Tag Archives: Constitution of India

States challenging Central Law embellishes Federalism

By Somasekhar Sundaresan

A Bench of the Supreme Court is reported to have criticized the Government of West Bengal and its advocate for filing a writ petition challenging the mandatory introduction of Aadhaar.

According to news reports, a judge is reported to have asked the lawyer how a state can challenge law made by Parliament. Taking the cue, it is learnt that West Bengal Chief Minister Mamata Banerjee’s lawyer agreed to get the individual who is the Chief Minister to be the petitioner instead of the state government.

According to this report in Bar and Bench, the judges are reported to have asked:

How can a State challenge a law made by the Parliament? You are challenging the vires of the Act.”

To protect the litigation in substance, finding fault with form, the Court is reported to have suggested,

“Let an individual come, let Mamata Banerjee come. But how can the State come? Tomorrow, what if the Centre challenges a law made by a State?”

This exchange may have been handled expeditiously had petitioner not displeased the Court by countering its observations. The move would have also suited the West Bengal Chief Minister, as it would give her direct political mileage. However, it begs the question if there is indeed any basis for a perception of illegality or impropriety in a state government challenging a law made by Parliament.

Interestingly, the answer, subject to some nuance, is clearly in the negative. There is no bar on a state government challenging law made by Parliament in the Supreme Court. On the contrary, under Article 131, the Supreme Court has exclusive original jurisdiction, to the exclusion of all other courts, over disputes amongst Central government and state governments, as indeed between state governments, where questions determinative of the existence or the extent of legal rights are involved.

In fact, the notion that challenges to law made by Parliament should be circumscribed, came up during the Emergency when Article 131A was inserted to provide that only the Supreme Court could deal with challenges to such legislation. Right after the Emergency, this provision was repealed. That temporary limitation was one of the forum, and not of the eligibility of the party who could litigate.

Then there is the age-old issue of whether a writ petition under Article 32can be pursued by a non-individual, but that does not seem to have been the basis of the change of form of the challenge to Aadhaar by the West Bengal government. The discomfiture appears to have been the seeming impropriety of a state government taking on law made by Parliament. That concern, even from the standpoint of propriety, appears misplaced.

Besides, if public interest litigation filed by individuals can be considered to be “appropriate proceedings” under Article 32, it would stand to reason that a state government (which would be held to a greater standard of propriety in its conduct) too should be able to move court. Of course, a petition without merit can be thrown by the court as it would throw out any petition that is without merit. A state government would be taking serious political risk if the apex court were to stricture it for indulging in frivolous litigation.

In fact, the recent history of the United States is rich with examples of states challenging law made by the Centre. Early this year, US President Donald Trump issued an executive order banning entry of persons from specified Muslim nations into the United States. A total of fifteen state governments – California, Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia and Washington – chimed in with the state government of Hawaii, to challenge it.

Even the equivalent of a “Union Territory” – the District of Columbia (Washington DC, which is like our National Capital Region) – challenged the travel ban. By a sleight of hand, the US President’s team replaced the travel ban under challenge with a new ban, adding a couple of non-Muslim nations to the list of banned sources of travellers and the fight has been reset to the first round again.  Hawaii is leading the fight again, and there is no reason why the other states would not join hands.

A state initiating litigation against the Centre in a court of law, over a constitutional issue, would embellish the robustness of the health of a federal democracy. Likewise, if for example, a State Legislature were to make law that is in the domain of Parliament, it would be a matter of robust federalism that the Central government challenges such law. The Supreme Court would be the right forum for resolving such disputes.

Indeed, there are various types of inappropriate use of judicial time for inter-governmental disputes and propriety would demand that those are not indulged in. For example, the income-tax department often files writ petitions challenging decisions of the Settlement Commission; the Enforcement Directorate is known to have challenged the Reserve Bank of India’s decision to compound offences under exchange controls; a former Union Finance Minister announced to the media that he had advised the capital market regulator and the insurance regulator to approach a court of law to litigate and resolve a turf war over unit-linked insurance schemes that were accused of also being mutual funds.

Last year, the state governments of Bihar and Jharkhand were rebuked by the Supreme Court for a dispute going back to 2004, over sharing of the guest house and state government office between the two states after the separation of Jharkhand from Bihar.

But a challenge to legislation made by Parliament by a state government, or for that matter, a challenge by the Central government to law made by a State Legislature hardly appears inappropriate.

