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India Legal 07 January 2019

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YEAR-END SPECIAL
THE BEST OF INDIA LEGAL
THE BEST OF 2018

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India Legal 07 January 2019

  1. 1. YEAR-END SPECIAL STORIES THAT COUNT ` 100January 7, 2019 www.indialegallive.com InvitationPrice `50 NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com January15, 2018 Parliament: Politics of triple talaq Supreme Court: Year of crucial judgments Death By AadhaarInJharkhandalone,fourpeoplehavediedfromstarvationbecausetheycouldnot accessrationsorpensionunderAadhaarguidelines.This,despitethematterstill pendingbeforetheSupremeCourt.Aninvestigation. SPECIAL REPORT Koyli Devi whose 11-year-old daughter Santoshi Kumari died of starvation in Jharkhand NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com April 2, 2018 AADHAAR: BRIDGINGTHEGAPEvenastheSupremeCourthearingsintheAadhaarprivacycasereachapivotalstage, alittleknownaspectistheprojectpioneeredbyUS-basedentrepreneurVinodKhosla SY Quraishi: On foreign funding for political parties Book Extracts: Prof Arun Kumar on the legality of demonetisation Vinod Khosla InvitationPrice `50 NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com January22, 2018 Hate Speech: Media’s barbed missiles UK Immigration: Relief for students SUPREMECOURT: MUTINYONTHEBENCHNeverinindependentIndia’shistoryhavefourseniorSupremeCourtjudges calledapressconferencetoattackthechiefjusticeandjudicialprocedures. Bysayingdemocracyisindanger,theyhaveexposedariftinthe apexcourtwhichhasalarmingconsequences. (L-R) Justice Kurian Joseph, Justice Jasti Chelameswar, Justice Ranjan Gogoi and Justice Madan B Lokur addessing a press conference in New Delhi NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com April 30, 2018 ThelawandordercrisisinUP—highlightedbytheUnnaoatrocity,encounterraj,and withdrawalofcriminalcases—smacksofacomplicitybetweenpoliticiansandtopofficials Arun Shourie: Cracks in the judiciary SC: Impeachment drama/Loya decision Protect your witness! ll llii s The Yogi And His Commissars ADITYANATH NDIA EGALL STORIES THAT COUNT ` 100 I www.indialegallive.com March26, 2018 NDIIIIIIIIIIIIIIIIIIIIIAAAAAAAAAAAAAAA EGALEE STORIES THAT COUNTSTORIES THAT COUNT `` 100100 N March26March26MM 2018, 2018 JUDGEWITH ADIFFERENCEFewChiefJusticesofIndiahavehadsuchatoughtenure—fromaseriesofsensitive andchallengingcasestoaninternal‘revolt’byhisseniorcolleagues.Yet,injustoversix months,DipakMisrahasputhisstamponthejudiciary.An analysisofhislegacy Arbitration Bill: The right prescription London Tribunal: Secret British role in Operation Blue Star NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com May 21, 2018 HowlongwillIndia’smosttrustedinstitutionsbeableto withstandcontinuingassaults? STORMY WEATHER Police reforms: Backward march! VIP squatters: Booted out DrUpendraBaxi onimpeachment MGDevasahayam oncredibilitycrises InvitationPrice `50 NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com March5, 2018 JEWEL THIEFTheNiravModiscamexposesthe fragilityofIndia’sbankingsystem; acombinationoflaxcorporate governance,corruptofficers,antiquated securityandroguebusinessmen. Itspotlightsotherrich, well-connectedwilfuldefaulters Aadhaar Hearings: Belated recognition Election Commission: Question of autonomy NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com December17, 2018 GDP Figures: Politics over economics Bulandshahr: Killing fields “Mobocracyin thegarbof democracycan neverbejustified” JUSTICEHLDATTU, chairpersonofNHRC, onthehumanrights challengesfacing Indiatodayandwhy Acts,lawsandpolicies alonecannotchange thecountryunless mindsetstoochange EXCLUSIVE INTERVIEW InvitationPrice `50 NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com March12, 2018 DISORDER, WiththechiefjusticeaskedtoformaConstitutionBenchtoresolveanapparentconflict betweentherulingsoftwothree-judgebenches,theapexcourtiscaughtinacontroversyof itsownmaking.Whathasledtothis? Slapgate: The IAS vs Kejriwal unreality show Karti Arrest: Political vendetta? w SUPREMECOURT OOORRDDDEERR,,, askedtedtdtdtdddtdtdtedtoformaConstitutionBenchtoresolveanapparentconflict DISORDER! NDIA EGALEEL STORIES THAT COUNT ` 100 NI www.indialegallive.com December3, 2018 Government versus RBI: Uneasy truce CBI Crisis: Chief justice loses his cool How Healthy is India’s Constitution? OnConstitutionDay,ananalysisoftheremarkabledocumentcreatedbyourfounding fathersandhowithasevolvedtokeeppacewithcontemporarytimes Prof NR Madhava Menon, fatherofmodernlegaleducationinIndia; Prof Ranbir Singh, Vice-Chancellor,NationalLawUniversity, Delhi and PDT Achary, formerSecretaryGeneraloftheLokSabhaanalysedifferentaspectsoftheConstitution INDIA LEGAL THE BEST OF 2018
  2. 2. | INDIA LEGAL | January 7, 2019 3 LETTERFROMTHEEDITOR aims to protect the anonymity of the donor as his name will not be declared. The argument given to support this aim is that many a time, donors do not want to disclose which party they are donating to. However, maintaining donor anonymity at the cost of transparency is a wrong priority. http://www.indialegallive.com/viewpoint/elec- toral-bonds-more-opacity-than-transparency- 42686 MoreOpacityThanTransparency?/Opinion/ SYQuraishi/ElectoralBonds/January29, 2018 The ostensible aim of introducing these bonds was to remove cash donations from political funding, and thereby, black money. Instead, it will lead to crony capitalism and more secrecy. The main problem with the scheme is that it TheBestof 2018 INDIA LEGAL INDERJITBADHWAR OUR MOST-READ STORIES OF 2018 NDIALegalmaintains its advancement and evolution. There’s nothing me- chanicalaboutthis.Themagazine’sexpansion,predominantlyonline,isowing totheeditorsheredevotingaconsiderableamountoftimeruminatingabout itsdistinctivenessandcharacter.WhatmakesIndiaLegalwhatitis?Aswe setaboutplanningthisSpecialEditionoveramonthago,wetooksmall,informalsurveys ofreaderstoassesswhatattributesofthecontentstheyfoundthemostalluringandwere likelyto comebackfor,forasecondhelping.Somestoodoutsharply:Highproductionval- ues;superiorwriting;thought-provokinganalyses;theabilitytoattractsomeofthebest- knownreportersandcommentatorsinthecountry;dedicationtofactandaccuracy;the abilitytoprovidevarietywithinanicheproduct;adesiretoenlightenwithoutbeingbiased. Butmostofall,out-of-the-boxandfiercelyindependentthinking. Eachstoryfeaturedinthisissuereflectsoneormoreoftheseeditorialcharacteristics. In2018,theybecameproductsofourpains,sweat,diligenceandpleasure.Thestories wehavechosenalsocoverawidegamutofthetrialsandtribulationsofIndiansocio-eco- nomiclifethroughtheprismofthenation’sjudicialsystem. Whatfollowsaresub-titlesalongwithbriefsynopses.Forthosewhowishtosharethese storiesontheinternet,wearealsoprovidingindividuallinks.Happyreading. I
  3. 3. 4 January 7, 2019 StrikingHome/JudicialCrisis/March5, 2018 In the latest Economic Survey, unveiled on the eve of the presentation of the budget, the centre acknowledged the need to address pendency, delays and backlogs in the appellate and judi- cial arenas as the next frontier on the ease of doing business in India. Short of treating the Judiciary as another wing of the Executive, the centre expressed its concern that delays and pendency of economic cases are high and mounting in the Supreme Court, high courts, economic tribunals and the tax department. This and the inability to fill va- cancies of judges may shake the confidence of citizens in democracy and the rule of law. http://www.indialegallive.com/special- story/pendency-delays-and-backlogs-in-the-ju- diciary-striking-home-44208 TheRapeofIndia/UnnaoandKathua Atrocities/April23,2018 This week has been one of the darkest in India’s contemporary history. The nation has been wit- ness to the shocking, nauseating details of the rape of two girls, one an eight-year-old child and the other a teenager. More sickening than the actual crime is the manner in which politicians, policemen and even lawyers have attempted, openly and brazenly, to shield the accused. Despite the hor- rific and brutal nature of the crimes, and the national outrage they invoked, it was only after a barrage of criticism that the prime minister broke his silence with a statement. http://www.indialegallive.com/column- news/outrage/unnao-and-kathua-atrocities- the-rape-of-india-2-46833 HasItWorked?/GSTSoFar/April23,2018 Both the GST Council and taxpayers will have to look at this new tax regime as “work in progress” for at least one more year, and con- tinue to take quick corrective action. The question now is how has the GST regime worked since its launch. Before coming to GST revenue collection, which, of course, is of paramount importance, let us first look at some fundamental issues. Did the policy deci- sions work out well? Were they properly imple- mented? Was the technology support ade- quate? What was the impact? http://www.indialegallive.com/top-news-of- the-day/analysis-updates/goods-and-services- tax-so-far-has-it-worked-46922 ASelf-inflictedWound/Impeachment DilemmaProfMadhavaMenon/May7,2018 The action of the chairman of the Rajya Sabha in rejecting the motion to impeach the chief jus- tice is justified and strictly constitutional. He has saved the judiciary from further ridicule. I would characterise the January 12 press conference by some judges of the Supreme Court and the consequent assault on the judici- ary from several quarters as “a self-inflicted wound”. The ill-conceived impeachment motion by Opposition parties, knowing fully well its fu- tility, can be termed “an unnecessary political gambit”. The Republic and We, the People of India, are the losers in the game which some judges and a section of politicians played to set- tle personal scores, advance partisan agendas or whatever else. http://www.indialegallive.com/point-counter- point/a-self-inflicted-wound-47594 PoliticsofEmbarrassment/SupremeCourt /UpendraBaxi/May21,2018 The glacial pace of action increasingly imperils both judicial independence and the constitu- tional republic. There has been more heat than light over the motion initiated by individual members of seven Opposition parties regarding removal proceedings against Chief Justice of India (CJI) Dipak Misra. The motion was moved on April 20, 2018, disallowed by the Rajya Sabha Chair on April 23, and challenged as arbitrary and unconstitutional by two Congress signatories in the Supreme Court on May 7. The plea argued that “the impugned order, in a cavalier, cryptic and abrupt manner, shockingly holds that none of the other charges are made out without dis- closing as to on what basis this finding was re- turned”. If the CJI has the power to constitute benches, being the master of the roster, can his order be challenged on the ground of natural justice whose venerable and valuable maxim is LETTERFROMTHEEDITOR
