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Posts Tagged ‘Public Administration’


It is undeniable that the Supreme Court’s role as the Constitution’s sheet anchor has been weakened in recent times. This dilution, at least partly, owes to the court’s inability to devote itself substantially to the determination of important public questions. As Nick Robinson’s studies have demonstrated, the number of cases decided by constitution benches — benches comprising five or more judges — has steadily declined right from the Supreme Court’s inception. Between 1950 and 1954, almost 15 per cent of the total cases decided by the Supreme Court were decisions of constitution benches. By the time the 1970s came around, this figure had dipped below one per cent. Between 2005 and 2009, benches comprising five judges or more decided only a worryingly paltry 0.12 per cent of the court’s total decisions. This has meant that in spite of the specific precepts of Article 145(3) of the Constitution — which mandates that a minimum of five judges sit for the purpose of deciding any case involving a substantial question of constitutional law — division benches of two judges have increasingly decided important disputes requiring a nuanced interpretation of the Constitution.

For example, in December 2013, it was a bench of two judges, in Suresh Kumar Koushal v. Naz Foundation, which reversed the Delhi High Court’s momentous judgment declaring Section 377 of the Indian Penal Code, insofar as it criminalised homosexuality, as unconstitutional. Similarly, when last year in Shreya Singhal v. Union of India the Supreme Court struck down the pernicious Section 66A of the Information Technology Act, in the process paving the way for a refined thinking on the right to free speech, it was once again a bench of two judges that rendered the verdict.

What we have, therefore, is a quite unusual scheme of constitutionalism where any given pair of two individuals is vested with the enormous power of ruling conclusively on significant matters of public importance. This phenomenon — still relatively recent — of rulings by two-judge benches in noteworthy cases has coincided with the court’s mounting docket. What’s clearly evident is that this manner of functioning is far from what the Constitution’s framers envisaged of the Supreme Court.

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What is insolvency?

Insolvency is a situation where individuals or companies are unable to repay their outstanding debt. It may be resolved by changing the repayment plan of the loans, or writing off part of the debt. If insolvency cannot be resolved, assets of the debtor may be sold to raise money, and repay the outstanding debt.

Why do we need a new law?

Insolvency resolution in India took 4.3 years on an average, as of 2015. This is higher when compared to other countries such as United Kingdom (1 year) and United States of America (1.5 years). These delays are caused due to pendency of resolution cases in courts and confusion due to lack of clarity in the current bankruptcy framework.

As the Joint committee on Insolvency and  Bankruptcy Code 2015 has submitted its report. Thus path for its passage in parliament seems clear. Here, I present  some important features of the Bill and some critical analysis on it.

Important Features:

The Bill has a number of helpful provisions for tackling large loan defaults.

First, it enables the early detection of financial distress by allowing any creditor to commence an insolvency proceeding the moment a default occurs. This is in contrast to the current scenario where principal or interest on a loan needs to be unpaid for at least 90 days from its due date to be classified as an NPA.

Second, the Bill contains very strict timelines for each step in the insolvency resolution process. Subject to a few exceptions, a resolution plan needs to be approved within 180 days, failing which the company goes into liquidation.

Third, it enables an investigation into the affairs of the insolvent debtor and the setting aside of fraudulent, undervalued or extortionate credit transactions that occurred in the lead-up to the insolvency. There are also penalties for concealing information, misrepresentations and defrauding creditors during the insolvency resolution process.

Fourth,New law is premised on the establishment of three institutions that currently do not exist – a regulator to be named the Insolvency and Bankruptcy Board of India (the “Board”), a new profession of insolvency professionals who are to be registered and regulated by insolvency professional agencies (“IP Agencies”) and information utilities that are designed to store and release information on debts and defaults. While it is understood that these institutions would take time to mature and develop, the new legislation should, at a minimum, specify certain things about their functioning to provide a starting point for implementation.

critical Analysis:

Let us think about the new regulator. The Bill vests the Board with wide-ranging powers. These powers include regulating insolvency professionals, insolvency professional agencies and information utilities, by laying out the eligibility requirements and standards for their functioning, carrying out investigations, and monitoring their performance. However, despite this vital role, the Bill does not envisage that the regulator will be established at the time the new law comes into effect. Ideally, the Board should be in place well before the new law comes into effect, to allow sufficient time for it to develop a regulatory framework for implementation.