The author is an advocate practising as an independent counsel.

This column was published in the Bar & Bench on November 9, 2017

Last resort shouldn’t turn into first choice

By Somasekhar Sundaresan
The of India is reported to have blessed a settlement between a litigating lender and a corporate borrower after the process for insolvency under the newly-legislated had been set in motion.

 

The parties settled their differences and their settlement terms were approved setting aside the process, using the court’s powers under of the  This is a material development and points to the need to take a close re-look at some of the policy choices made in the new bankruptcy law, which is now about nine months old.

 

First, the process brings on par with lenders, who may have thousands of crores in loans to a borrower, any operational creditor (say, supplier of furniture) who claims dues of just over a lakh of rupees, in the legal capacity to trigger the “resolution process” under the code.  The grounds on which the National Company Law Tribunal might refuse to set the process in motion are limited — for operational creditors, the primary ground is the existence of disputes before the claim is made. In other words, only uncontested dues on which there is a default would lead to the being attracted. The case in the was not of an operational creditor but of a financial creditor, but that does not matter for the analysis here.

 

Second, once the resolution process is set in motion, a moratorium kicks in. No debt can be enforced on the company against whom the claim was made. While this might seem normal about “bankruptcy protection” it works well only for companies that are truly bankrupt. For companies that are solvent but have bona fide disputes over claims made by counter parties, this results in a prompt trigger of pariah status. If your promises cannot be enforced against you, no one would transact with you. This is all the more reason for the setting of the process into motion to be done with a great deal of care and caution. Until a recent ruling by the National Company Law Appellate Tribunal, various benches of the National Company Law Tribunal, which administers the new law, had taken a position that unless actual litigation had been initiated, no claim of any operational creditor could be regarded as disputed.

 

Third, not only would a moratorium kick in, but also an “interim resolution professional” would stand vested with all the powers of the board of directors of the company. The powers of the board of directors would stand suspended forthwith. The moratorium and the change of control are certainly fantastic features to handle the best interests of stakeholders of a truly insolvent company but they are certainly poisonous and not medicinal for a company that is solvent but can be threatened with initiation of the resolution process. Therefore, the very threat of a possible initiation of this process leads to coerced recovery that could in fact hurt a larger segment of lenders, who truly have the long-term financial interests of the company at heart.

 

This is why HDFC Bank Managing Director Aditya Puri’s statement that resorting to the insolvency courts is not the best solution unless the borrower is a wilful defaulter makes immense sense. In his reported words, this is a law of “last resort” and not the “first thing”. The capacity of any goods or services provider — an operational creditor — to set such a serious process in motion as the first thing, is worrisome. Once the moratorium kicks in, even the financial creditors of a company for which a moratorium has kicked in, would get hit and be unable to recover their dues.

 

Indeed, the creditors’ committee that is supposed to work during the moratorium could comprise a majority of creditors, who see a future in the company and can drown out the voice of the lone creditor who does not. Therefore, theoretically, if one does call the bluff of an aggressive operational creditor or a disgruntled financial creditor, and stays the course, the initiation of the resolution process can eventually come to mean nothing. However, this is theoretical and not practical. Once the world at large rearranges its view of a company whose promises cannot be enforced and has to deal with a chartered accountant or company secretary acting as a resolution professional without experience in running a business, even a reasonable view of creditworthiness of a doubtful debtor has to change to a perception of a bad debtor.

 

In this context, the coding in the law that entails no roll-back once the resolution process is set in motion is a hard and blunt weapon of last resort, which can cause more injury than warranted when used as the first resort. When the uses “for doing complete justice” and takes on record the settlement terms between a creditor, who has set the resolution process in motion and the debtor on whom a moratorium has kicked in, it is because really unjust and unintended consequences can emerge from the working of this law.

 

For the long-term health of the effectiveness of the bankruptcy law, it would have been better to help the new law build its core strengths by generating capacity and getting the resolution professionals and bankruptcy professionals to build bandwidth and gain competence before unleashing the burden of handling the entire society’s corporate debts on them. The burden of private corporate debt recovery could have been held back from imposing itself on the enforcement machinery until the immediate task of serious financial debts working itself through. The Supreme Court, which has powers to intervene and roll back a moratorium in the interests of justice, having used this power, it is time for a serious and quick rethink and pilot short amendments to make this law effective with a review scheduled for after two years.