  4. 4. TheBestof 2018 INDIA LEGAL the-day/analysis-updates/rampant-lynchings- in-india-the-macabre-murderous-mobs-51342 PrideoverPrejudice/Section377/ September17,2018 In a historic judgment, the Supreme Court quashed its 2013 verdict and decriminalised consensual homosexuality. But the fight to gain acceptance and change mindsets will be tough. Five years after it attracted global criticism for upholding the 157-year-old draconian law criminalising consensual homosexual sex, the Supreme Court made a much-needed course correction and created history. It was easily one of the most progressive and beautifully articu- lated judicial pronouncements of recent times. The verdict by a five-judge constitution bench overturned the top court’s Suresh Koushal judgment of 2013 and read down Section 377 of the Indian Penal Code (IPC), thereby legal- ising consensual gay sex. http://www.indialegallive.com/constitutional- law-news/special-report-news/section-377- pride-prejudice-54126 FromRawDealtoNewDeal/Womenin Judiciary/November26,2018 Their numbers are abysmal. While there has never been a woman chief justice, the fairer gender forms just nine percent of justices in High Courts. What can be done to make the Ju- diciary more egalitarian? Women have got a raw deal when it comes to top legal appointments or judicial eleva- tions—this much stands recognised by consti- tutional elites. The sculpting of a New Deal for Indian women is an uphill task and occurs at a slow and meandering pace. How to fast-for- ward this pace is an integral aspect of “consti- tutional renaissance” which former Chief Justice Dipak Misra recently affirmed for the Court. http://www.indialegallive.com/viewpoint/wom en-in-judiciary-from-raw-deal-to-new-deal- 57342 that no person shall be a judge in her cause? Can one object to a bench of five other senior- most non-collegium justices, other than the four who had taken part in a press conference on January 12, 2018? http://www.indialegallive.com/viewpoint/pol- itics-of-embarrassment-48296 SurvivingtheGreatBankRobbery/India’s BankingMess/July9,2018 The burgeoning NPAs of banks can be tackled by creating a “bad” bank and using the expertise of distressed debt specialists from the private sector. India’s banking crisis is not a passing storm. It is a hurricane gathering force that could make landfall within the next six to nine months. The end game for India’s government banks (PSBs) could be drawing near. For the fiscal year 2017-18, 19 of the 21 government banks reported losses totalling `87,000 crore. Bad loans, called NPAs, threaten the viability of these banks and pose significant risks to India’s financial stability. Despite the country’s high economic growth, the risk of bank failures and a systemic contagion is real and increasing in probability. http://www.indialegallive.com/did-you-know- facts-about-news/perspective-news/surviving- the-great-bank-robbery-50684 TheMacabre,MurderousMobs/Lynchings/ ShivViswanathan/July16,2018 Social media, acting as a midwife, has led to pervasive and irrational mob fury with the po- lice being helpless. These responses are part of deeper changes in society where people are con- fronting the anxieties of development. A few months back, at a philosophy seminar, a colleague and I were talking of the violence of mobs. He asked almost jokingly what would have happened if the Inquisition was speeded up by the mobile phone and internet technol- ogy. Girolamo Savonarola, the grand inquisitor and Italian friar known for his prophecies, rather than being a failed witch-hunter would have made Joseph Stalin look weak and silly. Technology, my colleague felt, speeded up evil. http://www.indialegallive.com/top-news-of- Twitter: @indialegalmedia Website: www.indialegallive.com Contact: editor@indialegallive.com | INDIA LEGAL | January 7, 2019 5
  5. 5. 6 January 7, 2019 ContentsVOLUME XII ISSUE8 JANUARY7,2019 OWNED BY E. N. COMMUNICATIONS PVT. LTD. A -9, Sector-68, Gautam Buddh Nagar, NOIDA (U.P.) - 201309 Phone: +9 1-0120-2471400- 6127900 ; Fax: + 91- 0120-2471411 e-mail: editor@indialegalonline.com website: www.indialegallive.com MUMBAI: Arshie Complex, B-3 & B4, Yari Road, Versova, Andheri, Mumbai-400058 RANCHI: House No. 130/C, Vidyalaya Marg, Ashoknagar, Ranchi-834002. LUCKNOW: First floor, 21/32, A, West View, Tilak Marg, Hazratganj, Lucknow-226001. PATNA: Sukh Vihar Apartment, West Boring Canal Road, New Punaichak, Opposite Lalita Hotel, Patna-800023. ALLAHABAD: Leader Press, 9-A, Edmonston Road, Civil Lines, Allahabad-211 001. Editor Inderjit Badhwar Senior Managing Editor Dilip Bobb Deputy Managing Editor Shobha John Executive Editor Ashok Damodaran Contributing Editor Ramesh Menon Deputy Editors Prabir Biswas Puneet Nicholas Yadav Senior Writer Vrinda Agarwal Art Director Anthony Lawrence Deputy Art Editor Amitava Sen Senior Visualiser Rajender Kumar Photographers Anil Shakya, Bhavana Gaur Photo Researcher/ Kh Manglembi Devi News Coordinator Production Pawan Kumar CFO Anand Raj Singh Sales & Marketing Tim Vaughan, K L Satish Rao, James Richard, Nimish Bhattacharya, Misa Adagini Circulation Team Mobile No: 8377009652, Landline No: 0120-612-7900 email: indialegal.enc@gmail.com PublishedbyProfBaldevRajGuptaonbehalfofENCommunicationsPvtLtd andprintedatAcmeTradexIndiaPvt.Ltd.(UnitPrintingPress),B-70,Sector-80, PhaseII,Noida-201305(U.P.). Allrightsreserved.Reproductionortranslationinany languageinwholeorinpartwithoutpermissionisprohibited.Requestsfor permissionshouldbedirectedtoENCommunicationsPvtLtd.Opinionsof writersinthemagazinearenotnecessarilyendorsedby ENCommunicationsPvtLtd.ThePublisherassumesnoresponsibilityforthe returnofunsolicitedmaterialorformateriallostordamagedintransit. AllcorrespondenceshouldbeaddressedtoENCommunicationsPvtLtd. Senior Content Writer Punit Mishra (Web) Important Judgments January-December 2018 8 12 14 18 20 THEBESTOFINDIALEGAL2018 More Opacity than Transparency? January 29, 2018 Striking Home March 5, 2018 The Rape of India April 23, 2018 Has it Worked? April 23, 2018
  6. 6. | INDIA LEGAL | January 7, 2019 7 Followuson Facebook.com/indialegalmedia Twitter:@indialegalmedia Website:www.indialegallive.com Contact:editor@indialegallive.com Cover Design: ANTHONY LAWRENCE 34 40 Surviving the Great Bank Robbery July 9, 20018 Power to the People July 16, 2018 The Macabre, Murderous Mobs July 16, 2018 Court Stands up to Mobocracy July 30, 2018 Many Shades of Truth Cartoons 2018 64 30 A Self-inflicted Wound May 7, 2018 24 Politics of Embarrassment May 21, 2018 26 36 The Chief Justice and the Messenger December 3, 2018 60 54 58 42 46 Nothing New About Whataboutery August 20, 2018 Pride over Prejudice September 17, 2018 Preventive Measures October 29, 2018 From Raw Deal to New Deal? November 26, 2018 The New Dictionary November 26, 2018 52 CALENDARSFROMSELECTCOURTS Supreme Court of India.........29 High Court of Delhi..............51 High Court of Bombay..........53 High Court of Calcutta..........59 High Court of Punjab and Haryana .......................66
  7. 7. 8 January 7, 2019 LOOKBACK THECOURTS In a 4:1 verdict, a constitutional bench of the Supreme Court upheld the validity of the Aadhaar Act while confirming the discretion of the citizens in obtaining one. However, the apex court while balancing proportionality and necessity, read down certain provisions of the Act such as Section 33(1), which allowed disclosure of information, including identity and authentication records, if ordered by a court not inferior to that of a district judge. This cannot be done now without giving the person con- cerned an opportunity to be heard. It also struck down Section 47 (which barred an aggrieved indi- vidual from filing a complaint against data leak or misuse) and read down Section 57 of the Act (which empowered private companies to seek Aad- haar details of their customers for authentication). Important Judgments of 2018 CONSTITUTIONALLAW AADHAAR IS VALID Date of Judgment: September 26, 2018 A five-judge constitutional bench of the Supreme Court declared Section 377 of the IPC unconstitu- tional insofar as it criminalised consensual homo- sexual acts, and clarified that bestiality would continue to remain a criminal offence under the Section. The bench affirmed the principle that the will and views of the majority cannot rule upon the rights given to a person by the Constitution. It also said that “sexual orientation is natural. Discrimina- tion on the basis of it is a violation of freedom of speech and expression”. This judgment overturned the verdict in the Suresh Kumar Koushal case. SECTION 377 READ DOWN Date of Judgment: September 6, 2018 A five-judge constitutional bench of the Supreme Court struck down Section 497 of the IPC and de- clared the law which criminalised adultery as un- constitutional while maintaining that it will be considered a ground for divorce. The bench held that Section 497 was “manifestly arbitrary” as it punished a married man for having sex with the wife of another man, but did not even punish the woman as an abettor. The bench also said the pro- vision was violative of a woman’s right to dignity under Article 21. CRIMINALLAW ADULTERY IS NOT A CRIME Date of Judgment: September 27, 2018 UNI commons.wikimedia.org
  8. 8. TheBestof 2018 INDIA LEGAL | INDIA LEGAL | January 7, 2019 9 A five-judge constitutional bench of the Supreme Court allowed passive euthanasia, saying that the right to life in- cludes the right to die with dig- nity. The bench also said that a terminally ill patient can execute a “living will” or “advanced medical directive” to refuse medical sup- port if he or she slipped into irreversible coma. The judgment also made it clear that the right to die with dignity excludes active euthanasia and there is a procedure for how passive euthanasia can be allowed in such situations. While hearing an appeal against a Chhattisgarh High Court order confirming the death sentence awarded to an accused, Chunnulal Verma, a three-judge bench of the Supreme Court commuted it to life imprisonment. The bench observed that “every death penalty case before the court deals with a human life that enjoys certain constitutional protections, and if life is to be taken away, then the process must adhere to the strictest and highest constitutional standards. Our con- science as judges, which is guided by constitutional principles, cannot allow anything less than that”. However, the judges held different views regarding the constitutionality of capital punishment—Jus- tices Deepak Gupta and Hemant Gupta spoke in favour, while Justice Kurian Joseph took a dissent- ing view and called for its review. DEATH PENALTY CASES MUST ADHERE TO CONSTITUTIONAL STANDARDS Date of Judgment: Novem- ber 28, 2018 RELIGIONANDFAITH PASSIVE EUTHANASIA IS PERMISSIBLE Date of Judgment: March 9, 2018 Two months after it concluded an eight-day-long hearing, a constitutional bench of the Supreme Court struck down the rule which barred women between the ages of 10 and 50 from entering the Sabarimala temple in Kerala. The petitioners had challenged the provisions of the Kerala Hindu Places of Public Worship (Authorisation of Entry) Rules, 1965, saying that the restriction on women of a reproductive age from entering the temple was unconstitutional and violated the right of Hindu women to practise religion freely. The apex court held the temple rule violative of the right to equality and right to worship by a 4:1 majority. WOMEN OF ALL AGES CAN ENTER SABARIMALA Date of Judgment: September 28, 2018 HUMANRIGHTS The apex court dismissed a plea against the pro- posed deportation of seven Rohingya refugees to their country of origin, Myanmar. The counsel for the petitioners argued that the concerned persons were actually refugees and not illegal immigrants as they had fled to India to save their lives from one of the “worst instances of mass killings” and “unimaginable torture”. Thus, they should not be forced to go back unless they were willing to do so. However, a bench led by CJI Ranjan Gogoi stated that “they have been found to be illegal immigrants. Their country of origin has accepted them as citi- zens”. This decision attracted criticism from the United Nations, which said that forcing the Ro- hingyas to return to Myanmar was a violation of in- ternational law. ROHINGYAS ARE ILLEGAL IMMIGRANTS Date of Dismissal: October 4, 2018 UNI UNI
