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TODAY’S TALK ON EDITORIALS CIVILS360

AUGUST 12, 2017

Slow injustice

  • The wholesale acquittal of all 10 persons arrested in connection with a blast at the Police Task Force office at Begumpet in Hyderabad in 2005 must occasion serious introspection on the prevailing gulf between crime and justice.
  • While they no doubt bring relief, acquittals in such cases also carry a sense of injustice, especially when they are based on absence of evidence and not merely because there is some doubt about culpability.
  • It may also seem unfair to those who feel the accused got away; but more often, the injustice flows from the loss suffered by the accused who might have spent years in prison, possibly in the prime of youth.
  • A key aspect of these cases is that they were serious crimes warranting credible investigation and vigorous prosecution. The outcome, often acquittal for want of evidence, reflects poorly on the investigating machinery as well as the judicial system.
  • Fairness in the administration of criminal justice is not secured by the final outcome alone, but must be built into the process of determining whether a person is guilty or not.
  • Courts tend to deny bail in cases related to terrorism, but do not show a matching commitment to an expeditious trial. Delayed trials weaken the prosecution’s case.
  • Individuals come under suspicion for their links with organisations or groups, but are exonerated by courts after the prosecution fails to link them to any particular crime.
  • One way of addressing the problem of prolonged incarceration and perfunctory prosecution is to make it a matter of policy to have a quick and time-bound trial at least in serious cases involving acts of terrorism and those under special laws. Justice, if it has to be substantive, cannot be in slow motion.

Risks to growth

  • Five months after the Economic Survey 2016-17 was released, Chief Economic Adviser Arvind Subramanian has presented the second volume of the annual economic review-cum-prognosticatory report
  • While Volume I had projected the gross domestic product expansion in 2017-18 in a range of 6.75-7.5%, the CEA has had to take cognisance of several new factors that have contributed to his diagnosis: “that the balance of risks seem to have shifted to the downside” with a far lower likelihood of growth being “closer to the upper end”.
  • A quick look at each of the risks that Mr. Subramanian has cited shows it is going to be hard to find a ‘magic bullet’ fix that encompasses most of the concerns.
    • For instance, the continuing appreciation of the rupee’s real exchange rate means exporters are increasingly going to find themselves struggling to compete on pricing against competitors from countries whose currencies have weakened against the dollar and the euro. And this even while the recovery in global trade demand is still to acquire more robust momentum.
    • Another dampener, according to the CEA, would be the increasing stress to balance sheets that companies in the power and telecom sectors have to contend with, and the deflationary bias to activity that such stress would impart.
    • Besides its long-term structural benefits, the implementation of the GST, says Mr. Subramanian, would also straightaway provide a short-term impetus by easing a cross-country logistics constraint following the removal of checkposts. And yet, the transitional challenges from the actual operation of the new indirect tax regime could feed into the mix of factors retarding momentum.
    • Pointing to other factors including the farm loan waivers and agricultural stress that pose risks to the growth outlook, the survey posits that as part of the government’s remedial responses “policy must be driven by the recognition that, over longer horizons, there is no necessary opposition between farmer and consumer interests.”
  • Backed by procurement, remunerative and stable support prices can help ensure that the risk of wild swings in the production and prices of farm produce is obviated, thus protecting both farmers and consumers.
  • The CEA makes bold to recommend that the “time is also ripe to consider whether direct support to farmers can be a more effective way to boost farm incomes.” Ultimately, he argues, quick and considerable monetary easing by the RBI — with policy rates cut to about 4.25-5.25% from the current 6% — could help the economy approach full potential and aid in resolving the issue of stressed balance sheets.

No level playing field

  • The Insolvency and Bankruptcy Code, 2016 was enacted with the intention of improving the ease of doing business in India, a country perceived to have a weak insolvency framework and where defaulting debtors abuse the law.
  • At the outset, the Code appears to have the interests of business at heart: it aims to overhaul laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals; attempts to ease the process of recovery of money by operational and financial creditors in a timely manner; and places the onus on professionals to put forth resolution plans within 180 days. It seeks to ensure that there is neither scope for any further claims by the creditors, except through the Code’s mechanisms, nor for the corporate debtor to challenge the claims made by the creditor.
  • In reality, however, the Code has enough loopholes to close down businesses instead of assisting entrepreneurs. As explained subsequently, it fails to provide adequate safeguards to protect the rights of the company before handing over the management in its entirety to the resolution professional.

The flaws

  • The Code rides substantially on the unquestionable word of the creditors. Neither does the corporate debtor have an opportunity to put forth his/her case nor is there any scope of discretion provided to the adjudicating authority itself.
  • At various stages — of admission of the insolvency proceedings, of appointing the insolvency professional, of finalising the resolution plan — the Code fails to provide any opportunity to the corporate debtor to make a representation, at the very least.
  • In this manner, the Code ignores rights enshrined in the Constitution. (In Maneka Gandhi v. Union of India, 1978, the Supreme Court observed that it is the duty of the authority to give reasonable opportunity to be heard, even where there is no specific provision for showing cause when a proposed action affects the rights of the individual.)
  • The Code is also deficient in providing a yardstick for the qualification of the interim and of the final insolvency resolution professionals. It allows for any person to access the information memorandum put together by the insolvency professional without restricting competitors or imposing any confidentiality obligations. This allows for any person to access proprietary information of the corporate debtor and misuse the same, given that there is no law protecting confidentiality and vitiates the fundamental right to business under Article 19(1)(g).
  • It is also shocking that the Code prohibits withdrawal of the application once the same has been admitted. This means that there is no scope whatsoever for settlement. This is despite the recent ruling of the Supreme Court in Lokhandwala Kataria Construction (P) Ltd. V. Nisus Finance and Investment Managers LLP (2017), wherein a settlement proposal was taken on record and the appeal was disposed of. However, this cannot be held as a precedent.
  • Further, the unrestricted access of any person without mandatory contractual obligations in relation to confidentiality vitiates the fundamental right to business under Article 19(1)(g).

The Banking Regulation (Amendment) Bill, 2017

  • On Thursday, the Rajya Sabha passed the Banking Regulation (Amendment) Bill, 2017. The Bill replaces the Banking Regulation (Amendment) Ordinance, that was passed in May 2017, after the Budget session of the Parliament.

What does the Bill do?

  • The Bill basically empowers the Reserve Bank of India (RBI) to give directions to banks to act against loan defaulters. The Bill seeks to amend the Banking Regulation Act, 1949 by inserting provisions for handling cases related to stressed assets.
  • Stressed assets are loans on which the borrower has defaulted or it has been restructured.
  • The RBI may, from time to time, issue directions to banks for resolution of stressed assets. The Central Government can authorise the RBI to issue directions to banks for initiating proceedings in case of a default in loan repayment. These proceedings would be under the Insolvency and Bankruptcy Code, 2016.
  • The RBI may also form committees to advise banks on the resolution of stressed assets. The members will be appointed or approved by the RBI.

What is the background?

  • The Banking Regulation (Amendment) Ordinance was promoted on May 4 to address the reportedly high levels of stress faced by the banking sector at the time.
  • The RBI had, in June, identified 12 ‘defaulters’ who account for around 25% of India’s non-performing assets (NPA) and informed banks to take up insolvency proceedings against them. A NPA is a loan or advance for which the borrower has failed to repay the principle or interest for a period of 90 days. Union Finance Minister Arun Jaitley told the Parliament earlier this month that the “proceedings had been initiated in the 12 cases” and the RBI is expected to refer more cases to the banks.
  • Public sector banks were hit the most as big industrial and infrastructure programmes were supported by them in the hope that there would be further expansion.