India’s initiatives to curb and unearth black money and tax evasion: A Press Release of the Ministry of Finance

The Ministry of Finance in India has issued a Press Release dated 10 August 2012 (can be found on the PIB website and has been appended to this post; the formatting is a little uneven) on the Initiatives Taken by the Government for Unearthing and Curbing Black Money: A Fact Sheet. This clearly shows a positive effort by the Indian government.

As we may know the problem of black money has plagued India  in recent times, with the Supreme Court even going to the extent of ordering a Special Investigative Team to look into the black money issue in the Ram Jethmalani case. Let’s hope the government and other countries involved continue their fight against tax evasion and black money.

Press Information Bureau
Government of India
Ministry of Finance

10-August-2012 16:1 IST

Initiatives Taken by the Government for Unearthing and Curbing Black Money: A Fact Sheet

 

Initiatives taken by the Investigation Division of Central Board of Direct Taxes (CBDT) for unearthing black money :

 

1. The Government of India has commissioned a study on unaccounted income/ wealth both inside and outside the country bringing out the nature of activities engendering money laundering and its ramifications on national security. The study is being conducted by three national institutes viz. National Council of Applied Economic Research (NCAER), National Institute of Public Finance & Policy (NIPFP) and National Institute of Financial Management (NIFM), with inputs from various ministries/departments. The study will be completed by the end of 2012.

 

II.                A  Directorate of Criminal Investigation (DCI) has been created as an attached office of the Central Board of Direct Taxes (CBDT) to track financial transactions relating to illegal / criminal activities, including illicit cross-border transactions, from the direct tax angle and bring such activities to justice. Creation of DCI is also in line with FATF recommendations to exclusively deal with tax crimes, including direct taxes.

 

1. CBDT is coordinating with the Election Commission of India (ECI) for controlling political expenditure and verification of affidavits filed by candidates of political parties.

 

IV.            In order to strengthen the existing laws relating to black money, the Government constituted a Committee under the Chairman, CBDT to examine the measures to strengthen the existing legal and administrative framework to deal with the menace of generation of black money through illegal means including, inter alia,

 

a) Declaring wealth generated illegally as national asset;

b) Enacting / amending laws to confiscate and recover such assets; and

c) Providing for exemplary punishment against its perpetrators.

 

The Committee submitted its report to the Government on 29^th March 2012. The report has been sent to different Ministries / Organisations and State Governments for necessary action.

 

V.               Information received under DTAA – Information from Germany & France has been investigated. Tax evasion of more than Rs.600 crore detected and taxes of Rs.200 crore has already been realized. Prosecution proceedings have been launched in 17 cases pertaining to LGT Bank accounts. Assessment proceedings have been initiated in cases relating to HSBC accounts. Further information from outside the country is awaited in several cases. Information received from different countries under the automatic exchange of information arrangement is appropriately utilized for the purpose of investigation and assessment.

 

VI.            Search & Seizure, Surveys – In the last three financial years, the Investigation wing of the CBDT has detected undisclosed income of over Rs.32,000 crore besides seizing undisclosed assets valued at over Rs.2,600 crore. The Income Tax Department (ITD) has further detected undisclosed income of Rs.17,325 crore in surveys conducted at business premises.

 

VII.         Tax Prosecutions – Out of 1,548 prosecution cases disposed of during the last three financial years, the ITD has obtained conviction in 97 cases besides fiscal compounding in 771 cases of admitted tax evasion, leading to a success rate of 56.1 percent.

 

          Beside above, the Government has also taken the following steps to deal with the problem of Black Money under a five pronged strategy in last 3 years:

 

1. 1.                 Creating an appropriate Legislative Framework

• In 2009,  we had 78 Double Taxation Avoidance Agreements (DTAAs) in force. 75 of these DTAAs did not have specific provisions for exchange of banking information and information without domestic interest. Renegotiation of these DTAAs was started to broaden the scope of Article concerning Exchange of Information. Till date we have completed renegotiation in 29 cases; and renegotiation in remaining cases are under progress. In addition we have finalised negotiation of 19 new DTAAs and 17 new Tax Information Exchange Agreements (TIEAs). It may be clarified that as on today we have 84 DTAAs. TIEAs are concluded with countries with which we do not want to have DTAAs at this stage. Further, FM has approved negotiations for TIEAs with 25 countries/jurisdictions on 31^st December, 2011. Hence, as on date, we have completed negotiation with 65 countries/jurisdictions (29 existing DTAA, 19 new DTAAs and 17 TIEAs). 33 treaties (21 DTAAs/ 12 TIEAs) have been signed.

