India Legal 07 January 2019

YEAR-END SPECIAL
STORIES THAT COUNT
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January15, 2018
Parliament: Politics
of triple talaq
Supreme Court: Year
of crucial judgments
Death By
AadhaarInJharkhandalone,fourpeoplehavediedfromstarvationbecausetheycouldnot
accessrationsorpensionunderAadhaarguidelines.This,despitethematterstill
pendingbeforetheSupremeCourt.Aninvestigation.
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Koyli Devi whose 11-year-old daughter Santoshi Kumari died of starvation in Jharkhand
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April 2, 2018
AADHAAR:
BRIDGINGTHEGAPEvenastheSupremeCourthearingsintheAadhaarprivacycasereachapivotalstage,
alittleknownaspectistheprojectpioneeredbyUS-basedentrepreneurVinodKhosla
SY Quraishi: On foreign
funding for political parties
Book Extracts: Prof Arun Kumar on
the legality of demonetisation
Vinod Khosla
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January22, 2018
Hate Speech: Media’s
barbed missiles
UK Immigration:
Relief for students
SUPREMECOURT:
MUTINYONTHEBENCHNeverinindependentIndia’shistoryhavefourseniorSupremeCourtjudges
calledapressconferencetoattackthechiefjusticeandjudicialprocedures.
Bysayingdemocracyisindanger,theyhaveexposedariftinthe
apexcourtwhichhasalarmingconsequences.
(L-R) Justice Kurian Joseph, Justice Jasti Chelameswar, Justice Ranjan Gogoi and Justice Madan B Lokur addessing a press conference in New Delhi
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ThelawandordercrisisinUP—highlightedbytheUnnaoatrocity,encounterraj,and
withdrawalofcriminalcases—smacksofacomplicitybetweenpoliticiansandtopofficials
Arun Shourie: Cracks
in the judiciary
SC: Impeachment
drama/Loya decision
Protect your
witness!
ll llii
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The Yogi And
His Commissars
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March26March26MM 2018, 2018
JUDGEWITH
ADIFFERENCEFewChiefJusticesofIndiahavehadsuchatoughtenure—fromaseriesofsensitive
andchallengingcasestoaninternal‘revolt’byhisseniorcolleagues.Yet,injustoversix
months,DipakMisrahasputhisstamponthejudiciary.An analysisofhislegacy
Arbitration Bill:
The right prescription
London Tribunal: Secret
British role in Operation Blue Star
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May 21, 2018
HowlongwillIndia’smosttrustedinstitutionsbeableto
withstandcontinuingassaults?
STORMY
WEATHER
Police reforms:
Backward march!
VIP squatters:
Booted out
DrUpendraBaxi
onimpeachment
MGDevasahayam
oncredibilitycrises
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JEWEL
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fragilityofIndia’sbankingsystem;
acombinationoflaxcorporate
governance,corruptofficers,antiquated
securityandroguebusinessmen.
Itspotlightsotherrich,
well-connectedwilfuldefaulters
Aadhaar Hearings:
Belated recognition
Election Commission:
Question of autonomy
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GDP Figures: Politics
over economics
Bulandshahr:
Killing fields
“Mobocracyin
thegarbof
democracycan
neverbejustified”
JUSTICEHLDATTU,
chairpersonofNHRC,
onthehumanrights
challengesfacing
Indiatodayandwhy
Acts,lawsandpolicies
alonecannotchange
thecountryunless
mindsetstoochange
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DISORDER,
WiththechiefjusticeaskedtoformaConstitutionBenchtoresolveanapparentconflict
betweentherulingsoftwothree-judgebenches,theapexcourtiscaughtinacontroversyof
itsownmaking.Whathasledtothis?
Slapgate: The IAS vs
Kejriwal unreality show
Karti Arrest:
Political vendetta? w
SUPREMECOURT
OOORRDDDEERR,,,
askedtedtdtdtdddtdtdtedtoformaConstitutionBenchtoresolveanapparentconflict
DISORDER!
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December3, 2018
Government versus
RBI: Uneasy truce
CBI Crisis: Chief
justice loses his cool
How Healthy is
India’s Constitution?