 

This column was published in the Business Standard’s editions dated July 27, 2017 under the title Without Contempt

Undeclared Emergency: We are like that only

Voices for and against argument that there is an undeclared Emergency gets shriller every year

It is that time of the year — the last week of June — when the Emergency is remembered, various commentators lament the attempt to kill the spirit of the Constitution and others celebrate how the system fought back. Increasingly, the last week of June has also come to entail a discussion on a state of “undeclared Emergency”. The voices for and against the argument that there is an undeclared emergency gets shriller every year.
Some home truths are critical. First, no party in power is innocent of the charge of introducing elements of an “undeclared Emergency”. Be it the Congress-led United Progressive Alliance (UPA) or the Bharatiya Janata Party-led National Democratic Alliance (NDA), every successive government has contributed its share of draconian laws, subversion of Parliament, blasé violation of constitutional principles with law officers finding ingenious arguments to defend them in the courts. Each government builds on the foundation laid or fortified by the earlier government, regardless of political hue. Each Opposition screams against “undeclared Emergencies” and only builds on the foundation when voted into power.  
Examples will make this point clear. The UPA effected draconian amendments to the law governing foreign contributions to the social sector that have resulted in foreign-funded non-government organisations (NGOs) being barred from indulging in an ambiguously-and-widely defined “political activity” even while foreign-funded business enterprises face no such restrictions. Corporates with foreign shareholding are free to lobby for changes to law and lobby Members of Parliament and senior bureaucrats, while NGOs with foreign donations simply cannot meet these worthies to influence their thinking and express their points of view. The administration during the NDA government built on this well-laid foundation and started actually knocking NGOs hard.  
Likewise with interventions with media businesses or just crony capitalism. Bennett Coleman and Co, the owner of The Times of India, was hounded by the Enforcement Directorate during the United Front government comprising a bunch of 13-odd political parties led by Deve Gowda first and I K Gujral next, followed by the NDA. Tehelka and NDTV can write full primers on what can go wrong when you get on the wrong end of the state machinery. Tehelka’s substantial financier Shankar Sharma faced the music under both regimes — the NDA and the UPA (the allegations for which his broking firm had been punished in 2001 were levelled again to punish him personally, this time under the UPA). The Vedanta Group came in for serious stick under the UPA. Cairn India was forced to apply for approval for a change of ownership, and then given approval with the condition that substantive litigation against the government must be withdrawn. 
Second, a government in power has to be really very stupid to formally use the E-word and declare a state of emergency. It can now do so only if it were to entirely lose all faith in the democratic system to come to believe that it would get away with it. Indira Gandhi’s declaration of Emergency fell in the former category. Her termination of the Emergency showed that she too had not lost faith entirely and by the time she realised her cronies had gone too far, it was really late. Today, with the love and glory for the armed forces being felt so widely, as a society we may be heading towards a tipping point towards the latter — a loss of faith in democratic politics. However, no politician who has a decent career would have the capacity to come out the closet and declare an Emergency by design. 
The situation is much like the discourse and debate in Israel, where awareness of discrimination under Hitler’s Germany is always highlighted in the incessant debate over the “undeclared apartheid” against Palestinians. It would be stupid for Israel to embrace the epithet of “apartheid” and therefore, it would always highlight how apartheid in South Africa was different in vital features from the discrimination in Israel. Our social debate on “undeclared Emergency” is quite similar. One can keep pointing out that there is no official censor to review news reports, but others can point out that when the situation does not demand an official censor, you do not need to appoint one. The actions of the “Censor Board”, as the film certification board has come to be known, are adequate pointers to the social state.
Finally, as a society, Indians have always craved for a dictator they can elect. Ruthlessness has always been an admired trait in large sections of the Indian electorate and society. Indira Gandhi was popular in her day. The PM in office is as popular today. Their decisiveness and sense of direction is a matter of envy of the other politicians and pride for the layman. Therefore, it is not at all really necessary for a formal declaration of emergency. You can blame Indira’s indiscretion on being blinded by her cronies — astrologers and Sanjay Gandhi’s disjointed blokes and being cut off from ground realities. Let us remember that it was not the feeling of constitutional injury that led to her downfall right after Emergency — it was the forced nasbandi by population-control vigilantes that led to the disaffection of the masses. The government that succeeded her was as draconian — a simple example of trying to arrest a former PM without even a warrant should do to make the point. Morarji Desai had sought to put down the Maharashtra movement in the Bombay Presidency with a firm hand — directing firing on protestors.  
Perhaps a more honest way to handle this debate is or all to acknowledge by saying, “We are like that only.”
This column was published “Without Contempt” in the Business Standard edition dated June 29, 2017