In addition to DTAAs and TIEAs, the Government of India has also signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 26 January 2012. These Multilateral Conventions have been ratified which contain provisions for automatic exchange of information, exchange of past information and assistance in collection of tax claims. This has come into force on 1^st June, 2012.

 

NOTE: Status of DTAAs/TIEAs negotiations as on 1^st August 2012 is given at the end as Annexure-I.

 

• Enacted legislation incorporating counter measure against non-cooperative   jurisdiction (Section 94 A in Finance Act 2011).
• PMLA was amended on 01.06.2009 to increase list of scheduled offenses.
• Commissioned study to estimate quantum of Black Money both inside and outside the country in March, 2011.
• 30 of our existing 84 DTAA also contain article for assistance in collection of taxes including taking measures of conservancy. Government is trying to have this Article in other treaties as well.

1. 2.                 Setting–up institutions to deal with illicit funds:

• 8 more Income Tax Overseas Units are being set-up (In addition to existing two overseas units). Proposal has been sent to MEA for setting up 14 more such units.
• Computerized Exchange of Information unit (EOI Unit) has been set up.
• Directorate of criminal investigations has been set up.

 

1. 3.                 Developing systems for implementation:

• New policy for deployment of manpower to Directorate of Transfer Pricing and International Taxation is implemented.
• Manpower of FT&TR Division is doubled.
  • Directorate of Enforcement is strengthened by creating additional posts.

 

1. 4.                 Imparting skills to the manpower for effective action:

• More than 100 officers were imparted specialized training abroad in field of International Taxation and Transfer Pricing in F.Y. 2010-11 and 2011-12.
• High level international seminar on transfer pricing was held in India in month of June 2011.

1. 5.                 Joining the Global crusade against Black Money:

• Issues of tax evasion, end of banking secrecy, past banking information, automatic Exchange of Information have been raised by India in various G 20 meetings like in London, Paris, Washington, Cannes, etc.
• India is playing a key role in Global Forum on Transfer Pricing and Exchange of Information for tax purpose as Vice Chairman of Peer Review Group.
• In June 2010 India became the 34^th member of Financial Action Task Force, responsible for enforcement of anti-money laundering (AML) and combating financing of terrorism (CFT) regime. In December 2010 it became 9^thmember of Eurasia group. India has also jointed Task Force on financial integrity and Economic Development.
• India is actively participating in policy groups of OECD and UN on Exchange of Information, International Taxation and Transfer Pricing as observer and member respectively.
• ITD Global Conference was held in India in the month of December, 2011 to discuss ways to address growing inequality due to tax evasion and generation of black money

Result Achieved

(a)     Huge network of amended DTAA (84) and TIEA with tax havens (9).

(b)     Specific requests made by tax authorities have increased significantly

(c)      More than 12,500 pieces of Information regarding details of asset and payments received by Indian citizen in several countries have been obtained which are now under different stages of processing and investigation.

(d)     30,765 pieces of domestic information about suspicious transactions   has been obtained by FIU which are under investigation by respective agencies.

(e)      Directorate of Transfer Pricing has detected mispricing of Rs. 67,768 crore in last financial year and in the current financial year (Rs 43,531 crore in F.Y. 2011-12). This has prevented shifting of equivalent profit out of the country.

(f)      Directorate of International Taxation has collected taxes of Rs. 48,951 crore from cross broader transactions in last two financial years.

(g)     Investigation wing of CBDT has detected concealed income of Rs. 19,938 crore in last two financial years. Focused searches have been conducted in a number of cases in the current year on the basis of information received from foreign jurisdictions under the provisions of Double Taxation Avoidance Agreements.

(h)     Under the EOI Article of DTAA with France, India has received information regarding Indians having bank accounts in this financial year. In 219 cases, the department has detected undisclosed income totalling Rs 565 crore and taxes amounting to Rs 181 crore has already been realized so far.