OnConstitutionDay,ananalysisoftheremarkabledocumentcreatedbyourfounding
fathersandhowithasevolvedtokeeppacewithcontemporarytimes
Prof NR Madhava Menon, fatherofmodernlegaleducationinIndia; Prof Ranbir Singh, Vice-Chancellor,NationalLawUniversity,
Delhi and PDT Achary, formerSecretaryGeneraloftheLokSabhaanalysedifferentaspectsoftheConstitution
INDIA
LEGAL
THE BEST OF
2018

| INDIA LEGAL | January 7, 2019 3
LETTERFROMTHEEDITOR
aims to protect the anonymity of the donor as his
name will not be declared. The argument given to
support this aim is that many a time, donors do not
want to disclose which party they are donating to.
However, maintaining donor anonymity at the cost
of transparency is a wrong priority.
http://www.indialegallive.com/viewpoint/elec-
toral-bonds-more-opacity-than-transparency-
42686
MoreOpacityThanTransparency?/Opinion/
SYQuraishi/ElectoralBonds/January29,
2018
The ostensible aim of introducing these bonds was
to remove cash donations from political funding,
and thereby, black money. Instead, it will lead to
crony capitalism and more secrecy.
The main problem with the scheme is that it
TheBestof
2018
INDIA LEGAL
INDERJITBADHWAR
OUR
MOST-READ
STORIES OF
2018
NDIALegalmaintains its advancement and evolution. There’s nothing me-
chanicalaboutthis.Themagazine’sexpansion,predominantlyonline,isowing
totheeditorsheredevotingaconsiderableamountoftimeruminatingabout
itsdistinctivenessandcharacter.WhatmakesIndiaLegalwhatitis?Aswe
setaboutplanningthisSpecialEditionoveramonthago,wetooksmall,informalsurveys
ofreaderstoassesswhatattributesofthecontentstheyfoundthemostalluringandwere
likelyto comebackfor,forasecondhelping.Somestoodoutsharply:Highproductionval-
ues;superiorwriting;thought-provokinganalyses;theabilitytoattractsomeofthebest-
knownreportersandcommentatorsinthecountry;dedicationtofactandaccuracy;the
abilitytoprovidevarietywithinanicheproduct;adesiretoenlightenwithoutbeingbiased.
Butmostofall,out-of-the-boxandfiercelyindependentthinking.
Eachstoryfeaturedinthisissuereflectsoneormoreoftheseeditorialcharacteristics.
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wehavechosenalsocoverawidegamutofthetrialsandtribulationsofIndiansocio-eco-
nomiclifethroughtheprismofthenation’sjudicialsystem.
Whatfollowsaresub-titlesalongwithbriefsynopses.Forthosewhowishtosharethese
storiesontheinternet,wearealsoprovidingindividuallinks.Happyreading.
I

4 January 7, 2019
StrikingHome/JudicialCrisis/March5,
2018
In the latest Economic Survey, unveiled on the
eve of the presentation of the budget, the centre
acknowledged the need to address pendency,
delays and backlogs in the appellate and judi-
cial arenas as the next frontier on the ease of
doing business in India.
Short of treating the Judiciary as another
wing of the Executive, the centre expressed its
concern that delays and pendency of economic
cases are high and mounting in the Supreme
Court, high courts, economic tribunals and the
tax department. This and the inability to fill va-
cancies of judges may shake the confidence of
citizens in democracy and the rule of law.
http://www.indialegallive.com/special-
story/pendency-delays-and-backlogs-in-the-ju-
diciary-striking-home-44208
TheRapeofIndia/UnnaoandKathua
Atrocities/April23,2018
This week has been one of the darkest in India’s
contemporary history. The nation has been wit-
ness to the shocking, nauseating details of the
rape of two girls, one an eight-year-old child
and the other a teenager.