  9. 9. 10 January 7, 2019 A five-judge constitutional bench of the Supreme Court held that candidates cannot be barred from contesting elections based on the filing of criminal charge sheets against them. Under the Representa- tion of the People Act, lawmakers can only be barred from contesting after they have been con- victed in criminal cases. The bench, however, urged the legislature to consider framing legislation to en- sure decriminalisation of politics. POLITICAL CANDIDATES WITH CRIMINAL CHARGES CANNOT BE BARRED FROM CONTESTING POLLS Date of Judgment: September 25, 2018 The centre and state governments sought reconsid- eration of the M Nagaraj judgment, saying that it places needless conditions on granting quota bene- fits to SCs and STs. The apex court held that the judgment does not need to be referred to a larger bench of seven judges. The Court said that there was no re- quirement to collect quantifiable data on the backwardness of SCs and STs in order to provide reservations in pro- motions. NO NEED TO COLLECT QUANTIFIABLE DATA ON BACKWARDNESS OF SCs/STs Date of Judgment: September 26, 2018 After a long and bitter power struggle between Delhi Chief Minister Arvind Kejriwal and Lieutenant-Governor (L- G) Anil Baijal, a three-judge bench of the Supreme Court held that the L-G is not eligible to act independently and is mandated to take the advice of the council of ministers. The Court held that persons holding high office are ex- pected to conduct themselves in faithful discharge of their duties so as to ensure smooth running of the administra- tion so that the rights of all can be protected. It also ob- served that totalitarian theory, absolutism, anarchy, and such related terms do not apply in a state like India. DELHI L-G NOT ELIGIBLE TO ACT INDEPENDENTLY Date of Judgment: July 4, 2018 SOCIALWELFARE CENTRE-STATERELATIONS The Delhi High Court listed exhaustive directions that are to be mandatorily followed while exercising the power of preventive detention under Sections 107 and 151 of the Code of Criminal Procedure, 1973. These directives were issued looking into the widespread misuse of such powers by special executive magistrates and the police. POWER OF PREVENTIVE DETENTION SUBJECT TO GUIDELINES Date of Judgment: November 1, 2018 CRIMINALPROCEDURECODE A three-judge bench of the Supreme Court made the judicial system more accessible by per- mitting live streaming of cases which raised cer- tain questions of consti- tutional importance. The bench said such court proceedings were of larger public interest and should thus be made easily viewable for the general public. However, certain categories of cases such as those involving juveniles, matrimonial disputes and sex- ual assault offences were exempted from live streaming. The bench also directed the government to frame ex- haustive and holistic guidelines based on which live streaming can commence on an experimental basis in one court. LIVE STREAMING OF COURT PROCEEDINGS Date of Judgment: September 26, 2018 PUBLICINTEREST —Compiled by Deepankar Malviya TheBestof 2018 INDIA LEGAL LOOKBACK THECOURTS UNI UNI
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  11. 11. 12 January 7, 2019 OPINION ELECTORALBONDS SYQURAISHI NE of the defining features in the Union Budget 2017 was the govern- ment’s intention to improve trans- parency in electoral funding. Finance Minister Arun Jaitley in his speech as- serted that without transparent fund- ing of political parties, free and fair elections were not possible and even after 70 years of independence, the country has not been able to evolve a transparent method of political funding. Parties continue to receive most of their funds through anonymous donations in cash, he said. “An effort, therefore, is required to be made to cleanse the system of political funding in India,” he stressed. What followed these noble promises of trans- parency was a proposal to introduce electoral bonds to fund political parties. Bonds are purchasable from authorised banks and redeemable only in the desig- nated account of a registered party within a short time of 3-4 weeks. Under the proposal, people can donate to political parties in electoral bonds and not in cash. This is a good thing as it would certainly stop cash payments. However, the name of the donor or receiver would not be declared. But keeping the iden- tity of the donor a secret takes away the transparency of funding that existed until now. The reason offered was that donors want secrecy. Now why should donors want anonymity unless they don’t want the favours bestowed by governments on them in the form of contracts, licences, loans, etc, (quid pro quo) to become public? It’s a clear case of the private in- terest of donors being in conflict with the public in- terest in transparency. On the other hand, there were the rather hushed amendments in the Finance Bill, 2017, which removed the cap of 7.5 percent of net profit of the last three financial years which a company could do- nate to a political party. This meant that a company can exist just to run political parties and through them, the government. However, Jaitley in his reply to the Rajya Sabha debate on the Appropriation Bill, assured the House that all the concerns, including corporate political contribution, would be addressed in the electoral bond scheme. He invited suggestions from every- one, assuring them that their concerns would be addressed. It is against this background that Jaitley an- nounced the scheme on January 2, 2018. Electoral bonds, which are interest-free banking instruments, can be bought from specified branches of the State Bank of India in multiples of `1,000, `1 lakh, `10 lakh or `1 crore. The life of these bonds is 15 days and they can be encashed only by registered political par- ties through a designated bank account. They will be available for purchase for 10 days each in the months of January, April, July and October, as specified by the government. Additionally, a 30-day period will be specified by the central government in the year of a general election. The main argument given by Jaitley in favour of electoral bonds is that as each party would have to file returns to the Election Commission declaring the funds it had received in total, this step would be the beginning of reforms in political funding. The aim is to root out the current system of anonymous cash do- nations made to political parties and eliminate black money from electoral funding by making all dona- tions cashless. A good feature of the new scheme is that parties More Opacity Than Transparency? Theostensibleaimofintroducingthesebondswastoremovecashdonationsfrompolitical fundingandthereby,blackmoney.Instead,itwillleadtocronycapitalismandmoresecrecy O
  12. 12. TheBestof 2018 INDIA LEGAL | INDIA LEGAL | January 7, 2019 13 the country faces today. However, given the objec- tions discussed above, electoral bonds might not be the solution towards a more transparent political funding system. The ideal solution would be to set up a National Electoral Fund to which all donors can openly contribute without expressing any preference for any political party and without fear of harassment from other parties. In return, these corporates can be given a tax rebate. The funds could then be allocated to all registered political parties in proportion to the votes obtained. This will not only ensure a level play- ing field, but also address donors’ concern about se- crecy. It will also ensure that the nexus between big corporations and political parties is nipped. In the long run, however, private donations in political finance must be replaced with public fund- ing, if we are to move towards a truly transparent system. It is only then that the problem of black money in this area will be solved. And as public funds will be involved, there must be an annual audit by the Comptroller and Auditor General or an auditor approved by it. This will be a most decisive electoral reform that the country needs for trans- parency of political funding, without which free and fair elections are not possible. One hope that remains is that the “government is willing to consider all suggestions to further strengthen the cleansing of political funding in India”, as the finance minister stated. —The writer is a former Chief Election Commissioner which secured more than one percent votes in the most recent election would only be eligible to receive funding. This is to eliminate fly-by-night operators who may form a political party for money laundering. The finance minister, however, has not dispelled fears about crony capitalism increasing manifold with the removal of the 7.5 percent cap on the amount of profit which companies can donate. The government expressing its commitment to transparency of political funding and placing it high on its agenda is welcome. However, the truth is that absolutely no one seems to be supporting the finance minister’s move. Political experts are, in fact, arguing that instead of increasing transparency, the move will lead to a more opaque system of political funding. Milan Vaishnav, a senior fellow and director of the South Asia Programme at the Carnegie Endowment for International Peace, writes in a mainstream paper: “Billed as a victory for transparency in politi- cal funding, the bonds, in fact, are anything but a vic- tory. Far from reducing opacity in how politics is financed, this new vehicle merely legitimises it.” Many have also said that the scheme is biased in favour of the ruling parties as they can easily find out which corporation has bought electoral bonds and donated to rival parties. It can then harass them in a myriad ways. T he main problem with the scheme is that it aims to protect the anonymity of the donor as his name will not be declared. The argu- ment given to support this aim is that many a time, donors do not want to disclose which party they are donating to. However, maintaining donor anonymity at the cost of transparency is a wrong priority. A com- pany generally wishes to remain anonymous so that the public does not find out the ways in which the ruling regime paid it back. In such a scenario, elec- toral bonds, instead of improving transparency, will make it more opaque and the information less acces- sible to the public. If the aim is to establish a trans- parent political funding system, it is imperative for people to know which corporations contribute to- wards which parties. By protecting donor anonymity, the scheme seems to be missing the most crucial point about transparent electoral funding. The issue of black money is indeed a huge problem Why should donors want anonymity, unless they don’t want the favours bestowed by governments on them in the form of contracts, licences, loans, etc, to become public? January 29, 2018 ISSUE OF POLL FUNDING: Former UP CM Akhilesh Yadav at a roadshow UNI
  13. 13. 14 January 7, 2019 FOCUS JUDICIALCRISIS N the latest Economic Survey, unveiled on the eve of the presentation of the budget, the centre acknowledged the need to address pendency, delays and backlogs in the appellate and judicial are- nas as the next frontier on the ease of doing business. “These are hampering dispute resolution and contract enforcement, dis- couraging investment, stalling projects, hampering tax collections but also stressing tax payers, and escalating legal costs. Coordinated action between the government and the judiciary—a kind of hori- zontal Cooperative Separation of Powers to comple- ment vertical Cooperative Federalism between the central and state governments—would address the ‘law’s delay’ and boost economic activity,” the centre suggested. Short of treating the Judiciary as another wing of the Executive, the centre expressed its concern that delays and pendency of economic cases are high and mounting in the Supreme Court, high courts, economic tribunals and the tax department. This, it said, is taking a severe toll on the economy in terms of stalled projects, mounting legal costs, contested tax revenues and reduced investment. Delays and pendency, the centre further ex- plained, stem from the increase in the overall work- load of the judiciary. This was due to expanding jurisdictions and the use of injunctions and stays. In the case of tax litigation, this stems from the gov- ernment persisting with litigation despite high rates of failure at every stage of the appellate process. Therefore, the centre suggested that courts and the government could act together and considerably improve the situation. Clearly, the centre is seeking support for an understanding of the doctrine of sep- aration of powers, which is different from the man- ner it is traditionally understood. This doctrine does not mean that the institutions of Judiciary, Execu- tive and Legislature are always at loggerheads. But they are not supposed to be in collusion either, as the Constitution envisages the Legislature and the Judiciary to perform the role of watchdogs, even as the Executive has the power and discretion to ex- ercise the responsibilities assigned to it fairly and effectively. The Economic Survey, it may be noticed, main- tains an eloquent silence over the centre’s omissions and commissions for the delays and pendency of cases in courts. For this, sufficient data is available in the public domain. The hiccups in the judiciary have gripped lawyers and those in the Orissa and Karnataka High Court Bar Associations went on strike recently over delays in filling judges’ vacancies. The sanctioned and working strength of judges in the 24 high courts in the country are 1,079 and 676 respectively. The judge-case ratio in district and subordinate courts is calculated to be 1,175 cases per judge. As per the Constitution, the selection and ap- pointment of judges in subordinate courts is the re- sponsibility of state governments and high courts concerned. The Supreme Court, through a judicial Striking Home IntheEconomicSurvey,thecentre acceptstheneedtoaddressbacklogs inthejudiciary.Thisandtheinabilityto fillvacanciesofjudgesmayshakethe confidenceofcitizensindemocracy andtheruleoflaw By Venkatasubramanian I