 

 

1. 6.     Appraisal of Indian Efforts by International Organizations:

 

(a) Mr. Jeffrey Owens, head CTPA, OECD said on 12th December, 2011 that India has made remarkable progress in tackling the issues of tax evasion and illicit money in the last two years by negotiating TIEAs and it should be patient to see their effective implementation. He added that India is playing a major role in G20 deliberations for combating tax evasion, black money and money laundering, which are all correlated, and for better cooperation in tax information exchange. It is also urging other countries to share past information, which is a technical and legal issue.

(b)     Mr. Pascal saint Amans, Head of the Global Forum on Tax Transparency, In December, 2011, rated India among the first three, if not the first, in terms of promoting the global standards on transparency, fighting tax evasion and having the international community lining up.

(c)      Global Financial Integrity supported India’s stand in G20 Summit in Cannes in November, 2011, on Automatic Exchange of Information becoming part of International Standards.

(d)     The Task Force on Financial Integrity and Economic Development in a statement dated 17th October, 2011 stated that India is playing a major role in the global crusade against tax crimes and is rapidly expanding its tax agreement network.

7.       Amendments made through the Finance Act, 2012 to deal with the Menace of Black Money:

Some of the amendments made through the Finance Act, 2012 to deal with the menace of Black Money and to deter the generation and use of unaccounted money are summarized as under:

(a)     Introduction of General Anti Avoidance Rules to counter Aggressive Tax Avoidance Schemes

(b)     Introduction of compulsory reporting requirement in case of assets held abroad.

(c)      Allowing for reopening of assessment upto 16 years in relation to assets held abroad.

(d)     Tax collection at source on purchase in cash of bullion or jewellery in certain cases.

(e)      Tax collection at source on trading in coal, lignite and iron ore.

(f)      Increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value.

(g)     Taxation of unexplained money, credits, investments, expenditures etc., at the highest rate of 30 per cent irrespective of the slab of income.

(f)      Introduction of a reporting mechanism for assets and bank accounts in a foreign country.

 

Annexure-I

 

Status of DTAA/TIEA negotiations as on 1^st August 2012 is as follows:

1. 1.     Status of old DTAAs

 

No of countries with whom DTAAs were in force in 2009.	No of countries with whom we are negotiating article allowing for exchange of banking information along with names	No of countries with whom these renegotiations are finalised and signed along with names	No of the countries with which revised agreement signed and entered into force
Total 78(see the list attached). Out of these, 3 DTAAs already had specific provision for exchange of banking information	Total 75 (In the list of 78 countries, three countries, i.e. Iceland, Tajikistan and Myanmar already have the specific provision and hence, remaining 75 countries were taken up for renegotiation	Negotiation finalized: 29 Armenia, Australia,Bangladesh, Brazil, Finland, France, Indonesia, Kenya, Luxembourg, Malaysia, Malta, Morocco,  Nepal, Netherlands, Norway, Poland, Romania, Singapore, Sri Lanka, South Africa, Spain, Sweden, Switzerland, Tanzania, Thailand, UK, UAE, Uzbekistan, Zambia	Signed (11):Australia, Finland, Malaysia, Nepal, Netherlands, Norway, Singapore, Switzerland, Tanzania, UAE and Uzbekistan   Entered into force(5): Finland, Luxembourg, Nepal, Singapore, Switzerland

 

Status of New DTAAs since 2009

 

No of countries with whom negotiation for new DTAAs have been completed	No of new DTAAs signed	No of new DTAAs entered into force
Total 19 Albania, Bhutan, Chile, Croatia, Colombia, Estonia, Ethiopia, Fiji Georgia, Hong Kong, Iran, Latvia, Lithuania, Mexico, Mozambique, Senegal, Taiwan, Uruguay, Venezuela,	Signed(9):Colombia, Estonia, Ethiopia, Georgia, Mexico, Mozambique, Lithuania, Taiwan, Uruguay	Entered into force(6): Estonia, Lithuania, Georgia, Mexico, Mozambique, Taiwan

 

1. 2.     Total DTAAs in force as on today

 