More sickening than the actual crime is the
manner in which politicians, policemen and
even lawyers have attempted, openly and
brazenly, to shield the accused. Despite the hor-
rific and brutal nature of the crimes, and the
national outrage they invoked, it was only after
a barrage of criticism that the prime minister
broke his silence with a statement.
http://www.indialegallive.com/column-
news/outrage/unnao-and-kathua-atrocities-
the-rape-of-india-2-46833
HasItWorked?/GSTSoFar/April23,2018
Both the GST Council and taxpayers will have
to look at this new tax regime as “work in
progress” for at least one more year, and con-
tinue to take quick corrective action.
The question now is how has the GST
regime worked since its launch. Before coming
to GST revenue collection, which, of course, is
of paramount importance, let us first look at
some fundamental issues. Did the policy deci-
sions work out well? Were they properly imple-
mented? Was the technology support ade-
quate? What was the impact?
http://www.indialegallive.com/top-news-of-
the-day/analysis-updates/goods-and-services-
tax-so-far-has-it-worked-46922
ASelf-inflictedWound/Impeachment
DilemmaProfMadhavaMenon/May7,2018
The action of the chairman of the Rajya Sabha
in rejecting the motion to impeach the chief jus-
tice is justified and strictly constitutional. He has
saved the judiciary from further ridicule.
I would characterise the January 12 press
conference by some judges of the Supreme
Court and the consequent assault on the judici-
ary from several quarters as “a self-inflicted
wound”. The ill-conceived impeachment motion
by Opposition parties, knowing fully well its fu-
tility, can be termed “an unnecessary political
gambit”. The Republic and We, the People of
India, are the losers in the game which some
judges and a section of politicians played to set-
tle personal scores, advance partisan agendas or
whatever else.
http://www.indialegallive.com/point-counter-
point/a-self-inflicted-wound-47594
PoliticsofEmbarrassment/SupremeCourt
/UpendraBaxi/May21,2018
The glacial pace of action increasingly imperils
both judicial independence and the constitu-
tional republic.
There has been more heat than light over
the motion initiated by individual members of
seven Opposition parties regarding removal
proceedings against Chief Justice of India (CJI)
Dipak Misra. The motion was moved on April
20, 2018, disallowed by the Rajya Sabha Chair
on April 23, and challenged as arbitrary and
unconstitutional by two Congress signatories in
the Supreme Court on May 7. The plea argued
that “the impugned order, in a cavalier, cryptic
and abrupt manner, shockingly holds that none
of the other charges are made out without dis-
closing as to on what basis this finding was re-
turned”.
If the CJI has the power to constitute
benches, being the master of the roster, can his
order be challenged on the ground of natural
justice whose venerable and valuable maxim is
LETTERFROMTHEEDITOR

TheBestof
2018
INDIA LEGAL
the-day/analysis-updates/rampant-lynchings-
in-india-the-macabre-murderous-mobs-51342
PrideoverPrejudice/Section377/
September17,2018
In a historic judgment, the Supreme Court
quashed its 2013 verdict and decriminalised
consensual homosexuality. But the fight to gain
acceptance and change mindsets will be tough.
Five years after it attracted global criticism
for upholding the 157-year-old draconian law
criminalising consensual homosexual sex, the
Supreme Court made a much-needed course
correction and created history. It was easily one
of the most progressive and beautifully articu-
lated judicial pronouncements of recent times.
The verdict by a five-judge constitution bench
overturned the top court’s Suresh Koushal
judgment of 2013 and read down Section 377
of the Indian Penal Code (IPC), thereby legal-
ising consensual gay sex.
http://www.indialegallive.com/constitutional-
law-news/special-report-news/section-377-
pride-prejudice-54126
FromRawDealtoNewDeal/Womenin
Judiciary/November26,2018
Their numbers are abysmal. While there has
never been a woman chief justice, the fairer
gender forms just nine percent of justices in
High Courts. What can be done to make the Ju-
diciary more egalitarian?
Women have got a raw deal when it comes
to top legal appointments or judicial eleva-
tions—this much stands recognised by consti-
tutional elites. The sculpting of a New Deal for
Indian women is an uphill task and occurs at a
slow and meandering pace. How to fast-for-
ward this pace is an integral aspect of “consti-
tutional renaissance” which former Chief
Justice Dipak Misra recently affirmed for the
Court.
http://www.indialegallive.com/viewpoint/wom
en-in-judiciary-from-raw-deal-to-new-deal-
57342
that no person shall be a judge in her cause?