  14. 14. TheBestof 2018 INDIA LEGAL | INDIA LEGAL | January 7, 2019 15 higher judiciary is staring in its face. Clearly, the centre cannot absolve itself of its responsibility in not filling the vacancies in the higher judiciary. The recent stalemate between the centre and the Supreme Court’s collegium in appointing two judges to the apex court is one indication of the ex- tent of trust deficit between the two. The collegium recommended the names of the chief justice of the Uttarakhand High Court, Justice KM Joseph and senior advocate of the Supreme Court, Indu Malho- tra to be promoted as Supreme Court judges. Both the recommendations were hailed by the commu- nity of lawyers and judges as the best nominations in recent times. Justice Joseph, though not high on the all-India seniority list, is respected for his legal acumen, and therefore, the collegium justified giving preference to merit over seniority. As Justice Joseph is likely to retire as a high court judge at the age of 62 on June 16, 2020, an elevation to the Supreme Court now would help the country utilise his services till he is 65, the current retirement age of Supreme Court judges. But the centre does not favour his elevation because as chief justice of the Uttarakhand High Court in 2016, he had quashed the imposition of President’s Rule in the state when the Congress was in power. Therefore, it is not surprising that the centre is sitting on the recommendation of the col- legium, citing his lack of seniority in the all-India list, and the need to balance regional representation in the Supreme Court. If the Centre returns the rec- ommendation to the collegium and the collegium order in the Malik Mazhar case, has devised a process and time-frame to be followed for the filling up of vacancies in the subordinate judiciary. The order of January 2007 stipulates that the process for recruitment of judges in subordinate courts would commence on March 31 of a calendar year and end by October 31 of the same year. The Supreme Court has permitted state governments/high courts variations in the time schedule in case of any difficulty based on the pecu- liar geographical and climatic conditions in the state or other relevant conditions. The centre does not have a role under the Constitution in the selec- tion and appointment of judicial officers in dis- trict/subordinate judiciary. T he sanctioned and working strength of ju- dicial officers in district and subordinate courts is 22,622 and 16,707 respectively. There are 5,915 vacancies in these courts at present. Of the total pending cases in the lower judiciary— 2,64,36,901—those pending for over 10 years alone is 22,60,620. This constitutes 8.55 percent of the total. Cases pending between five to ten years con- stitute 16 percent of the total and number 42,30,507. Cases pending between two to five years constitute 28.68 per cent and number 75,82,975. Cases pending less than two years constitute 46.76 percent and number 1,23,62,781. During a debate in Parliament on January 4 on increasing judges’ salaries, Union Minister for Law and Justice Ravi Shankar Prasad said that the cen- tre favours the All India Judicial Service as an answer to vacancies and pendency of cases, but the high courts are against it. Prasad also said that he was hopeful that he would be able to convince the high courts to agree to the proposal. He said: “The high courts feel it is their domain. If there is Indian Administrative Service, Indian Foreign Service and Indian Police Service, there is a need to have an All India Judicial Service having the best minds of India.” But the centre knows that it is not easy to persuade high courts to cede their domain to the centre. Even as the centre aims at encroaching on the powers of high courts in order to have a say in filling vacancies in the lower judiciary, the crisis in the UPHILL CHALLENGE Karnataka CM Siddaramaiah meeting striking advocates who are demanding appointment of judges to the high court The Advocates Association, Bengaluru
  15. 15. 16 January 7, 2019 reiterates it, it is binding on the centre. The mem- bers of the Collegium, according to reports, are de- termined to reiterate their recommendation if the centre sends it back for reconsideration. The reports suggest that the five senior judges of the Supreme Court, who comprise the collegium, are aware that the centre may resist Justice Joseph’s appointment. That is why, it appears, the collegium sent the name of only one high court chief justice for elevation to the Supreme Court. This will allow it to apply sufficient pressure on the centre to act on it, so that other pending names could be recom- mended later. T here are currently six vacancies in the Supreme Court. The number can go up to 12 as six more judges are likely to retire this year. Due to the stalemate over Justice Joseph, the appointment of Indu Malhotra, who would be the fifth woman judge of the Supreme Court and the first woman member from the Bar to be elevated, is also getting needlessly delayed. During the debate in Lok Sabha on January 4, Prasad explained the reasons for the delay in final- isation of Memorandum of Procedure (MoP). This has been hanging fire since December 2015 when the Supreme Court directed the centre to submit a revised draft to the collegium in the light of its judg- ment in the NJAC case. Prasad said: “There are cer- tain issues where we are insisting that there should be greater scrutiny and greater screening so that good people may come…” On February 7, the Minister of State for Law and Justice and Corporate Af- fairs, PP Chaudhary, told the Lok Sabha, in response to a question: “The views of the Government were conveyed to the Chief Justice of India on 03.08.2016. The inputs on the MoP of the Supreme Court Collegium was received from CJI through a letter dated 13.03.2017.” Since then, according to the govern- ment’s own admission, there has been no progress towards finalising the MoP. The centre has claimed that it has conveyed the need to make an improvement on the draft MoP to the secretary general of the Supreme Court vide letter dated 11.07.2017. “As the process of finalising the supplementation of the ex- isting MoP was likely to take some time, at the ini- tiative of the Government, the matter of continuing the appointment process was taken up with Supreme Court and it is continuing in accordance with the existing MoP to fill the vacancies of Judges in the Supreme Court and the High Courts,” the centre told the Lok Sabha. In January this year, only three fresh appointments of judges in high courts have been made. The MoS concluded his reply to the Lok Sabha: “The prevailing challenges facing the Judiciary are largely to be addressed by the Judiciary as it is an in- dependent organ under the Indian Constitution. The Government is committed to the independence of Judiciary and does not intervene in its functioning.” However, there continues to be a huge gap be- tween what the government is professing and what is seen in practice. And the strikes by lawyers of Orissa and Karnataka High Court Bar Associations on the delay in filling judges’ vacancies are an indi- cation that all is certainly not well in the judiciary. As on February 2018, 7,55,459 cases were pending in the Supreme Court and 41.84 lakh cases in various high courts. This number is likely to rise exponentially, if the crisis over appoint- ments continues. STUCK IN DISCORD The Supreme Court collegium has recommended the names of senior advocate of the Supreme Court, Indu Malhotra (left) and Chief Justice of Uttarakhand High Court, Justice KM Joseph (centre) to be promoted as Supreme Court judges; Minister of Law and Justice Ravi Shankar Prasad March 5, 2018 TheBestof 2018 INDIA LEGAL FOCUS JUDICIALCRISIS
  16. 16. 18 January 7, 2019 COLUMN UNNAOANDKATHUAATROCITIES DILIPBOBB ...More sickening than the actual crime is the man- ner in which politicians, policemen and even lawyers have attempted, openly and brazenly, to shield the accused. Despite the horrific and brutal nature of the crime, and the national outrage it in- spired, it was only after a barrage of criticism that the prime minister broke his silence with a state- ment. The silence of the bigwigs was as damning as the evidence regarding the perpetrators of the rapes that have shamed this nation beyond all the love ji- hads and lynching of minorities. Even UN secretary general Antonio Guterres termed the gangrape and murder in Kathua as a “horrific” incident and asked Indian authorities to ensure that the guilty were brought to justice. There is now a madness gripping this country, fuelled by motivated and manufactured hyper-na- tionalism, horribly misplaced Hindu pride, misog- yny and the perpetual curse of India’s caste system. That has been reflected in our politics, where hype and hysteria and abusive exchanges have become the new normal. This week’s events should be cause for national mourning, yet there are so few tears, so little remorse, and, chillingly, no repentance or re- gret on the part of those sick, twisted minds who de- stroyed the life of one and took the life of another innocent girl. It was, in the end, not the rape of in- nocent girls, it was the rape of India. The Rape of India ThisweekhasbeenoneofthedarkestinIndia’scontemporaryhistory.Thenationhasbeenwitness totheshocking,nauseatingdetailsoftherapeoftwogirls,oneaneight-year-oldchildandtheother ateenager... Photos: UNI