The transition process for moving from the current legal framework to the new law needs to be thought through. The Bill needs to say which institutions will necessarily have to be operational at the time the new legislation comes into effect. To the extent that some institutions need more time to develop, it must specify the timeframe within which these institutions must be functional and the interim measures that would be in place until this point. For example, insolvency resolution professionals don’t exist as a profession today. As it is likely to take time to administer their examination and develop a sufficiently large pool of such professionals, could individuals or firms with other professional qualifications (such as lawyers or chartered accountants) perform the role of insolvency resolution professionals as an interim measure? Until information utilities are established and have robust procedures for gathering, storing and disseminating information on defaults, could any other body perform their function?

The two tribunals that are to hear insolvency and bankruptcy cases – the National Company Law Tribunal (The National Company Law Tribunal (NCLT) will replace the Company Law Board and the Board for Industrial and Financial Reconstruction, and be an overarching body for resolving insolvencies.It will be established under the Companies Act, 2013 ) for corporations and the Debt Recovery Tribunals (“DRTs”) for individuals – have their own set of problems. The NCLT is yet to become operational and the DRTs are, by all accounts, clogged with high case pendency. Both these tribunals would also continue to hear cases under their existing mandates in addition to those under the new law. This might not be an issue that can be fixed through the legislation, but the government must ensure that the NCLT becomes operational and increase the infrastructure and resources of both these tribunals if they are to hear insolvency cases in the efficient and time bound manner that the Bill envisages.

Conclusion:

Countries the world over differ widely in the legal frameworks they have adopted for insolvency and bankruptcy. The US has what is widely acknowledged to be a debtor-friendly regime; the administrator-led system in the UK is more creditor-friendly; while the insolvency regimes in continental Europe fall somewhere in between these two models. However, studies have shown that ultimately the effectiveness of an insolvency regime depends not so much on the specific path the law decided to take, but on whether it is backed by strong institutions for implementation.

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 In the Westminster system of government, the Speaker of the legislature has considerable power and independence. This is a cherished product of a long process to secure the legislature’s independence and fairness. The considerable discretion they enjoy comes with the assumption that it will be used sparingly or wisely.

However, there are at least two recent instances in which Speakers of the legislature have used this discretion to take debatable decisions. The first instance is from the state of Uttarakhand, which was thrown into crisis when the Speaker of the Legislative Assembly refused to allow a division – the counting of legislators’ votes – on the state budget. The Congress-led government of the state had reportedly lost the confidence of several members of the legislative party; it was possible that the Appropriations Bill would have been defeated had votes been counted, and the government would thus have had to resign since it was a money Bill. By refusing to grant a division, the Uttarakhand Speaker in effect declared the budget passed and insulated the government from a key test of democratic legitimacy. The second instance is at the Centre, where the Speaker of the Lok Sabha has permitted a proposed law, the Aadhaar Bill, to be introduced in the House as a money Bill. Whether regulatory legislation such as Aadhaar meets the definition of a money Bill – traditionally reserved for proposals that alter taxation, borrowing, or affect the Consolidated Fund of India – is doubtful. But, just as it is a Speaker’s traditional right and duty to determine when a division is needed, her decision on whether a bill is a money Bill has also traditionally been considered to be the last word. It is worth noting that the two major national parties are on opposite sides of the fence in terms of the debate at the state and the Centre – in Uttarakhand, the Congress is defending the rights of the Speaker, while in Delhi it is questioning them – indicating that this is possibly a problem of institutional weakness that transcends political parties.

