[Answered] Discuss the principle of ‘dualism’ and ‘monism’ in the context of international law and its enforceability in domestic law, with reference to the Supreme Court’s stance in the Nestle case.

The principles of ‘dualism’ and ‘monism’ are important in the context of international law and its relationship with domestic law. These principles determine how international treaties and agreements are incorporated and enforced within a country’s legal system. The recent judgment of the Supreme Court in “Assessing Officer Circle (International Taxation) New Delhi Vs. M/s Nestle SA” delves into the intricacies of treaty interpretation within the context of Double Taxation Avoidance Agreements (DTAAs). The case revolves around the interpretation of the “most favoured nation” (MFN) clause in tax treaties and its applicability in India without the need for notification under Section 90 of the Income Tax Act.

Principle of dualism and monism in the context of International law

• Dualism: International and domestic law are two different and distinct legal systems in a dualist legal system. They are not inextricably connected, even if they cohabit. Under such a system, an international treaty needs to be specifically enacted into national law or incorporated by the national government for it to be enforceable within the domestic legal system. Until they are enacted into domestic law, international treaties have no immediate legal effect at home.
• Monism: Both domestic and international law are regarded as components of a single, cohesive legal system in a monist legal framework. After they are ratified, international treaties instantly become a component of domestic law; no further domestic legislation is required. Under a monist system, citizens can utilize international treaties in domestic legal processes and domestic courts can enforce them directly, without the need for domestic legislation to convert them into domestic law.

Enforceability of such principles in domestic law concerning the Nestle case

• Uncertainty in Taxation: Foreign investors in India face challenges related to tax uncertainties, not only due to executive decisions but also due to judicial interpretations. This uncertainty complicates the ease of doing business for foreign entities.
• Most Favoured Nation Status: The case revolves around the MFN status in Double Taxation Avoidance Agreements (DTAAs) between India and countries like the Netherlands, France, and Switzerland. These agreements require India to provide preferential tax treatment to other countries that are members of the Organization for Economic Co-operation and Development (OECD).
• Interpretation of International Law: The Court’s interpretation follows a dualist approach, suggesting that international law is not enforceable domestically without transformation into municipal law through enabling legislation. This marks a departure from the monist tradition that incorporates international law into the domestic legal system.
• Potential Consequences: The judgment allows the executive to potentially avoid international law obligations by not issuing relevant notifications domestically. This could not only violate international law but also expose India to international claims under bilateral investment treaties.

Conclusion

The Court’s interpretation provides the executive with the means to negate its international legal obligations by not issuing the necessary domestic notifications. This not only justifies the breach of international law but also exposes India to potential international claims under other international instruments like bilateral investment treaties.