Three Extremes from 2017

2017 was marked by 3 extreme developments in law – surprising result in the 2G telecom case, changes in Insolvency and Bankruptcy Code and the push given to ‘Money Bill’ provisions of the Constitution

 

By Somasekhar Sundaresan

 

It is that time of the year — as 2017 draws to a close, it is tempting to look at developments in the area of law that impacted business enterprises during the year. It was a year marked by three extreme developments.

 

First, the biggest development that came at the fag end of the year – the all-surprising outcome in the 2G Telecom Scam (or should we now go back to saying “alleged scam case”). A classic example of a judicial overreach in cancellation of 2G spectrum licenses by a two-member bench of the Supreme Court, had led to the apex court correcting the law on allocation of natural resources when ruling upon a Presidential Reference. The Supreme Court had then taken great care not to disrupt the final ruling of the final court of the land in the 2G case, but had pretty much cleaned up the implications of the ruling for all other allocations of resources, doing away with the hard-and-fast rule of mandatory grant of resources to the highest bidder that the two-judge bench had earlier laid down.

 

Cut to 2017. The trial court judge, who through the trial, had pretty much denied every single interim application by every powerful applicant (whether it was from prominent industrialists seeking permission to travel, or from powerful political scions seeking bail) ruled that no case of criminality had been made out. Many commentators had been deeply invested in the idea that if the Supreme Court had already pronounced a bunch of persons guilty of impropriety, the criminal trial was just a formality to reach a foregone conclusion that the dramatis personae were guilty. They are still reeling in shock.  For now, the best way to summarize the situation is that all improprieties need not be criminal in nature although all crimes necessarily constitute impropriety.

 

The last word in the 2G case is not out. Appeals will follow. The zeal with which the earlier government had been attacked politically seems to be dead now. The zeal with which another bench of the apex court would eventually consider the last appeal that may eventually get filed many years down the line, will determine the real final outcome.  However, for this year, leaving merits of the specific case aside, this is a landmark development. The ruling cancelling telecom licenses were seen as bringing in uncertainty in the conduct of business. The ruling in the criminal trial underlines that the uncertainty can be uncertain.

 

Meanwhile, the silver lining is that regulators in the business of direct enforcement (without having to bother with proving themselves to courts of law in the first instance) would do well to learn that merely because they had taken strong positions on an interim basis, they do not have to conclude that violations took place. If the most high-profile case of the land can lead to acquittal, regulators must learn to look at every quasi-judicial trial presided over by them, with an open mind and without the fear of being seen as having sold their souls if they acknowledge that they were initially wrong.

 

Second, the law on insolvency affected business environment most materially this year. The very functioning of the newly-legislated Insolvency and Bankruptcy Code has taken off, with a bunch of cases reaching the apex court rapidly, and the law getting laid down. That even a newspaper vendor can initiate the insolvency process and bring a defaulter to his knees is good for business contracts. However, some extreme measures, however well-intentioned could kill the very efficacy of this law. One of them is the central bank taking charge of recovery decisions by banks — a position brought about through a Presidential Ordinance. The other is an evermore extraordinary Presidential Ordinance by which a blanket ban on anyone remotely connected to a defaulter gets disqualified from resolving any and every insolvent in the country.

 

Earlier, this column has analysed the unreasonable sweep of both these developments, here and here and therefore will not repeat itself. Course correction and tempering is expected, particularly with the latter.   For now, all that stout defenders have to say is: “Don’t expect the course not to be ever corrected — for now we need these imperfections.” Quite apart from this being a sorry position to take, if correction remains elusive, the new insolvency law could be stultified. Simply put, no affiliate of any insolvent anywhere in the world can bid to resolve an insolvent, if this position is not corrected.   And one is not being alarmist at all —indeed, this was the intention behind this latest Presidential Ordinance — since business failure and insolvency of every nature has been automatically stigmatised.

Finally, one would be remiss without reminding that the use of the “Money Bill” provisions in the Constitution of India — the only check and balance being the Speaker of the Lok Sabha, was taken to an extreme this year. Multiple tribunals constituted through Acts of Parliament passed by both Houses of Parliament have been abolished through a chapter in the Finance Act, 2017. In fact, the Foreign Exchange Management Act, 1999, which decriminalised violation of exchange controls by both Houses of Parliament, was re-criminalised through another recent Finance Act. That was not noticed loudly enough, and criminalising any conduct hardly evokes outrage in our society. The abolition and mergers of tribunals through this back door, certified by the Speaker to be worthy of a money bill legislation, will eventually be considered by the Supreme Court.

In a nutshell, the money bill envelope has been pushed to the farthest extreme. One could well be mistaken – a newer extreme may be achieved next year. Work on the Finance Bill, 2018 ought to have started in the cold corridors of North Block. Watch this space.
This was published as the Without Contempt column in the Business Standard editions dated December 28, 2017

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