Can one object to a bench of five other senior-
most non-collegium justices, other than the
four who had taken part in a press conference
on January 12, 2018?
http://www.indialegallive.com/viewpoint/pol-
itics-of-embarrassment-48296
SurvivingtheGreatBankRobbery/India’s
BankingMess/July9,2018
The burgeoning NPAs of banks can be tackled
by creating a “bad” bank and using the expertise
of distressed debt specialists from the private
sector.
India’s banking crisis is not a passing storm.
It is a hurricane gathering force that could
make landfall within the next six to nine
months. The end game for India’s government
banks (PSBs) could be drawing near. For the
fiscal year 2017-18, 19 of the 21 government
banks reported losses totalling `87,000 crore.
Bad loans, called NPAs, threaten the viability of
these banks and pose significant risks to India’s
financial stability. Despite the country’s high
economic growth, the risk of bank failures and
a systemic contagion is real and increasing in
probability.
http://www.indialegallive.com/did-you-know-
facts-about-news/perspective-news/surviving-
the-great-bank-robbery-50684
TheMacabre,MurderousMobs/Lynchings/
ShivViswanathan/July16,2018
Social media, acting as a midwife, has led to
pervasive and irrational mob fury with the po-
lice being helpless. These responses are part of
deeper changes in society where people are con-
fronting the anxieties of development.
A few months back, at a philosophy seminar,
a colleague and I were talking of the violence of
mobs. He asked almost jokingly what would
have happened if the Inquisition was speeded
up by the mobile phone and internet technol-
ogy. Girolamo Savonarola, the grand inquisitor
and Italian friar known for his prophecies,
rather than being a failed witch-hunter would
have made Joseph Stalin look weak and silly.
Technology, my colleague felt, speeded up evil.
http://www.indialegallive.com/top-news-of-
Twitter: @indialegalmedia
Website: www.indialegallive.com
Contact: editor@indialegallive.com

6 January 7, 2019
ContentsVOLUME XII ISSUE8
JANUARY7,2019
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Important Judgments
January-December 2018
8
12
14
18
20
THEBESTOFINDIALEGAL2018
More Opacity than Transparency?
January 29, 2018
Striking Home
March 5, 2018
The Rape of India
April 23, 2018
Has it Worked?
April 23, 2018

Followuson
Facebook.com/indialegalmedia
Twitter:@indialegalmedia
Website:www.indialegallive.com
Contact:editor@indialegallive.com
Cover Design: ANTHONY LAWRENCE
34
40
Surviving the Great Bank Robbery
July 9, 20018
Power to the People
July 16, 2018
The Macabre, Murderous Mobs
July 16, 2018
Court Stands up to Mobocracy
July 30, 2018
Many Shades
of Truth
Cartoons 2018
64
30
A Self-inflicted Wound
May 7, 2018
24
Politics of Embarrassment
May 21, 2018
26
36
The Chief
Justice and the
Messenger
December 3, 2018
60
54
58
42
46
Nothing New About Whataboutery
August 20, 2018
Pride over
Prejudice
September 17, 2018
Preventive Measures
October 29, 2018
From Raw Deal to New Deal?
November 26, 2018
The New Dictionary
November 26, 2018
52
CALENDARSFROMSELECTCOURTS
Supreme Court of India.........29
High Court of Delhi..............51
High Court of Bombay..........53
High Court of Calcutta..........59
High Court of Punjab
and Haryana .......................66

8 January 7, 2019
LOOKBACK
THECOURTS
In a 4:1 verdict, a constitutional bench of the
Supreme Court upheld the validity of the Aadhaar
Act while confirming the discretion of the citizens
in obtaining one. However, the apex court while
balancing proportionality and necessity, read down
certain provisions of the Act such as Section 33(1),
which allowed disclosure of information, including
identity and authentication records, if ordered by
a court not inferior to that of a district judge. This
cannot be done now without giving the person con-
cerned an opportunity to be heard. It also struck
down Section 47 (which barred an aggrieved indi-
vidual from filing a complaint against data leak or
misuse) and read down Section 57 of the Act
(which empowered private companies to seek Aad-
haar details of their customers for authentication).