A chance to score a judicial point

In the Justice Karnan row, the judiciary can demonstrate that they will not flinch on accountability

The controversy is entering unseemly territory. Yet, it has presented a never-before opportunity for the judiciary to score an important point in the scheme of constitutional

 

At every stage of being disciplined, Justice C S Karnan has made society suspend disbelief. He has been purporting to pass unprecedented ex parte orders against of the Supreme Court, among others, directing the Chief Justice of India and other not to travel out of India so as to “prevent them from infecting” territories outside India with their anti-Dalit attitude. Whether Justice Karnan’s conduct is contemptuous of the judiciary, whether he is at all of sound mind, and what, if any, the punishment for contempt should be, may eventually be determined judicially. However, there can be no doubt about one fact — his behaviour is eminently impeachable.

 

At the time of this column going to press, no one in authority has used the i-word. The very thought appears to be far removed from serious consideration.  Reasons vary. Some believe that it would be meaningless to do so with the judge having just weeks left in office. Others feel that a judge being impeached would tarnish the history book. Leaving aside what reasons compete for keeping away from impeachment, here is a simple political thought.

 

Impeaching a judge of a high court or the Supreme Court is, for all the right reasons, a tough task. Misconduct by a judge can be lightly alleged by any party unhappy with a judge’s decision. In every litigation, there is at least one party unhappy with the outcome (at times, all parties can be unhappy, but such is life when differences cannot be resolved mutually). Arms of the state, in particular, governments, government agencies and the bureaucracy are the biggest contributor of litigation in the country. This renders vulnerable, and unless effectively protected under the Constitution, it would be impossible to have a credible and respected judicial arm of the state.

 

The constitutional tension and between the executive arm and the judicial arm of the Indian state has been typically informed in recent times, by the debate on It is no judge’s case that must not be accountable at all for misconduct, but it is vitally important to ensure that misconduct is not lightly alleged. The constitutional amendment to change the manner in which are selected and tested for accountability, and the amendment being struck down, has been the high point of this constitutional political tension in the past two years.

 

Now, presents a fantastic opportunity to the judiciary. No judge in the higher judiciary has presented a stronger case for being impeached. Impeachment requires elected members of Parliament to speak up and act. To impeach a judge, misbehaviour or incapacity has to be proven as grounds for tabling an impeachment resolution in any House of Parliament.  In the Lok Sabha, 100 members have to come together to set the ball in motion while in the Rajya Sabha, 50 members would do.  The Speaker in the Lok Sabha and the Vice-president who chairs the Rajya Sabha have to accept that a motion to impeach a judge may be tabled. Each House of Parliament is required to vote with a majority of not less than two-thirds of the members present and voting.

 

At every stage of being disciplined, Justice C S Karnan has made society suspend disbelief. There can be no doubt about one fact - his behaviour is eminently impeachable

At every stage of being disciplined, Justice C S Karnan has made society suspend disbelief. There can be no doubt about one fact — his behaviour is eminently impeachable

If our politicians are serious about judicial and the need to bring to account, an impeachment motion for should be a sitter. Reality is different. The political system will bring into motion the conventional political dynamics for the vote. Justice Karnan’s defence of the indefensible is largely based on one single point — that he is being targeted on caste-based lines because he is a Dalit. Dalit Members of Parliament could call his bluff if they so desire. A government that is said to be committed to finishing off caste-based — with a beginning having been made in the Uttar Pradesh elections —and indeed, said to be committed to bringing in an era of judicial accountability, should easily find 100 members in the treasury benches of the Lok Sabha or 50 members in the treasury benches of the Rajya Sabha to do the task of setting the ball in motion.

 

If Supreme Court were to transparently (read, publicly) ask for such a motion to be passed, it would set the cat among the pigeons.  Parliamentarians would have to deal with having been called upon to play their constitutional role — something they say they are keen to see do properly. And, if Parliament flounders, whether on caste lines, linguistic lines, or indeed any political lines (the nuanced and intense floor management in the 1990s when Justice Ramaswami’s impeachment motion was considered by Parliament comes to mind), the judiciary would have proven its point — that the judiciary will not flinch from taking to the logical and ultimate end, and it is the political system that is unable to handle it. It would prove to Indian society that the legislative obsession with how are appointed, while important, is not founded on outcomes but on the of who may occupy high judicial office.