It may be clarified that as on today we have 84 DTAAs, 78 above plus six more new DTAAs (with Estonia, Georgia, Lithuania, Mexico, Mozambique and Taiwan)

 

1. 3.     Status of New TIEAs since 2009

 

No of countries with whom negotiations for TIEAs commenced in 2009 with names	No of countries with whom TIEA negotiations are finalised along with names	No of countries with whom TIEA have been signed along with names
Total 22 (Argentina, Bahrain, Bermuda, Bahamas, British Virgin Islands, Cayman Islands, Congo, Costa Rica, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Liechtenstein, Macau, Maldives, Marshall Islands, Monaco, Netherland Antilles, Panama, Saint Kitts & Nevis, Seychelles)	Total 17 (Argentina, Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Congo, Costa Rica, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Macau, Marshall Islands, Monaco, Saint Kitts & Nevis)	Signed (12):Argentina, Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands Isle of Man, Guernsey, Jersey, Liberia, Macau and Monaco Entered into force(9): Bahamas, Bermuda, British Virgin Islands, Cayman Islands Isle of Man, Jersey, Guernsey Liberia and Macau

 

1. In 2012, negotiations for TIEAs commenced with 25 more countries/jurisdictions as under:

 

1. Andorra
2. Anguilla
3. Antigua and Barbuda
4. Aruba
5. Barbados
6. Belize
7. Brunei Darussalam
8. Cook Islands
9. Curacao
10. Dominica
11. Dominican Republic
12. Faroe Islands
13. Greenland
14. Grenada
15. Honduras
16. Jamaica
17. Montserrat
18. Peru
19. Saint Lucia
20. Saint Vincent and the Grenadines
21. Samoa
22. San Marino
23. Saint Maarten
24. Turks and Caicos
25. Vanuatu

 

1. 5.     In addition to DTAAs and TIEAs, the Government of India has also signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 26 January 2012 which has come into effect on 1^stJune, 2012.

 

1. 6.     List of DTAA countries as on 2009 (78)

Sr. No.	Country with which India has DTAA	Whether under renegotiation
	Armenia	Yes
	Australia	Yes
	Austria	Yes
	Bangladesh	Yes
	Belarus	Yes
	Belgium	Yes
	Botswana	Yes
	Brazil	Yes
	Bulgaria	Yes
	Canada	Yes
	China	Yes
	Cyprus	Yes
	Czech Republic	Yes
	Denmark	Yes
	Egypt	Yes
	Finland	Yes
	France	Yes
	Germany	Yes
	Greece	Yes
	Hungary	Yes
	Iceland	Already have provision for exchange of banking information
	Indonesia	Yes
	Ireland	Yes
	Israel	Yes
	Italy	Yes
	Japan	Yes
	Jordon	Yes
	Kazakstan	Yes
	Kenya	Yes,
	Korea	Yes
	Kuwait	Yes
	Kyrgyz Republic	Yes
	Libya	Yes
	Luxembourg	Yes
	Malaysia	Yes
	Malta	Yes
	Mauritius	Yes
	Mongolia	Yes
	Montenegro	Yes
	Morocco	Yes
	Myanmar	Already have provision for exchange of banking information
	Namibia	Yes
	Nepal	Yes
	Netherlands	Yes
	New Zealand	Yes
	Norway	Yes
	Oman	Yes
	Philippines	Yes
	Poland	Yes
	Portuguese Republic	Yes
	Qatar	Yes
	Romania	Yes
	Russia	Yes
	Saudi Arabia	Yes
	Serbia	Yes
	Singapore	Yes
	Slovenia	Yes
	South Africa	Yes
	Spain	Yes
	Sri Lanka	Yes
	Sudan	Yes
	Sweden	Yes
	Swiss Confederation	Yes
	Syria	Yes
	Tajikistan	Already have provision for exchange of banking information
	Tanzania	Yes
	Thailand	Yes
	Trinidad and Tobago	Yes
	Turkey	Yes
	Turkmenistan	Yes
	UAE	Yes
	Uganda	Yes
	UK	Yes
	Ukraine	Yes
	USA	Yes
	Uzbekistan	Yes
	Vietnam	Yes
	Zambia	Yes

 

Note 1:    The three countries, i.e. Iceland, Tajikistan and Myanmar already have the specific provision and hence, remaining 75 countries were taken up for renegotiation.

