subsequent Judgment of a Court or Tribunal taking a contrary view will not adversely affect the applicants in whose cases the Orders / Judgments have attained finality. We order accordingly.

The Constitution Bench Judgment in [National Insurance Company Ltd. Vs Pranny Sethi & Ors., (2017) 16 SCC 680], laid down guidelines on the fixation of future prospects in cases of motor accidents for victims who are permanently employed, receiving a fixed salary, or self-employed. After analyzing the decision in [Sarla Verma & Ors Vs Delhi Transport Corporation & Anr., (2009) 6 SCC 121], the Supreme Court concurred with the view therein regarding the standardization of the addition to income towards future prospects in accordance with §168 of the Motor Vehicles Act 1988.

It also observed that the concept of "just compensation" has to be determined on the foundation of fairness, reasonableness and equitability on acceptable legal standards since such determination "can never be in arithmetical exactitude".

The Constitution Bench, thus, proceeded to record its conclusions as under:

  1. The Two-Judge Bench in Santosh Devi should have been well advised to refer the matter to a Larger Bench as it was taking a different view than what has been stated in Sarla Verma, a Judgment by a Co-ordinate Bench. It is because a Co-ordinate Bench of the same strength cannot take a contrary view than what has been held by another Co-ordinate Bench.
  2. As Rajesh has not taken note of the decision in Reshma Kumari, which was delivered at an earlier point in time, the decision in Rajesh is not a binding precedent.
  3. While determining the income, an addition of 50% of actual salary to the income of the deceased towards future prospects, where the deceased had a permanent job and was below the age of 40 years, should be made. The addition should be 30% if the age of the deceased was between 40 to 50 years. In case the deceased was between the age of 50 to 60 years, the addition should be 15%. Actual salary should be read as actual salary less tax.
  4. In case the deceased was Self-employed or on a Fixed Salary, an addition of 40% of the established income should be the warrant where the deceased was below the age of 40 years. An addition of 25% where the deceased was between the age of 40 to 50 years and 10% where the deceased was between the age of 50 to 60 years should be regarded as the necessary method of computation. The established income means the income minus the Tax Component.
  5. For determination of the multiplicand, the deduction for personal and living expenses, the Tribunals and the Courts shall be guided by Paragraphs 30 to 32 of Sarla Verma which we have reproduced hereinbefore.
  6. The selection of multiplier shall be as indicated in the Table in Sarla Verma read with Paragraph 42 of that Judgment.
  7. The age of the deceased should be the basis for applying the multiplier.
  8. Reasonable figures on conventional heads, namely, loss of estate, loss of consortium and funeral expenses should be Rs. 15,000/-, Rs. 40,000/-, and Rs. 15,000/- respectively. The aforesaid amounts should be enhanced at the rate of 10% in every three years.

The latest view of the Hon'ble Supreme Court appears in Special Leave Petition (C) No. 11039 of 2022 titled [Manoj Parihar & Ors Vs. State of J&K & Ors., decided on 27.06.2022, wherein, it held that when Supreme Court declares a law, the same will have retrospective effect. Taking note of the case of P. V. George (supra) the Supreme Court further reiterated the law declared by the Supreme Court will have retrospective effect, if not otherwise stated to be so specifically.

Thus, it is clear that the Judgment passed by the Hon'ble Supreme Court in the case of Pranay Sethi (supra) will not reopen the settled claims but shall be applied to the cases which are pending before Motor Accidents Claims Tribunals and before the Hon'ble High Courts and Hon'ble Supreme Court of India at the appellate stage, since an appeal is continuation of original proceedings, and/or which will be filed in future.

By virtue of Pranay Sethi (supra) passed by the Full Bench of Supreme Court of India referred to above, a right which already stands adjudicated and settled by Motor Accidents Claims Tribunals, then the same cannot be re-agitated in view of the fact that the law has been re-stated by the Full Bench in the later Judgment.

The doctrine of retrospective application of Judgment in pending Claim Petitions before the Motor Accidents Claims Tribunals and in the lis pending at appellate stage, helps in promoting certainty and consistency in Judicial decisions and enables an organic development of the law providing assurance to the individual as to the consequences of transactions forming part of the daily affairs.

Written By: Dinesh Singh Chauhan, Advocate, High Court of Judicature, Jammu
Email: [email protected]; [email protected]  

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