 

On the other hand, if Parliament indeed acts to impeach Justice Karnan, that would in itself be a milestone in India’s constitutional history. Not one judge having been impeached in the Republic’s seven-decade history is not a nice sign. It is a pointer to the checks and balances built in by the founding fathers of the nation not having been put to use at all. If politicians play the usual card of convincing the judge to resign midway during impeachment proceedings, the judiciary would have still made its point that it is unflinching in calling upon the system to work towards So, the situation presents a win-win opportunity that is waiting to be seized.
This piece appeared in the column titled Without Contempt in the editions dated May 25, 2017 of the Business Standard

It’s a tug-of-war out there

By Somasekhar Sundaresan
It is by far the boldest move in executive governments pushing the envelope in breaking the law with the very process of law-making. The current government has piloted the Finance Act, 2017, through to get substantial legal provisions passed without the scrutiny of the

 

Many appellate tribunals that hear appeals against orders by regulatory authorities have been wound up for being merged with other tribunals —essentially, changes in institutions that were set up in the first place, with the approval of both the and the Constitutional courts may be visited with challenges to the abuse.  But not much may happen there. The has an inbuilt check and balance in the office of the Speaker of the She has the last word on whether or not a proposed law is a Money Bill, that is, a law that deals with matters of finance and tax, as set out in the

 

The approach of the government is legally wrong. However, every wrong is not justiciable. If the set much store by the judgement of an occupant of high office, it was arguably intended that the occupant of that office must be trusted. If that trust is belied, it would only follow that we have a loophole in the that can only be corrected by a constitutional amendment.

 

It is equally true that courts have not always steered clear of every wrong that is not justiciable. Constitutional courts have happily legislated. Either entire legislation (for example, environmental charge for entry of vehicles into Delhi) including de facto contents of the (for example, the judges’ collegium for judicial appointments) have been created in the past by judge-made law. When facts are provocative enough, intervention may indeed follow.

 

In a challenge to the replacement of governors of states as political decisions, courts have ruled that no decision of the government, including a decision to replace a governor can be arbitrary, yet ruling that the decision cannot be interfered with. It is likely that the pending litigation over whether legislation that are nowhere near Money Bills can be passed by as if they were Money Bills, would meet the same fate.

This contrivance aimed at simply circumventing the has been resorted to in the past. The Foreign Exchange Management Act, 1999, had been passed by both Houses of as a non-criminal law to replace the dreaded criminal law contained in the Foreign Exchange Regulation Act, 1974. That was not a That had been a major milestone in India’s legislative and economic policy history. Two years ago, provisions criminalising exchange controls were brought into through a No consent of the was taken.

These infractions of law were not challenged since they were not politically correct for challenge. Now that a bigger gauntlet has been thrown, it is possible that some may challenge it.  The history of constitutional challenges to the creation of tribunals has itself had a chequered history at the hands of courts. The National Tax Tribunal could not be set up due to such a challenge.  The National Company Law Tribunal could indeed be set up although in its new form it is in conflict with earlier rulings of the Supreme Court rendered when dealing with earlier attempts to set up the Tribunal. There are as many views on interpreting the as there can be benches of the Supreme Court and of multiple high courts.

All of this is not to say that all the changes sought to be brought in are bad. There are some laudatory amendments — one is the retirement age of the presiding officer has been extended to 70 years. Some changes are horrible.  The tribunals listed in the Finance Act, 2017, are not the only ones whose has been disturbed. A provision entitling government to similarly merge other tribunals not named for now, by a simple executive fiat has also been passed as a part of the

 

The Finance Act, 2017, is a quiet power-grab in the conflict between arms of the state.  If the judiciary wrested control back by striking down the National Judicial Appointments Commission, the executive has sought to strike back by giving itself powers over vast areas of quasi-judicial territory.

This is the most vulnerable part of the Finance Act, 2017, since it could be struck down as being arbitrary as it is a matter of “excessive delegation” of powers by the legislature to the executive. A constitutional challenge to such delegation is not about whether it is a Even if it were to be regarded as a provision in a Money Bill, it would be liable to be attacked as an arbitrary delegation of power to the government.
A version of this post was published as my Without Contempt column in the Business Standard in its editions dated April 6, 2017

Somasekhar Sundaresan: Lofty ideals don’t justify faux measures

Regulators often overstate the seriousness of the work they do to defend every measure adopted in regulations, however flawed

There was one subject other than the corporate governance fracas at that grabbed the attention of social media in the last fortnight — the Securities and Exchange Board of India’s (Sebi) consultative paper seeking to restrict free speech in the Indian capital market.