T R Andhyarujina on “Disturbing trends in judicial activism”

Senior Advocate of the SCI, T R Adhyarujina has recently written (an abridged form of his speech at the Bombay High Court) in the Hindu about the disturbing trends in judicial activism by the Supreme Court of India.

His argument is interesting and I mostly agree with what he is saying about how the court is slowly usurping the role of an elected government in a constitutional democracy. Mr. Andhyarujina is known for his criticism of excessive judicial activism in the country (for example, this article in the Indian Express). It is perhaps the debilitating helplessness with the lack of governance in India that a common person feels when he/she considers repetitive invocation of the SCI’s ‘supervisory’ powers. Also, the fact that the government at least listens (has to listen, fearing contempt proceedings!) to the edicts of the courts adds to the SCI and other courts’ criticism for judicial activism.

I have written previously about how the SCI has been over-enthusiastic in disposing certain matters before it. What is interesting is that certain judges are more predisposed to being activist, and an analysis as to what makes a judge an activist judge is something that requires deeper study.

Extra-judicial comments by Judges: Lord Neuberger’s Seven Principles

In a speech made to law students at Birmingham University on 2 March 2012, Lord Neuberger of Abbottsbury, Master of the Rolls, UK highlighted the importance of judicial comments outside their judicial role in courts. He said that:

 development of judicial comment on a wide range of legal and constitutional issues, through speeches, lectures and articles, carries with it more benefits than drawbacks, but it calls for much care, circumspection, rationing, and even self-denial, when it comes to considering whether to speak, what to say and how to say it. It also calls for an understanding by all concerned of the proper boundaries within which comment can properly be made.

Lord Neuberger therefore proposed these principles for statements of judges in fora outside the judiciary:

1. First, it seems to me only proper that judges, with their wisdom and experience, should be free to comment extra-judicially on a wide range of issues. In doing so they play an educative role. In areas such as constitutional principles, the role and independence of the judiciary, the functioning of the legal system, and access to justice, and even important issues of law, this role cannot be underestimated.
2. Secondly, any comment should be made following careful consideration of the impact which it might have on both aspects of judicial independence.
3. Thirdly, a judge should consider the effect on the judiciary generally of any view expressed. The judiciary’s claim to institutional independence depends in part on its institutional reputation and standing. An individual judge may regard a particular statement as justified and be prepared to take any consequent criticism, but the effect on the judiciary generally may render it inappropriate to make the statement. It may be inevitable that judges may disagree on a policy or constitutional issue when sitting in court, and it may occasionally be inevitable out of court (e.g. when appearing before a Parliamentary committee), However, it would, I suggest, be unfortunate if it frequently occurred voluntarily. If such a disagreement does arise, it should be argued in an entirely seemly way.
4. Fourthly and more specifically, a judge should think carefully about how any statement about politically controversial issues, or matters of public policy, might affect, or be affected by, the separation of powers, and comity between the three branches of the State. May it be said, for instanced, that the statement trespasses into forbidden territory, and, if so, can it be justified on the basis that it falls within the appropriate ambit of judicial speaking out? And, if it can, is it expressed in terms suitable for a judge entering the arena in a non-judicial capacity? The same considerations arise when members of the executive or legislature seek comments from serving Judges. Comity and the separation of powers may well call for reticence.
5. Fifthly, judges should think carefully of their audience, and the impact their comments might have upon it, and upon any wider audience, including the media. Might that impact, or potential impact, call into question their independence, their ability to carry out their fundamental role of doing justice according to law? Could it call into question judicial independence? In particular, if a judge is proposing to discuss a point which may subsequently come to court, care should normally be taken to make it clear that the judicial mind is not closed.
6. Sixthly, judges should not seek publicity for its own sake, or use their ‘office as a springboard for causes (however worthy).
7. Seventhly, there are rather a lot of judicial speeches being made at the moment. I wonder whether we are not devaluing the coinage, or letting the judicial mask slip. In the light of the fact that I may be characterised as a serial offender, perhaps the less I say about that point, the better.

This issue has come to light recently in India as well. It remains to be seen whether these principles are observed in practice as the link between judicial discipline and judicial independence has become quite tenuous.