  17. 17. | INDIA LEGAL | January 7, 2019 19 morrow. Her father says she was mischievous but responsible enough to stay out late in the forest to ensure every horse and sheep they owned had reached home. The bigger tragedy is the communal contours of the case. The girl was a Muslim, a mi- nority in Jammu. Immediately after the rape, a self- appointed Hindu group staged demonstrations in support of the rapists, and, predictably, raised na- tionalist slogans and waved the national flag. That one act shows the impact of the hate mongering— fuelled by hyper and TRP-chasing television an- chors, politicians and right-wing activists. The flag conceals and covers all sins, or so they believe. It would be difficult to find a greater level of depravity than to communalise the rape of a child. There are places and events which are signposts to the direction we as a nation and a people are taking. Nellie, Babri Masjid, Bhopal, the Emer- gency, Godhra riots, 26/11, Nirbhaya. They are re- minders of man’s inhumanity to man. That list now includes Kathua and Unnao. They hold up a mirror to our darkest side, as people, and as Indi- ans. There is much wailing and breast-beating on social media but very little angst. Angst refers to a feeling of anxiety or dread, typically about the human condition. Now is that time. If the events of the past week, and the muted reactions, are any indication, we have lost the one thing that defines us as a species—our humanity. If there is any consolation, it is in the fact that the Supreme Court has agreed, of its own accord, to take up both the cases and wants it mentioned in writing that the lawyers in Kathua, in Jammu, agi- tated to prevent the filing of a chargesheet against the rape accused and, additionally, that these lawyers threatened those representing the family of the eight-year-old who was raped. The second case is more revealing of the depths we now occupy. It took place in Unnao, in India’s most populous state, and the main accused is a leg- islator who belongs to the ruling dispensation. Just reading the account of how the teenager was raped, in September last year by Kuldip Singh Sen- gar, a powerful upper caste politician, how the po- lice refused to act, her attempt to commit suicide outside the house of the chief minister, and the subsequent death of her father, tortured in police custody, is a reality check for those who believe that ache din are here, that “Beti Bachao, Beti Pad- hao” was a commitment, not a slogan, and that saf- fron-clothed politicians like Yogi Adityanath are God’s chosen ones. T his is now the age of hate-mongers. It is also the age where competitive communalism and the unending patriarchy of Indian soci- ety can provide a cloak of invincibility to its practi- tioners. Just read, if your tears allow you, the details of the Kathua rape, an act of such perversity that it actually took place inside a temple. There is a police chargesheet which, even in its stilted, formatted lan- guage exposes the barbaric and medieval culture that survives in many parts of this country. It details how a little child from a nomadic community had taken her family’s horses to graze in a nearby forest and never returned. She was drugged, taken to a local temple, and eight men, including local police- men, raped her repeatedly. One of them even invited a friend from Meerut, hundreds of miles away, to take part. The eight-year-old child was strangled and then hit over the head till she was dead. For all those who have remained silent and in- different to the rapes, and what is taking place around us, I have one request. Look at her photo- graph. This is the carefree innocence of a child, the eyes full of hope and laughter and the promise of to- DEATH OF HUMANITY BJP MLA from Unnao Kuldip Singh Sengar arrested for the alleged rape; (facing page) Priyanka Gandhi at a protest march in Delhi April 23, 2018 TheBestof 2018 INDIA LEGAL
  18. 18. 20 January 7, 2019 t’s been nine months since India imple- mented GST. There cannot be any doubt that the country needed it. Efforts were on since 2006 to get this tax regime im- plemented. Finally, it was introduced in July 2017. The question now is how has the GST regime worked since its launch. Before coming to GST revenue collec- tion, which, of course, is of paramount importance, let us first look at some fundamental issues. Did the policy decisions work out well? Were they properly implemented? Was the technology support ade- quate? What was the impact? One of the five basic aims of GST was to substan- tially reduce, if not totally eliminate, the cascading of taxes by providing seamless flow of input tax credit at each stage of the flow of goods and services in the supply chain. The second aim was to cut down the compliance costs by clubbing together 17 indirect taxes of the centre and states. These two targets have been achieved substantially, except that five petroleum products and alcohol for human con- sumption could not be brought within GST. This broke the credit flow and dented the efforts to re- duce compliance costs in the supply chain of petro- leum products and alcohol. The third aim was to reduce logistics and trans- portation costs. Under GST, this was achieved by re- placing Central States Tax (CST) with Integrated GST (IGST) for inter-state trade. This resulted in consolidation of warehouses, abolition of entry tax (octroi) and sharp reduction in transportation time BoththeGSTCouncilandtaxpayerswillhavetolookatthisnewtaxregimeas“workinprogress”for atleastonemoreyear,andcontinuetotakequickcorrectiveactions By Sumit Dutt Majumder I Illustration: Anthony Lawrence Has It Worked? LEAD GSTSOFAR...
  19. 19. tion, and thereby attract in- dustries. Thus, in course of time, all these populous states would also become industri- alised. Green shoots are ex- pected in two or three years. On the issue of technology support, it was clear from the beginning that for adminis- tering GST, a robust IT infra- structure would be sine qua non. Thus, we got GSTN, the IT infrastructure. The role of GSTN was to facilitate the ad- ministering of certain basic business processes like registration, payment, filing of returns and claiming of refunds. It was also to facilitate invoice uploading and matching of returns/invoices so as to ensure that the credit taken by the recipient was actually paid by the supplier. Given the huge responsibility on GSTN, it was expected that it would undergo test runs in respect of all the aforesaid business processes before implementation. However, the pol- icymakers finalised all the business processes and formats only a few days before the target date for GST, thus leaving very little time for GSTN to make all the business processes operational on the day of implementation. Worse still, full- scale test runs could not be under- taken for all the operations before the day of introduction. There must have been some com- | INDIA LEGAL | January 7, 2019 21 and cost. However, there are some dark clouds. As GST revenues started going south, both the centre and states decided to have a system of generation of e- way bills that would contain particulars of the goods and transportation. GST officers have been empow- ered to stop trucks, examine the bill and goods any- where on highways. The scheme was implemented from April 1, 2018—first for inter-state movement, and later for intra-state movement. Trade and in- dustry felt this was a disruption in the free flow of goods. In fact, instead of random highway checks, a better option would be strengthening of the Direc- torate of GST Intelligence so that the checks can be undertaken in specific cases based on intelligence and risk assessment. Another step to check evasion of taxes would be quick finalisation of the scheme of invoice matching. T he fourth aim was to make India a common economic market. In the pre-GST era, state VAT rates differed in different states. This led to distortions in investment decisions based solely on tax considerations. Entry tax and manda- tory stopping of trucks at inter-state checkposts, coupled with different state VAT rates, were ideas contrary to a common economic market. These malaises have been remedied in the GST regime. Therefore, one can now look at India as “one nation, one commodity, one tax”. The fifth aim that stemmed from the structure of GST was to have equitable growth of industry across the country. While some states were highly industrialised, there were others which were popu- lous and lagged far behind. As GST is a destination- based consumption tax, in cases of inter-state trade, the state’s share of GST accrues to the destination state. Broadly, 40 percent of the country’s trade is inter-state and destination-consumption states, such as UP, Bihar and Odisha, will have more revenue from IGST, be- sides their own SGST for intra- state trade. Since these states would get richer in revenue, it is expected that this extra money would be spent in development of infrastructure and power genera- As GST revenues started going south, both the centre and states decided to have a system of gener- ation of e-way bills that would contain particulars of the goods and transportation. Tax base (1): 1.05 crore taxpayers Number of composition dealers (2): 18.7 lakh Number of taxpayers expected to file Monthly Returns (GSTR 3B) [(1)-(2)] = (3): 86.37 lakh Monthly Returns GSTR 3B filed (4): 59.51 lakh Number of Non-Filers [(3)-(4)]: 26.86 lakh Numberofnon-filers Photos: Anil Shakya GST EFFECT Businesses feel officers stopping trucks for checks has led to disruption in the flow of goods TheBestof 2018 INDIA LEGAL
  20. 20. 22 January 7, 2019 pelling reasons for the government to stick to the target date. But, the consequence was that there were many glitches in the GSTN system in the first month of implementation itself. As a stop-gap measure, some of the processes were made offline and a new simplified return, GSTR 3B, was put in place. The scheme of invoice matching for ensuring compliance was also postponed. To add to the woes of small and medium businesses, the much-publi- cised services of GST Suvidha Providers for helping them in their interaction with GSTN were also not made available. Thus, the first taste of GST imple- mentation was bitter. All these things could have been avoided if the imple- mentation had been deferred by two months. As for policy issues, by and large, these worked out well except for some monu- mental blunders. One was with regard to small busi- ness. First, the threshold ex- emption for small business was the lowest in the world at only `20 lakh. Internation- ally, the threshold varies be- tween `80 lakh and `1 crore. Then, there was a decision that there would be no threshold exemption for inter-state trade. It meant that the moment someone did inter-state supply like, say, from Okhla in Delhi to Gurgaon in Haryana, he would forfeit the benefit of threshold exemption of `20 lakh, and he would have to pay GST and all the compliance requirements. So, many small busi- nesses decided to stop inter-state trade but in the process, they lost business in a big way. Their busi- ness shrank for another reason—reverse charge mechanism. Big businesses were mandated to pay GST and meet all compliance requirements on be- half of the unregistered suppliers (read small busi- ness below the threshold). The result—big business stopped transactions with small suppliers. Coming soon after demonetisation, this broke the back of small business. On a rough estimate, small busi- nesses contribute around 75-80 percent of total em- ployment in the country. N ow let’s come to GST rates. Leaving aside the exempted goods, GST has a four-tier rate structure—5, 12, 18 and 28 percent. Broadly, the rate structure is based on the principles of “capacity to pay” and “who uses those goods”— very poor, poor, common man, rich and super rich. Besides, most of the items in the 28 percent slab also suffer a compensation cess—a cess collected by the centre to compensate states for the revenue loss after implementation of GST. Most countries, ex- cept Australia, Singapore, Malaysia, and some oth- ers, have more than one GST/VAT rate (mostly two slabs); France has five slabs. In a country like India where people are at different economic levels, it is appropriate to have four slabs. Of course, there is scope to reduce the slabs to three after GST settles down next year. As for the items put in different slabs, there were many discrepancies. Too many items were put in higher slabs of GST, and there was discontent. In the light of these issues, there were protests across the country. Small business was the worst af- fected. So were exporters when huge amounts of ex- port refund claims were blocked because of the skewed procedure. This compelled the GST Council to undertake a series of course corrections. First, the clause regarding withdrawal of exemp- tion in the case of inter-state supplies which affected small businesses most was suspended. Also kept in abeyance was the clause relating to reverse charge August September October November December January February July 0 10 20 30 40 50 60 70 80 90 100 Initialhiccups GST revenue collection over the last year In `1,000 crore INEQUITABLE IMPLEMENTATION Under the new tax regime, it is the small businesses that have been hit the hardest LEAD GSTSOFAR...