 

Sebi’s consultative paper proposes that “no person shall be allowed to provide trading tips, stock specific recommendations to the general public through short message services (SMS), email, telephonic calls, etc. unless such persons obtain registration as an investment adviser or are specifically exempted from obtaining registration”. Further, “no person shall be allowed to provide trading tips, stock specific recommendations to the general public through any other social networking media such as WhatsApp, ChatOn, WeChat, Twitter, Facebook, etc. unless such persons obtain registration as an Investment Adviser or are specifically exempted from obtaining registration” Regulations are proposed to be amended to provide that such expression of would constitute securities fraud.

 

The consultative paper has been out for public comment for a while. However, it caught the attention of critics only recently, and the critique has gone viral. Indeed, they are also those who support any measure from folks in authority on the ground that anything from authority should be assumed to be backed by divine wisdom. They speak in favour of proposals since investor protection as an objective is a lofty ideal. Therefore, one must examine if Sebi’s proposals would pass muster under the Indian Constitution.

 

The guarantees freedom of speech and expression. Such freedom is subject to “reasonable restrictions”. For Sebi’s interventions to be constitutionally valid, the restrictions sought to be imposed on making public comments on securities must stand the test of being reasonable.

 

Assume a commentator makes remarks on television news channels that the shares of a company that has taken an inexplicable, unexplained business decision would fall. Or for that matter, assume someone who believes that a business decision is right merely because it a decision taken by men of stature will lead to the securities price going up. Under Sebi’s proposed law, tweeting such a view, posting it on Facebook, or broadcasting it on or would be illegitimate, unless the person doing so is registered with as an investment adviser.

 

Now, everyone with a view may not be in the business of providing investment advice. But the law would require registration as an investment adviser to be able to legitimately express a point of view.This would mean that the commentator would need to subject herself to a regulatory requirement and get licensed to carry out a business that she in fact does not carry on — that of providing investment advice for a living. Worse, if one were to express an opinion, one would be committing a securities fraud regardless of the veracity and accuracy of the opinion. The liability would be civil monetary penalty of to Rs 25 crore, a term in jail of to 10 years, a criminal fine of to Rs 25 crore, or remedial directions in the form of a direction to shut unless registered with to provide investment advice. In other words, the law would have a “chilling effect” on the freedom of speech and expression — hardly a measure that could be considered reasonable.

 

Almost everyone on an Indian street has a view on the outcome of every possible election — whether it is the elections in the or in UP. Now, picture a law that would criminalise expressing an on whether it would be Mayawati who would become the next chief minister, or if a certain faction of the Yadav clan in the would gain power, unless registered as a psephologist, or for that matter, unless registered as an official member of a political party.

 

Those who defend curtailment of free speech in the securities market would jump to say that financial markets are different from electoral markets. In the former, people lose real money when they get influenced by the expression of opinion. In the latter they may at worst get bad governments if influenced by prejudiced opinions. First, getting a bad government could be worse than losing some money that can be recouped later from the same markets. Second, what is a fair and what is a motivated fraudulent false statement is always a question of fact. Registration with an authority would not change that. In election petitions, courts consider if political candidates have adopted corrupt electoral practices. Likewise, (and therefore the courts) consider if a person who made a statement about securities did so fraudulently, knowing it to be false.

 

Regulators often overstate the seriousness of the work they do to defend every measure adopted in regulations, however flawed. The lofty heights assigned to investor protection can indeed be assigned to every area of regulation — be it food, electricity, competition, drugs and cosmetics, financial data aggregation, or even plying of taxis. The objective of regulation can be lofty but the measures to meet the lofty objectives still need to be reasonable in order to be constitutionally valid. Misplaced and overstated concerns can kill the “good” in the name of working towards the “best”. It is not wise to burn a house down to protect it from the rats that infest it. It is not wise to inflict forceful nasbandi to achieve population control.