India held liable for breach of Bilateral Investment Treaty for judicial delay in enforcement of an international arbitral award

In a first of its kind development, the Republic of India was recently held liable for breach of its Bilateral Investment Treaty with Australia for judicial delays in enforcement of a foreign arbitral award. The order was passed on November 30, 2011 but has been made public only recently. It can be found here.

The UNCITRAL Arbitration between White Industries Australia Limited and the Republic of India was held in Singapore and will go down in history as the first ever investment arbitration against India. The previous one was concerning the Dabhol power plant in India but these multiple investment arbitration proceedings were settled before any award was made.

The dispute in this case concerned the excessive judicial delays suffered by White in enforcing its 2002 International Chamber of Commerce (ICC) award made against its JV partner Coal India. White sought enforcement of this award in Delhi High Court whereas Coal India sought to set aside the award in Calcutta High Court. The Calcutta HC held that it had the jurisdiction to consider setting aside the foreign arbitral award and appeals regarding the same were pending before the Supreme Court of India. The SC is currently considering the jurisdiction of Indian courts in setting-aside foreign arbitral awards. A summary of the award can be found here and here.

The UNCITRAL Arbitral Tribunal held that this excessive delay in local courts amounted to a breach of the India-Australia BIT. More interestingly, this was held to breach the treaty’s Most-Favoured Nation (MFN) clause. As India’s BIT with Kuwait contained an “effective means” clause, the Tribunal used the MFN clause to apply this “effective means” standard to the current dispute. The utility of this “effective means” clause was that this was invoked in a 2010 arbitral award to include court/judicial delays as being breaches of investment treaties (see Chevron v. Ecuador under the US-Ecuador BIT).

This investment award raises various unforeseen and unsettling questions regarding international investment law in India. Since, there have been no precedents to guide the legal system, a new niche area of investment arbitration will develop due to this award. Already, in the aftermath of the 2G judgment, Sistema JSFC, a Russian company has notified the Indian government of its inclination to invoke the investment arbitration clause in the India-Russia BIT. With the opening up of the FDI routes in India and various international investors entering into JVs, Indian bureaucracy will have to be aware of the obligations under the several BITs India has entered into with numerous countries across the world.

Employees’ Provident Fund dues of workmen should be paid in priority to all other debts by employer during liquidation: SC of India

In EPF Commissioner v. Official Liquidator of Esskay Pharmaceuticals Ltd., the SCI (G.S. Singhvi and H. L. Dattu, JJ.) examined whether priority given to the dues payable by an employer under Section 11 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (‘EPF Act’) is subject to Section 529A of the Companies Act, 1956 (‘Companies Act’) in terms of which the workmen’s dues and debts due to secured creditors are required to be paid in priority to all other debts.

Relevant extracts from the judgment:

1. Any EPF contributions made by an employee creates  first charge over the assets of the establishment and should be paid in priority to all other debts: “18. An analysis of Section 11 of the EPF Act shows that it gives statutory priority to the amount payable to the employees over other debts … Section 11(2) contains a non obstante clause and lays down that if any amount is due from an employer whether in respect of the employee’s contribution deducted from the wages of the employees or the employer’s contribution, the same shall be deemed to be the first charge on the assets of the establishment and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other debts. To put it differently, sub-section (2) of Section 11 not only declares that the amount due from an employer towards contribution payable under the EPF Act shall be treated as the first charge on the assets of the establishment, but also lays down that notwithstanding anything contained in any other law, such dues shall be paid in priority to all other debts.”
2. Nature of EPF Act: “22. The EPF Act is a social welfare legislation intended to protect the interest of a weaker section of the society, i.e. the workers employed in factories and other establishments, who have made significant contribution in economic growth of the country. The workers and other employees provide services of different kinds and ensure continuous production of goods, which are made available to the society at large. Therefore, a legislation made for their benefit must receive a liberal and purposive interpretation keeping in view the Directive Principles of State Policy contained in Articles 38 and 43 of the Constitution.”
3. ‘Apparent Conflict’ between and Object of EPF Act and Companies Act amendments regarding workmen’s dues: Subsequently, the Court examined the purport of the creation of a priority payment of dues to workmen in light of both Section 11 of EPF Act and Section 529A of the Companies Act and the conflict in non-obstante clauses in both the provisions. Rejecting the argument that the subsequent legislation having the non-obstanteclause will take precedence over the other, it entered into an interpretative exercise to examine the object behind both the provisions and found that –
• “36. … the object of the amendment made in the EPF Act was to treat the dues payable by the employer as first charge on the assets of the establishment and to ensure that the same are recovered in priority to other debts. As against this, the amendments made in the Companies Act in 1985 are intended to create a charge pari passu in favour of the workmen on every security available to the secured creditors of the company for recovery of their debts. There is nothing in the language of Section 529A which may give an indication that legislature wanted to create first charge in respect of the workmen’s dues, … and debts due to the secured creditors.
4. Interpretation when conflict between two special statutes: “38. … if two special enactments contain provisions which give overriding effect to the provisions contained therein, then the Court is required to consider the purpose and the policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions.”
5. Finally, finding that there was no conflict between both the provisions, the Court held that – the provision regarding payment of PF etc. to workmen in priority to all other dues already existed in Companies Act before the amendment to Section 11 of EPF Act, that created a first charge over the employer’s assets for any amount due in favour of employees’ contributions.
• “43. … However, while inserting Section 529A in the Companies Act … [the] Parliament, in its wisdom, did not declare the workmen’s dues (this expression includes various dues including provident fund) as first charge. The effect of the amendment made in the Companies Act in 1985 is only to expand the scope of the dues of workmen and place them at par with the debts due to secured creditors and there is no reason to interpret this amendment as giving priority to the debts due to secured creditor over the dues of provident fund payable by an employer. Of course, after the amount due from an employer under the EPF Act is paid, the other dues of the workers will be treated at par with the debts due to secured creditors and payment thereof will be regulated by the provisions contained in Section 529(1) read with Section 529(3), 529A and 530 of the Companies Act.”

This judgment clarifies various points of law with regard to interpretation of conflicting provisions in special enactments, and more importantly the preferential payment of workmen’s dues over all other debts during winding up of a company.

The Adversity of Adverse Possession- a time to re-look at the doctrine? SCI examines.

On 30th September 2011 in State of Haryana v. Mukesh Kumar & Ors., the Supreme Court of India handed down a judgement that could force a re-look at the colonial ‘relic‘ of adverse possession which has the effect of legally (read ‘with authority of law’) vesting the title of a property in a trespasser from a true owner.

The Court held that “the theory of adverse possession is … perceived by the general public as a dishonest way to obtain title to property… mistakes by landowners or negligence on their part should never transfer their property rights to a wrongdoer, who never paid valuable consideration for such an interest.”

Although,the Government can also acquire land by adverse possession, but “fairness dictates and commands that if the government can acquire title to private land through adverse possession, it should be able to lose title under the same circumstances”.

The Court then examined the historical exigencies that led to the creation of a right to title in a property by way of adverse possession. However, it said that position had changed in the U.S. and the U.K., with right to property being elevated to a human right.

In advising the Parliament to take a re-look at the outmoded doctrine, the Court made various important alternative observations:

1. The Parliament may consider abolishing the law of adverse possession or at least amending and making substantial changes in law in the larger public interest. And especially, if the governmental authorities, like the police try to use their might to acquite land using this doctrine, it is the most tragic – in the Supreme Court’s words – “a testament to the absurdity of the law and a black mark upon the justice system’s legitimacy“. Rather, the government should protect a citizen’s property and not ‘steal’ it.
2. The Parliament must either require the adverse possessors to compensate the owners at the prevalent market value, or abolish the ‘bad faith’ adverse possession, and maybe increase the period of possession to claim adversely from the current 12 years to 30 or 50 years.

Finally the Court held that:

“Adverse possession allows a trespasser – a person guilty of a tort, or even a crime, in the eyes of law – to gain legal title to land which he has illegally possessed for 12 years. How 12 years of illegality can suddenly be converted to legal title is, logically and morally speaking, baffling. This outmoded law essentially asks the judiciary to place its stamp of approval upon conduct that the ordinary Indian citizen would find reprehensible.

The doctrine of adverse possession has troubled a great many legal minds. We are clearly of the opinion that time has come for change.

