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Principle of equity in legal interpretation
November, 05th 2007
In one of the latest judgments, the Supreme Court has reiterated the principle of equity that is the rule of fairness. This principle was not always followed earlier.
The earlier attitude was that nothing should be read into the words of law. The attitude towards interpretation in favour of fairness and equity developed in later years in the judgments of the Supreme Court.
In the case of Empire Industries vs UOI, 1985 (20) ELT 179 (SC), while the Supreme Court held that in some cases hardship may result in a particular interpretation but that would not influence Court in the construction of statute, the Court hastened to add that in this particular case there was no hardship.
More and more judgments came from the Supreme Court, which underlined the importance of equity in an interpretation. The theory came to be crystallised that if there is only one interpretation and no other, and that interpretation is not in favour of equity, then the Court has to adopt that interpretation. However, if there are two possible interpretations, the one leading to hardship and another in favour of equity, the latter should be preferred.
On principle, equity is no part of law but a moral virtue which qualifies and moderates the rigor, hardness and edge of the law and is an universal truth. It also assists the law where it is defective and weak in the construction, which is the life of law. It also defends the law from crafty evasion, delusions and subtleties, invented and contrived to evade and delude the common law.
In this case of ONGC Ltd Vs. Commissioner of Customs, Mumbai (2007(215) ELT 166 (SC), the issue was that a certain claim of exemption was denied at the original stage but granted later by the Apex Court The rate of 12 per cent asked for by the ONGC was not agreed to. The Supreme Court further held that this entitlement to interest on the amount deposited is on the basis of the application of the principle of restitution.
Several interesting issues arise from this judgment of the Supreme Court.
Firstly, it is not a matter of Customs law but one of the principles of restitution. So it is clear that this principle cannot be applied in any indirect law per se. This principle laid down by the Supreme Court would be applicable only if it is a case of restitution, on which the jurisdiction can only lie with the Court and not with the Executive.
Secondly, the rate itself is subject to fixation by the Court. There is no fixed rate in any law. If the Court had ruled that the actual borrowing or lending rates from the banks would be applied that would mean a measurable amount. Whereas the ONGC asked for 12 per cent interest while the Supreme Court granted 6 per cent without giving any hint to the basis of this fixation. Therefore the rate of interest has been left to uncertainty and to the discretion of the Supreme Court.
Thirdly, in the decision of the Supreme Court to consider equity, a major component is the fact that the ONGC is a public sector undertaking. It gives the impression that the principle of equity would not apply in the case of private companies.
The conclusion is that this decision of the Supreme Court in regard to equity is a qualified one and cannot be applied in general to all companies even if the circumstances of those cases are exactly or substantially equal to those of the present case. It can hardly be cited as a precedent which all Supreme Court judgments are.

Sukumar Mukhopadhyay
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