                                                     Unfortunately, India now faces a situation where the decisions of the traditionally independent Speaker of the House are being discussed by another branch of government, namely the judiciary. The Supreme Court has stayed an Uttarakhand High Court judgment that rescinded President’s Rule imposed on the state after the Speaker’s controversial ruling. Meanwhile, it has asked the Union attorney general for his views on a petition filed by a Congress leader questioning the introduction of the Aadhaar Bill as a money Bill. So the judiciary and the executive will now discuss a decision that has traditionally been the sole prerogative of the Speaker of the legislature. The elements of a full-blown constitutional crisis are visible. What is needed is to get ahead of the problem. Perhaps the tradition of the Speaker being notionally completely independent of the other branches needs to be revisited. Rather than letting things deteriorate and forcing the judiciary to get involved, the legislature itself should consider what checks and balances can be imposed on the Speaker’s discretion in order to ensure such situations are not repeated.

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The President makes a special address to a joint sitting of both Houses, at the beginning of the first session after an election, and at the first session each year (usually the budget session) as per Art 87 of the constitution. The address is a statement of government policy, which has to be approved by the Cabinet. The President highlights the legislative and policy activities and achievements during the preceding year and gives a broad indication of the agenda for the year ahead.

The address is followed by a motion of thanks moved in each House by ruling party MPs, followed by discussions that last up to three or four days and conclude with the Prime Minister replying to the points raised during the discussion.After the PM’s reply, MPs vote on the motion of thanks and some may move amendments to the address. The amendments may emphasise or add issues addressed by the President or highlight those that did not find mention. Changes proposed by MPs are not passed in Parliament. Should an amendment to the Address be carried through in the Lok Sabha, the government would have to resign. There is, of course, no such obligation in the Rajya Sabha, but it is still seen to undermine the government’s ability at consensus-building. For the members of the Rajya Sabha, it is a way to give notice that they cannot be taken for granted.

This hints at the ruling party’s failure to reach out to the Opposition and forge a working consensus on the legislative agenda. With its clear majority in the Lok Sabha, the BJP may feel unencumbered by the need for floor management of the sort that ruling coalitions have had to work at over the past couple or decades — this year’s vote shows that its lack of numbers in the Rajya Sabha does in fact demand an inventive outreach to the Opposition if it wants support on important Bills in the Upper House.

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Foreign Contribution Regulation Act(FCRA) currently bans political organizations from accepting funds from foreign and foreign funded(one where 50% or more equity is owned by foreign entity) entities. Based on this premise Delhi high court in 2014 held two political parties Congress and BJP guilty for accepting funds from London based Vedanta Group’s subsidiary. The penalty for this is 3 to 5 years imprisonment or a fine or both. A Supreme court appeal is pending , But it is worth noting that apex court did not stay the high court’s decision. Now to save themselves from this situation ruling government introduced Finance Bill to retrospectively amend a clause in the  FCRA. The Amendment will mean that donations to political parties by Indian companies with foreign direct investment within mandated sectoral limits will not be considered “foreign contribution”.

This amendment may be defensible on the account that it is done to clarify the policy but does little to enhance the government’s reputation for ethical governance. The motive behind this amendment has little to do only with clarifying policy; it is also driven by self-interest that almost amounts to a rank abuse of power. Adding to the misgivings about the opportunism embedded in this amendment is the fact that it has been included in the Finance Bill, 2016, which is a Money Bill under the Constitution. This means that the Rajya Sabha can neither amend nor reject it once the Bill is passed by the Lok Sabha, nor can it be referred to a joint committee of the Houses. This legislative trick becomes explicable only because of the ruling coalition lacking the requisite numbers in the upper House to pass any controversial legislation.

But the real question is how the Speaker can certify this amendment as a Money Bill.

First, the FCRA falls under the home ministry, not the finance ministry.

Second, it is an issue that involves political party funding and in no way entails taxation, expenditure or borrowing of the Government of India or any appropriation or receipts to the Consolidated Fund of India, which are the broad constitutional qualifications for a Money Bill.

Overall, it is difficult to avoid the view that the ruling party is leveraging its political dominance to subordinate due legislative process.

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