  21. 21. TheBestof 2018 INDIA LEGAL | INDIA LEGAL | January 7, 2019 23 April 23, 2018 Among the course corrections undertaken by the GST Council was suspension of the clause regarding withdrawal of exemption in inter-state supplies which affected small businesses the most. of the total expected returns, which means there are around 30 percent non-filers. Among them, a good number would be those who got registered as per the law on threshold in the beginning, but came out of GST after the clauses relating to inter-state sup- ply and reverse charge mechanism were amended. Leaving them aside, there will be a substantial num- ber of non-filers who could be potential tax evaders. There has also been evasion by way of misutilisation of input tax credit, particularly during the transition period. Therefore, a more active role for Directorate General of GST Intelligence and quick introduction of invoice matching will have to be considered on top priority to catch these tax evaders. Surely, intro- duction of the e-way bill cannot be a substitute for the measures mentioned above; it will at best be a clumsy effort. Notwithstanding the misadventure of introduc- ing GST in July 2017 at a time when GSTN was not ready, efforts by the GST Council to set it right and rectify wrong policy decisions and skewed tax rate structure have made GST move ahead. Both the Council and taxpayers will have to look at the progress of GST as “work in progress” for at least one more year, and continue to take quick corrective action. Though there seems a slow-down in decision- making by the GST Council, one would expect it to be as active, if not more, as it was in the months of September-October last year so that GST can move forward with alacrity. —The author is former chairman, Central Board of Excise and Customs mechanism. These provided some relief to small business. Further, relief was pro- vided to the MSME sector by expanding the scope of the composition scheme. The upper limit of eligibility was raised to `1 crore. Export procedures were also simplified and certain innovative export facilitation schemes were outlined. The list of items in different slabs of GST was also rationalised. Initially, there were more than 250 items in the 28 per- cent slab. But by November, 178 items were taken out of this highest slab and put in lower slabs. Similarly, many items in the 18 percent and 12 percent slabs were brought down to the 12 per- cent and 5 percent slabs, respectively. IT glitches, irrational tax structure and certain policy glitches jointly contributed to giving a bad name to GST in its initial months of implementa- tion. However, it is creditable that the GST Council acknowledged the mistakes and undertook imme- diate course correction. GSTN too got into the act quickly. As of now, their challenge is to provide a seamless e-way bill system, finalise the formats of returns and provide an effective invoice-matching mechanism. F inally, let’s come to GST revenue collection. It is a given that in almost every country, in the first year of implementation, GST rev- enue collection takes a dip due to various reasons related to beginner’s hiccup. Notably, GST collec- tion was higher in the first three months of imple- mentation—`93,590 crore, `93,029 crore and `95,132 crore in July, August and September, re- spectively. It fell in October and November to `85,931 crore and `83,716 crore, respectively. Then the collections picked up a bit in December with `88,929 crore, only to fall in January and February at `86, 318 crore and `85, 174 crore, respectively. As for the tax base, 1.05 crore taxpayers have been registered till March 25, out of which 18.17 lakh are composition dealers who are required to file returns every quarter. Thus, the balance of 86.37 lakh taxpayers were required to file monthly re- turns. As against this, only 59.51 lakh filed GSTR 3B returns for February. This is around 70 percent 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Australia Canada* Japan Mexico New Zealand Turkey Poland UK IndiaGermany * Provinces in Canada charge additional rates Source: Bloomberg GlobalGSTratesRate VATRates
  22. 22. 24 January 7, 2019 POINT-COUNTERPOINT IMPEACHMENTDILEMMA PROF NRMADHAVA MENON WOULD characterise the January 12 press conference by some judges of the Supreme Court and the conse- quent assault on the judiciary from several quarters as “a self-inflicted wound”. The ill-conceived impeach- ment motion by Opposition parties, knowing fully well its futility, can be termed “an unnecessary political gambit”. The Re- public and We, the People of India, are the losers in the game which some judges and a section of politi- cians played to settle personal scores, advance parti- san agendas or whatever else. Having been associated with the National Judicial Academy at Bhopal and the Commonwealth Judicial Education Institute in Canada, I can say that the In- dian judiciary is held in very high esteem not only within India but across the world. The independence and impartiality in judicial decision-making in In- dian courts, despite shortcomings in infrastructural support and pressure of mounting arrears, is a matter of amazement for judges in other jurisdictions. All that became suspect with the Justice CS Karnan episode in which a sitting High Court judge was jailed for contempt and by an indictment of the ju- dicial system by judges themselves. Asking for judicial reform needs to be welcomed, but condemning the system as a threat to democracy and imputing mala fide intentions to the head of the judiciary in a press conference cannot be acceptable. Though the justices said later that impeachment is not a solution to the problem, they unwittingly in- vited the Opposition parties to initiate action against their senior colleague, the chief justice of India. Some sections of the media even say that the game was somehow to get the chief justice out, rather than reform the system of allocation of cases. The impeachment motion submitted to the chairman of the Rajya Sabha by some Opposition party members led by the Congress is said to be a fol- low-up to the allegations raised in the judges’ press conference, though the wording and timing of the initiative speak a different story. It is indeed ill-con- ceived, unfortunate and regrettable in the present circumstances.Nobody can question parliamentari- ans raising an impeachment motion in appropriate cases. It is their right and, I would say, a constitu- tional duty as well. But the measure is supposed to be used in extreme cases of serious misconduct of a criminal nature and never in a casual manner on frivolous grounds. Otherwise, the constitutional pro- vision of impeachment itself can be a threat to the independence of the judiciary. One can debate as to what is meant by “proved misbehaviour” in Article 124(4) of the Constitution and whether the five grounds advanced in the im- peachment motion fit that definition. But if those grounds and the materials submitted in support of them do not convey a prima facie case to a reason- able person, certainly no one who understands the spirit of the constitutional provision can expect the motion to be put through the procedure prescribed. In this regard, the function of the chairman of the Rajya Sabha or Speaker of the Lok Sabha who re- A Self-inflicted Wound TheactionofthechairmanoftheRajyaSabhainrejectingthemotiontoimpeach thechiefjusticeisjustifiedandstrictlyconstitutional.Hehassavedthejudiciary fromfurtherridicule I Photos: UNI
  23. 23. sat on those benches rather than mis- behaviour on the part of the chief jus- tice. This would have been disastrous for the Indian judiciary, which the vice-president wisely avoided. There is not enough material in the public domain to draw any conclusion on the allegation based on the Prasad Edu- cation Society matter. It is said to be under investigation and there is no charge yet against the chief justice. In the circumstances, to make it a ground for impeachment is abusive of process and not within the definition of “proved misbehaviour”. Whatever course this matter takes in future, the damage is done and it will take a long time and great effort on the part of judges, particularly of constitutional courts, to redeem public trust and confidence in the impartial- ity and independence of judges. Re- sponsible politicians should refrain from fishing in troubled waters and let the judiciary work out the scheme for the future in the best way possible. Meanwhile, the government and Parliament can do three things immediately to strengthen the judi- ciary. Firstly, bring back the National Judicial Com- mission Bill with judges having a majority in the forum and make the procedure of appointment ab- solutely transparent and objective. Secondly, make a law raising the age of retirement of judges of con- stitutional courts to 70 years with an option on the part of the National Judicial Appointments Com- mission to retire inefficient judges early based on objective criteria. Thirdly, adopt the Judicial Stan- dards and Accountability Bill introduced in the Rajya Sabha in 2012 which seeks to acknowledge judicial accountability. —The writer is a renowned legal educator and is considered the father of modern legal education in India. He is also the founder-director of the National Judicial Academy, Bhopal and was conferred the Padma Shri in 2003 | INDIA LEGAL | January 7, 2019 25 ceives the petition is not just to count the signatures to ascertain the required number or to verify their genuineness, but to examine the gravity of the charges in terms of materials supplied and form an opinion of the prospects of establishing “proved misbehaviour” as per Article 124(4). If he does oth- erwise and sends it for inquiry, doing a post office job, he is doing violence to the constitutional provi- sion and can be accused of subverting the inde- pendence of the judiciary by short-circuiting constitutional procedures. In this regard, precedents will be of little use as facts can vary significantly and records may reveal how conclusions can also differ in apparently similar situations. In fact, in the present matter concerning the chief justice, there is no precedent available. If the chairman of the Rajya Sabha had passed on the matter to the Inquiry Committee mechanically, a wrong precedent would have been set, which, in turn, would have encouraged disgruntled politicians in fu- ture to gang up against judges whom they are un- comfortable with, rendering the system a handmaid of politicians. T he action of the chairman of the Rajya Sabha in rejecting the petition, according to me, is fully justified and strictly constitutional. In the process, he has saved the judiciary from further ridicule and put an end to an unsavoury debate in public. It is true that the allegations are to be proved before the Inquiry Committee and not before the chairman. Nevertheless, if the materials supplied do not even indicate to a reasonable mind that there is a provable case with credible and admissible evi- dence, it deserves to be dismissed at the threshold. After all, it is a serious step against the head of the Indian judiciary and will have long-term impact on the whole judicial system. In this regard, one may ask how allotment of cases to particular benches (which function is repeat- edly declared by the Supreme Court as within the ex- clusive jurisdiction of the chief justice) can ever become “misbehaviour” even if it is proved that its exercise is not ideal or transparent? If one were to argue that it was done with a view to get an outcome which the chief justice desired, it goes to prove dis- honesty on the part of the Supreme Court judges who SAGA OF DEFIANCE (Top) Vice-President M Venkaiah Naidu; (above) Justice CS Karnan served in jail for contempt of court; (facing page) the Supreme Court judges’ press confer- ence on January 12 May 7, 2018 TheBestof 2018 INDIA LEGAL