If the protectors of law become the grabbers of the property (land and building), then, people will be left with no protection and there would be a total anarchy in the entire country.”

UK Supreme Court on Interpretation of Commercial Contracts and Patentability of Gene Sequences

The UK Supreme Court on Nov. 2, 2011 handed down two interesting judgments:

• Rainy Sky S.A and others (Appellants) v Kookmin Bank (Respondent) [ see judgment, press summary, BAILII]

The Court held that when there is an ambiguity in construction of a clause in a commercial contract, the interpretation that would be consistent with business common sense should be given effect to. Also, in the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances.

• Human Genome Sciences Inc (Appellant) v Eli Lilly and Company (Respondent) [see judgment, press summary, BAILII]

In holding that gene sequences can have industrial application, reversing the lower courts’ findings, the Supreme Court gave primacy two policy arguments- attracting biosciences investment into the UK and bringing UK interpretations in compliance with the European Patent Convention. See this analysis of the judgment.

UNSC Syria Resolution Vetoed: Double or No Standards?

I have previously blogged about the reference of the Syrian situation to the ICC by the UNSC (here) and how the political nature of international criminal justice mars its purport and essence (here).

The protracted violence and deaths in Syria has been a cause for concern, with the Security Council also having condemned it in the past. However, while voting on adoption of a resolution that condemned “grave and systematic human rights violations” in Syria and entailed threat of measures under the U.N. Charter against Syria, both Russia and China vetoed it [much to the exasperation of the US (calling it a ‘ruse’) and European nations, who pushed for the resolution in the first place].

Russia’s reasons for the veto were that although they did not support the Syrian regime, the resolution would make onerous a peaceful resolution of the dispute (“ Russia does not agree with the unilateral accusatory bias against Damascus.”). Whereas China believed the resolution will only complicate the matter. (see here).

Mark Kersten writes that the veto was not surprising as the situation surrounding Syria is much different that what happened with Libya. Also, that the expectation that a new norm of international politics for intervention to protect human lives and human rights would take shape after the unanimous resolution against Libya was quite far-fetched. In fact, that the West was rebuffed by China and Russia was a direct concomitant of what happened after the Libyan resolution.

Although consensus in the international community is hard to come by, in matters that require concerted action, political calculations play a major role. The major powers will stand united on pressing matters only if their interests are served and accommodated. What is questionable is the organized hypocrisy behind international considerations – which is a not a new phenomenon.

 

 

Reference of Syria by UN Security Council to the ICC?

Amid increasing calls for a Security Council reference of Syria to the International Criminal Court (Amnesty and others) due to the breakdown on the civilians by the Syrian government, the UN Human Rights Chief fortified this claim by lending credence to this cause of prosecuting international crimes being committed in Syria.

In fact, earlier Libya had raised questions about the ‘double standards’ of the referral system to the ICC by the UNSC.

The pressure on the UNSC is increasing to pass a resolute decision on whether it would refer Syria to the ICC, as evidence strongly points towards commission of international crimes by the al-Assad regime. Although the political nature of international criminal justice, about which I have blogged earlier, is clearly affecting the cause of peace and justice.

Obama and a diverse United States Judiciary: Lessons for India

Having racial, gender and experiential diversity in the American judicial system were one of Obama’s top priorities when he was elected to the White House. Reports suggest that he may well have succeeded in portraying the true multi-ethnic rubric of the U.S.  through the federal judicial benches, at both the SCOTUS and the Courts of Appeals.

Of the 97 successful nominations made by the Obama administration, almost half were women, a quarter of them were, several openly-gay judges and Asian-Americans too.

In India, although the Supreme Court has had a history of wide regional, albeit linguistic and cultural representation, gender diversity has been hard to come by. Till date, only four women (three retired: Justice Fathima Beevi, Justice Sujata V. Manohar, Justice Ruma Pal; and one sitting: Justice Gyan Sudha Misra) have donned the role of a judge of the Supreme Court of India. In wake of the increased representation of women in local municipal governments and the pending legislation on reservation for women in the State and Central Legislatures, the judicial system has to catch up with the true multicultural, multi-ethnic and egalitarian dynamic that India exemplifies.