 

It is wise of to have sought public comment on such a problematic proposal. One can only hope that the reactions received in the consultation process make one point clear to the regulator – there is no short cut to fighting real fraud in the market. That fight involves examining the statements and comments made, determination of whether it was motivated by fraud and scrutinising circumstances that would point to intent to cheat the market by making a false statement. Registration as an investment adviser can never reduce this burden.
This column was published Without Contempt in Business Standard on November 8, 2016 

Public consultation for law-making is no fetish

Consulting those governed by the law enables society to know the intent and purpose – it is only a consultation and not a vote

The need for before bringing in any new legal requirement keeps coming up every now and then. Most recently, it made it to the headlines yet again when the ruled that the manner in which the telecom regulator conducted public consultations and dealt with the inputs received was arbitrary and unconstitutional. The court had even remarked that India should have a law that makes it mandatory forto conduct public consultations in an objective manner when writing new law.

Interestingly, the had already directed in February 2014 that every government agency and department to follow a pre-consultative process when making law. The Union law secretary had communicated the Cabinet decision to all departments asking them to strictly abide by the requirement to conduct prior consultations with the public. The then United Progressive Alliance (UPA) government had burnt its fingers badly with civil society led by andover the draft law to create the not having been properly discussed with the public. It had yet gone on to make this a self-complying requirement without getting Parliament to make law. The new National Democratic Alliance (NDA) government has not reversed this decision in the two-year-plus tenure it has had so far.

However, this requirement is followed more in the breach by government agencies uniformly – both under the residual term of the UPA and the newly-elected NDA. Worse, many government agencies provide lip service to the process by getting public comments on draft policy and draft legislation on some proposed actions even while pushing through numerous decisions, both routine and serious, with no at all. For some reason, it appears that this self-imposed requirement had either not been highlighted to the by any of the parties, but many writ courts are now being called upon to determine the legitimate expectation of Indian society arising out of the requirement to be consulted.

What is the charm in a pre-consultation? Asking those who are to be governed by the law for their views on the proposed law enables a society to know the intent and purpose underlying the law. The consultation process helps clear out unintended consequences and unforeseen difficulties that could be posed by the proposed law. Having this dialogue could enable addressing loopholes that the proposed law would leave, and removing unnecessary and onerous requirements that do not meet the objectives – the subjects governed by the law are best placed to give this feedback. This includes the beneficiaries of rights under the proposed law (those the law seeks to protect) and those on whom obligations are imposed under the proposed law.

A pre-consultative process is only a consultation. It does not give a veto to the public. When members of a society express reservations about the efficacy of the measures in the new law, it gives the lawmaker a chance to address the concern – demonstrate that they are wrong, or acknowledge that they may be right but still have good reason to overrule their concerns. The sovereignty of the lawmaker – be it Parliament, or a regulator, or a department of the government – would be intact and majestic. After the law is brought in, the society would know what was really expected under the law. When anyone is in doubt about what course of conduct to adopt, such clarity would enable them to choose the conduct most responsive to the objective of the law. In the field of business and industry, this process would contribute immensely to the ease of doing business in India.

Yet, all these arguments are usually wished away as Utopian by the bureaucracy that proposes law and policy. Indeed, there can be abuse of the consultative process, but the abusive feedback has to be stated to be rejected. For example, regulators have found numerous similarly worded responses from different members of the public, making it evident that one vested interest supported one point of view, outnumbering the contrary view. But no one said pre-consultation was a public vote. The telecom regulator has indeed made the point well on theover net neutrality when social media companies abused the process.

Every law requiring a pre-consultative process would also naturally protect the lawmakers’ right to bring in requirements on an emergency basis. Such requirements would hold good for a reasonably long period during which the consultative process can run its course. After applying the process, the law could be reiterated, modified or removed. Indeed, the Union government’s requirement that every government department and agency should follow pre-consultative process does not cover presidential ordinances.

In the absence of a pre-consultative process being mandated under a binding law governing how law should be made, it is left to the whims and fancies of the bureaucrats writing the law to sidestep the governmental directive to have pre-consultation. Any government officer worth her salt would be able to write some reasons on why she cannot wait for the pre-consultation process and how it would hurt public interest to do so. In much the same way that she would be able to decry the debilitating impact of the law on the right to information. This is how regulators get away with giving society no clue of when they provide the avenue, how they deal with inputs and why they accept or reject any suggestion even while creating a mirage of on some matters of law-making. It is time to intervene with a formal substantive law – which too may entail public consultation.

This was published in the September 5, 2016 edition of the Business Standard column titled Without Contempt