  24. 24. 26 January 7, 2019 LEAD SUPREMECOURT HERE has been more heat than light over the motion initiated by indi- vidual members of seven opposition parties reg- arding removal proceed- ings against Chief Justice of India (CJI) Dipak Misra. The motion was moved on April 20, 2018, disallowed by the Rajya Sabha Chair on April 23, 2018, and challenged as arbitrary and unconstitu- tional by two Congress signatories in the Supreme Court on May 7, 2018. The plea argued that “the im- pugned order, in a cavalier, cryptic and abrupt man- ner, shockingly holds that none of the other charges are made out without disclosing as to on what basis this finding was returned”. The petition was moved first before the Justice Jasti Chelameswar-led bench which adjourned the hearing till the next day. On May 8, a Constitution Bench was convened, comprising the five senior- most justices (discounting the collegium justices, four of whom had held a press conference on Janu- ary 12, 2018). The substantive issues before the Bench were never argued as senior advocate Kapil Sibal, who was representing the petitioners, raised a threshold point: How was the order constituting the bench made? His essential argument was that even when ac- cepting that the CJI is a master of the roster, an order under the rule-making powers prescribes a five-judge bench when a “substantial question of law” (Article 145) is involved. The order making such a determination should be made available; when the Court asked him to proceed on merits, T UPENDRABAXI Politics of Embarrassment Theglacialpaceofactionincreasinglyimperilsbothjudicialindependenceandthe constitutionalrepublic
  25. 25. | INDIA LEGAL | January 7, 2019 27 matter; often, a judge would recuse herself on the ground of conflict of interest and propriety. But in Subrata Roy Sahara (2014), Justice JS Khehar (speaking also for Justice Radhakrishnan) ruled that while recusal is an appropriate remedy when pecuniary bias is demonstrated, there is a general Third Schedule constitutional duty to adjudge all cases and controversies coming before the Supreme Court without “fear and favour”. T hus, a constitutional convention was made subject to judicial review process and power. In the 2016 NJAC case, Justices Chelameswar and Adarsh Kumar Goel even added that a recusal would fall foul of the oath under the Third Schedule to do justice without fear or favour. Their Lordships further referred to the “doctrine of necessity”, a doctrine resting on the idea that necessity knows no law. This is very sparingly used to validate extra-legal/unconstitutional acts by state authorities. Its contemporary usage first occurred in a dubi- ous Pakistan decision by Chief Justice Muhammad Munir in 1954 where he invoked the maxim of a me- dieval British jurist, Henry de Bracton, which said “that which is otherwise not lawful is made lawful by necessity”. What remains to be debated is the extension of this doctrine in situations suggesting an official bias to all justices (say in matters of judicial appoint- Sibal withdrew the petition, which was then dis- missed by the Court as withdrawn. The political economy of speed characterising the motion and its withdrawal/dismissal is indeed amazing; perhaps an equally expeditious judicial decision may also have greeted the decision on merits. Sibal is entirely right in claiming that a citizen litigant is entitled to know whether the bench was constituted by a judicial order and if necessary, to contest it. And one hopes that the situation is ade- quately clarified. On the other hand, eminent lawyers have publicly suggested that the argument on merits could have well proceeded, incidentally, also raising a challenge to a judicial order. If the CJI has the power to constitute benches, being the master of the roster, can his order be chal- lenged on the ground of natural justice whose ven- erable and valuable maxim is that no person shall be a judge in her cause? Can one object to a bench of five other seniormost non-collegium justices, other than the four who had taken part in a press conference on January 12, 2018? Surely, it is unworthy to suggest that the CJI passed any substantive instructions in his own favour. And it is contemptuous to say that the five- judge bench will not decide in accordance with its constitutional duties. The situation warrants comparison with judicial recusal. Recusal was ordinarily granted when the counsel mentioned that a judge should not hear a BRIEF ENCOUNTER The challenge to the Rajya Sabha Chair’s dismissal of the im- peachment motion against CJI Dipak Misra (left) first came up for hearing before Justice Jasti Chelameswar TheBestof 2018 INDIA LEGAL
  26. 26. 28 January 7, 2019 ments, transfer of high court justices or other mat- ters concerning the judicial collegium). At the same time, if all justices were to recuse, who then will decide the matter? This was not a “result” legally permitted, their Lordships ruled, by the “doctrine of necessity”. S imilarly, the mere motion of removal does not deprive the CJI of his functions as a master of rolls. Nor does the Constitution require a chief justice (or any justice) to stand down during the removal proceedings. Nor does any question of propriety even arise when the allegations against a justice are held not to have been made out by the Chairman of the Rajya Sabha or the Speaker of the House. Any change in the Judges (Inquiry) Act, 1968, which blueprints the procedures to be fol- lowed in an inquiry for “proven misconduct” against a judge would have now to run the gauntlet of the basic structure doctrine as developed by the Sup- reme Court. One hopes that this politics of judicial embar- rassment will now cease, given that the incumbent CJI retires on October 2 and any proceedings for removal thereby become infructuous. Among the urgent issues that remain are the expeditious final- isation of the Court-approved Memorandum of Procedure, quick moves in filling all judicial vacan- cies, and a sorely needed workforce expansion of ju- dicial services. The glacial pace of action increasingly imperils both judicial independence and the constitutional republic. What Justice Arun Mishra remarked from the Bench as recently as May 10 is that not merely daily media “discussion of court proceedings is happening” but that “every judge is targeted”. However, destruction of “this in- stitution” may also mean, he said, that “you people won’t survive….” Modern history archives that the shining knights of accountability may also be the unwitting pioneers of destruction of residual insti- tutional autonomy. —The author is an international law scholar, an acclaimed teacher and a well-known writer May 21, 2018 STUCK IN DISCORD The Supreme Court collegium has recommended the names of senior advo- cate of the Supreme Court Indu Malhotra (above left) and Chief Justice of Uttarakhand High Court, Justice KM Joseph (above right) to be promoted as Supreme Court judges; Minister of Law and Justice Ravi Shankar Prasad “The Supreme Court has become a political football” Top legal minds analyse on APN’s show, Mudda, two Congress MPs’ withdrawal of a plea in the SC challenging the rejection of an impeachment motion against CJI Dipak Misra by vice-president M Venkaiah Naidu “The impeachment law states that charges should be proven. One should not proceed on assump- tion. The vice-president’s decision was well within the framework of the Constitution. Kapil Sibal kept on harping that the CJI has no roster power. The fact is that ver- dict on the master of roster is yet to come. The collegium should have found out avenues to talk before washing dirty linen in public.” —Pradeep Rai, senior advocate, Supreme Court “Kapil Sibal had nothing to argue with. Why should questions be raised on the bench? The chief justice of India constituted the bench, leaving out those who held the press conference. What more does Sibal want? How can he himself choose the bench? This is outlandish. A judge is a judge, and you can be heard by any judge.” —MC Dhingra, senior advocate, Supreme Court “The Supreme Court has become a political football. Sibal is seeking a double-edged sword, and wants to keep the CJI under pressure. Sibal is both a politician and lawyer. He is now virtually asking the Constitution Bench to recuse itself… Where there is smoke, there is fire. Of course, the Supreme Court has become a political football. We support an independent judiciary, but that does not mean that we cannot be critical.” —Inderjit Badhwar, Editor, India Legal “The Congress is playing a dan- gerous game. It did so in 1977 as well. This time, it is attacking the Supreme Court. What do Sibal and the Congress want? What I understand is that they want to drag just four judges in, again and again. Are all judges worthless ex- cept those four? Congress wants to keep up pressure on judges.” —Ashok Thakur, spokesperson, BJP Kapil Sibal is entirely right in claiming that a citizen litigant is entitled to know whether the bench was constituted by a judicial order. And one hopes that the situation is adequately clarified. LEAD SUPREMECOURT TheBestof 2018 INDIA LEGAL
  27. 27. | INDIA LEGAL | January 7, 2019 29 SUPREMECOURTCALENDAR2019 TheBestof 2018 INDIA LEGAL HOLIDAYS NAMEOFHOLIDAY MONTH&DATE DAYSOFTHE WEEK New Year Holiday January 1 Tuesday Republic Day January 26 Saturday Maha Shivaratri March 4 Monday Holi Holidays March 18 to Monday to March 23 Saturday Ram Navami April 13 Saturday Mahavir Jayanti April 17 Wednesday Local Holiday April 18 Thursday Good Friday April 19 Friday In-ul-Zuha (Bakrid) August 12 Monday Independence day & August 15 Thursday Rakshabandhan Janmashtami August 24 Saturday Local Holiday September 9 Monday Muharram September 10 Tuesday Mahatma Gandhi's October 2 Wednesday Birthday Dussehra Holidays October 7 Monday to to October 12 Saturday Diwali Holidays October 28 to Monday to November 12 Saturday Local Holiday November 11 Monday Guru Nanak's November 12 Tuesday Birthday Christmas & December 17 Thursday to New Year Holidays to January 1 2020 Wednesday Sundays and Supreme Court Holidays are shown in red. Orange colour squares indicate the actual date of festivals. SUPREMECOURTOFINDIA-2019 JANUARY S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 MAY S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 SEPTEMBER S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 FEBRUARY S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 JUNE S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 OCTOBER S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 MARCH S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 JULY S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NOVEMBER S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 APRIL S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 AUGUST S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 DECEMBER S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
  28. 28. 30 January 7, 2019 LEAD INDIA’SBANKINGMESS NDIA’S banking crisis is not a passing storm. It is a hurricane gathering force that could make landfall within the next six to nine months. The end game for India’s government banks (PSBs) could be drawing near. For the fiscal year 2017- 18, 19 of the 21 government banks re- ported losses totalling `87,000 crore. Bad loans, called NPAs, threaten the viability of these banks and pose significant risks to India’s financial stability. Despite the country’s high economic growth, the risk of bank failures and a systemic con- tagion is real and increasing in probability. The Punjab National Bank scam made head- lines because of its magnitude, but there are thou- sands of such scams which are only now surfacing. People with access to the levers of government power have made off with billions of dollars of public money. Their modus operandi for looting banks would make the bank-robbing duo of Bonnie and Clyde look like bumbling amateurs. A letter from a minister or a bureau- crat, a small slice of the pie as gratitude for the bank man- ager, and off they go with a loan that is never repaid. These scams have been going on since banks were nation- alised in 1969, but few, if any, have ever been caught or punished. The more relevant issue now is how to solve the problem and contain the damage. One thing is clear: fixing the problem will require a higher level of thinking than the one that created the problem. The solution, therefore, will come not from the politicians, bureaucrats and bank managers that created this mess but from the private sector and free markets. Let’s first understand the problem so we can better grasp the solutions. Banks create money by issuing loans using a process called fractional-re- serve banking. This is how it works. Say you deposit `100 in your bank. The bank is required to hold only a small portion of that deposit as reserves and can loan out the rest. If the reserve requirement is 10 percent, the bank can loan out 90 percent of the deposit or `90 in this case. The borrower, in turn, deposits the money in her bank which can now loan 90 percent of that or `81 to another borrower. The `81 of new deposits further creates another loan of `72.9 and the cycle goes on. Fractional-reserve banking allows banks to cre- ate credit far beyond the underlying base deposits in the system. In the example above, a single de- posit of `100 can create loans worth `1,000 which is calculated by adding `90 + `81 + `72.9+ .... (mathematically this is the same as dividing the ini- tial deposit of `100 by the reserve requirement of 10 percent). Most countries only have a cash reserve requirement (CRR). In India, there is an additional Statutory Liquidity Requirement (SLR) by which banks are forced to keep a certain portion of the de- posit in government bonds. In India, the current Surviving the Great Bank Robbery BurgeoningNPAsofbankscanbetackledbycreatinga“bad”bankandusingtheexpertiseof distresseddebtspecialistsfromtheprivatesector By Sanjiv Bhatia I THE GAPING HOLE The Punjab National Bank scam involves an alleged fraud of around `11,400 crore
  29. 29. | INDIA LEGAL | January 7, 2019 31 result of bad loans and poor risk management. This is the creative- destruction process of free mar- kets that enables efficient allocation of scarce resources— bad ideas lose out, and the re- sources invested in them get released and invested in good ideas. T he government of India has offered three solutions to resolve the crisis, all untenable: recapitalisation of PSBs using taxpayer money, merging smaller PSBs with a larger entity and requiring banks to recover and dispose the as- sets of companies that have defaulted. Government recapitalisation using public funds is a bad idea. In the last six months, the govern- ment has injected `88,000 crore to recapitalise PSBs, but the funds have been used instead to cover their losses for 2017-18. Recapitalisation is a mas- sive waste of taxpayer money because it is an at- tempt to cover a hole that is getting deeper by the minute. There is an idiom every student of Eco- nomics learns: “Never throw good money after bad.” Recapitalising is an excellent example of this. It won’t work. Recapitalisation was tried in the 1990s when the government injected `20,000 crore into PSBs, fol- lowed by another `58,600 crore in 2008. This did not improve the banks but instead created a moral hazard problem which encouraged them to engage in riskier lending practices knowing that if the CRR is 4 percent, and the SLR is 19.5 percent, which is a total of 23.5 percent. So a `100 deposit can create loans worth `425 (100 divided by 235). This practice is hugely profitable for banks be- cause they make interest on money created out of thin air. The process of credit creation works fine until loans start to default. If the bad debt becomes large, relative to the bank’s total lending, the bank is in trouble because it does not have the funds to pay interest to depositors or re- turn their deposits. This is what is currently hap- pening in India. Almost 14 percent of all bank loans have become nonpayable (NPLs) because borrow- ers cannot repay either the principal or the interest on these loans. The money loaned by a bank is an asset on its balance sheet, so when a loan becomes nonpayable, it reduces the bank’s assets, which cor- respondingly must also reduce its equity capital by the same amount. As a result, banks find themselves needing additional funds to meet their capital ade- quacy requirements. Indian banks currently need about `2.5 lakh crore to meet the minimum capital adequacy re- quirements of an international banking agreement called Basel III. This capital must come from the owners of the bank—in the case of PSBs from the taxpayers, and in the case of private banks from ex- isting shareholders or new investors. In the absence of this capital infusion, the bank must close down. Every year, hundreds of banks worldwide fail as a People with access to gov- ernment power have made off with billions of dollars of public money. Their modus operandi would make the bank-robbing duo of Bonnie and Clyde look like amateurs. Illustration: Anthony Lawrence TheBestof 2018 INDIA LEGAL
  30. 30. 32 January 7, 2019 loans failed, the government would bail them out. The culmination of fraudulent and poor lending practices in a fractional-reserve lending system is now a full-blown banking crisis. The second solution offered by the govern- ment—merging several underperforming PSBs into a bigger entity—is even wackier. Merging several overstaffed and poorly managed banks will not magically create a viable entity. Mergers work only if there are synergies to be exploited, and combining two inefficiently managed and troubled PSBs offers no such synergies. If anything, merging different work cultures will only exacerbate the problem. The government’s third solution, requiring PSBs to recover and sell their distressed assets, also defies logic. Punjab National Bank, for example, has cre- ated a distressed asset recovery cell in each of its 6,900 branches and deployed close to 25,000 em- ployees to recover bad loans. Now that’s putting the fox in charge of the henhouse. How can the same people who created the problem be expected to solve it? So, how can this banking crisis be resolved quickly and with a minimal loss to taxpayers and the credibility of India’s financial institutions? Here is what should be done: The first step should be the establishment of a “bad” bank, structured with the specific purpose of holding the bad loans of other banks. Bad loans consist of the out-and-out frauds and the distressed loans of good companies going through a bad time. There is little hope of recovering much from fraud- ulent loans, so the focus should be on distressed loans. Taking these bad loans off the balance sheets of the PSBs removes the requirement for taxpayer- funded recapitalisation. The responsibility for sell- ing these distressed loans then shifts to the “bad” bank. Restructuring distressed companies is a spe- cialised business handled by a rare group of profes- sionals who understand how to value and revive them. People from the government or bureaucracy are not skilled at handling this task. It is, therefore, essential to staff the “bad” bank with experts from the private sector who are specially trained to han- dle distressed debt, and not ex-bureaucrats. T he next step is for the government to liqui- date its ownership stake in PSBs by setting up a bank investment company, again man- aged by professionals from the private sector. The PSBs will become more attractive (and valuable) to potential buyers once their balance sheets have been cleansed by offloading nonpayable loans to the “bad” bank. It is vital that India’s financial system be run with minimal government intervention. Capital is the lifeblood of any modern economy, and a healthy and vibrant financial sector is essential to the efficient allocation of this capital to its best use. This can only happen in the absence of political pressure. Privatising India’s banking system is a Offer to sell fixed assets of `1,699 crore attached by the ED Fixed deposits of `215 crore lying with the ED and debt recov- ery tribunals Proceeds of `73 crore from the sale of Kingfisher Villa Deposit of `1,473 crore with the Karnataka High Court Shares worth attached `7,609 crore Shares worth `2,888.14 crore in United Spirits Ltd, United Brew- eries Ltd and McDowell Holdings Ltd held by his six firms. Interestingly, Mallya’s new offer came three days after the ED had filed a court application to declare him a “fugitive eco- nomic offender” and confiscate his assets worth `12,500 crore under the Fugitive Economic Of- fenders Ordinance, 2018. A London court is also expected to rule on India’s extra- dition case against him on July 31. Vijay Mallya, the flamboyant ex-liquor baron and promoter of the failed Kingfisher Airlines, says he has requested the Kar- nataka High Court to allow him to sell assets worth `13,900 crore under judicial supervision so that he can repay his credi- tors. Mallya's creditors, which include 17 public sector banks, have declared him a “wilful defaulter”. The Enforcement Direc- torate, Central Bureau of Investigation, and Serious Fraud In- vestigation Office are prosecuting him and Kingfisher Airlines for loan defaults worth `9,990 crore. Mallya denies being a wil- ful defaulter, saying that he had made two settlement offers to banks in 2016, but both were rejected. This is how Mallya has worked out his repayment arithmetics: Mallya’s repayment arithmetics LEAD INDIA’SBANKINGMESS
  31. 31. | INDIA LEGAL | January 7, 2019 33 Merging poorly managed banks will not magically create a viable entity. Mergers work only if there are synergies to be exploited, and combining two inefficient PSBs offers no synergy. ment should dispense with burdensome and unnec- essary regulations and provide favourable tax incen- tives to the ARCs, so the process of securitisation can begin. F inally, a long overdue reform is the major overhaul and modernisation of India’s cap- ital markets and a revamping of its regula- tor SEBI. There is an urgent need to create a viable secondary market for debt which includes the abil- ity to repackage and securitise loans and sell them in the capital markets. Banks still dominate India’s lending structure providing almost 70 percent of all the credit in the economy. In the US, on the other hand, the vast majority of capital is raised in the capital markets using equities, corporate and mu- nicipal bonds, while bank lending is limited to retail lending. This reduces the stress on the banking sys- tem, and since capital market credit is subject to greater market discipline, it ensures a more efficient allocation of capital. The window to solve India’s banking crisis is closing fast. The only way to successfully resolve the problem is to use market-based solutions. Politi- cians and bureaucrats must resist the urge to micro- manage and control the process because they don’t have the required skill set to do so. Their interfer- ence will only aggravate the problem and jeopardise the country’s economy. —The writer is a leading financial economist and founder, contractwithindia.com necessary step to solving the NPA problem. The global financial sector is also undergoing structural changes, and alternative suppliers of fi- nancial services (fin-tech and other non-banking entities) are challenging existing business models. Cost reduction and innovation are the keys to sur- vival in this environment, and it is clear that per- sonnel-heavy and non-innovative PSBs are completely ill-equipped to compete in this rapidly- changing, high-technology, low-cost environment. It is imperative that India’s state-owned banks be allowed to exit in a controlled way so their market share can be freed up for other viable banks. Once the nonpayable loans have been trans- ferred to the “bad” bank, the government should in- vite global asset reconstruction companies (ARCs) to buy these distressed assets from the “bad” bank. Foreign investors are eager to invest in India’s dis- tressed debt, especially since the passing of the In- solvency and Bankruptcy Code, 2016, which expedites the insolvency process to less than one year. But they are very sceptical about anything con- nected to the government and the public sector be- cause of the usual issues related to poor implementation, burdensome and inconsistent reg- ulation and lack of transparency. If the NPA prob- lem is to be resolved quickly and successfully, this outside capital must be tapped using market-based solutions combined with a supportive regulatory, tax and market environment. The government must limit its involvement and back off the regulatory pedal, and help create an environment that encour- ages ARCs and outside investors to take on the size- able risks associated with buying and rehabilitating India’s distressed companies. ARCs will want to repackage the assets of the distressed companies they buy from the “bad” bank into smaller units (shares) and sell them to in- vestors. This diversifies the risk from these bad loans across a wide range of investors. This process is called securitisation, and the SARFAESI Act (Se- curitisation and Asset Reconstruction of Financial Assets and Enforcement of Security Interest Act) of 2002 was designed for this purpose. But as with everything else in India, mindless government reg- ulations and coercive tax laws have impeded the growth of the securitisation market. The govern- July 9, 2018 TheBestof 2018 INDIA LEGAL

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