Important Judgments of 2018
CONSTITUTIONALLAW
AADHAAR IS VALID
Date of Judgment: September 26, 2018
A five-judge constitutional bench of the Supreme
Court declared Section 377 of the IPC unconstitu-
tional insofar as it criminalised consensual homo-
sexual acts, and clarified that bestiality would
continue to remain a criminal offence under the
Section. The bench affirmed the principle that the
will and views of the majority cannot rule upon the
rights given to a person by the Constitution. It also
said that “sexual orientation is natural. Discrimina-
tion on the basis of it is a violation of freedom of
speech and expression”. This judgment overturned
the verdict in the Suresh Kumar Koushal case.
SECTION 377 READ DOWN
Court struck down Section 497 of the IPC and de-
clared the law which criminalised adultery as un-
constitutional while maintaining that it will be
considered a ground for divorce. The bench held
that Section 497 was “manifestly arbitrary” as it
punished a married man for having sex with the
wife of another man, but did not even punish the
woman as an abettor. The bench also said the pro-
vision was violative of a woman’s right to dignity
under Article 21.
CRIMINALLAW
ADULTERY IS NOT A CRIME
UNI
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TheBestof
2018
INDIA LEGAL
A five-judge constitutional
bench of the Supreme Court
allowed passive euthanasia,
saying that the right to life in-
cludes the right to die with dig-
nity. The bench also said that a
terminally ill patient can execute a “living will” or
“advanced medical directive” to refuse medical sup-
port if he or she slipped into irreversible coma. The
judgment also made it clear that the right to die
with dignity excludes active euthanasia and there
is a procedure for how passive euthanasia can be
allowed in such situations.
While hearing an appeal
against a Chhattisgarh High
Court order confirming the
death sentence awarded to an
accused, Chunnulal Verma, a
three-judge bench of the
Supreme Court commuted it to
life imprisonment. The bench
observed that “every death penalty case before the
court deals with a human life that enjoys certain
constitutional protections, and if life is to be taken
away, then the process must adhere to the strictest
and highest constitutional standards. Our con-
science as judges, which is guided by constitutional
principles, cannot allow anything less than that”.
However, the judges held different views regarding
the constitutionality of capital punishment—Jus-
tices Deepak Gupta and Hemant Gupta spoke in
favour, while Justice Kurian Joseph took a dissent-
ing view and called for its review.
DEATH PENALTY CASES MUST
ADHERE TO CONSTITUTIONAL
STANDARDS
Date of Judgment: Novem-
ber 28, 2018
RELIGIONANDFAITH
PASSIVE EUTHANASIA IS
PERMISSIBLE
Date of Judgment: March 9,
2018
Two months after it concluded an eight-day-long
hearing, a constitutional bench of the Supreme
Court struck down the rule which barred women
between the ages of 10 and 50 from entering the
Sabarimala temple in Kerala. The petitioners had
challenged the provisions of the Kerala Hindu
Places of Public Worship (Authorisation of Entry)
Rules, 1965, saying that the restriction on women
of a reproductive age from entering the temple was
unconstitutional and violated the right of Hindu
women to practise religion freely. The apex court
held the temple rule violative of the right to equality
and right to worship by a 4:1 majority.
WOMEN OF ALL AGES CAN ENTER SABARIMALA
HUMANRIGHTS
The apex court dismissed a plea against the pro-
posed deportation of seven Rohingya refugees to
their country of origin, Myanmar. The counsel for
the petitioners argued that the concerned persons
were actually refugees and not illegal immigrants
as they had fled to India to save their lives from one
of the “worst instances of mass killings” and
“unimaginable torture”. Thus, they should not be
forced to go back unless they were willing to do so.
However, a bench led by CJI Ranjan Gogoi stated
that “they have been found to be illegal immigrants.
Their country of origin has accepted them as citi-
zens”. This decision attracted criticism from the
United Nations, which said that forcing the Ro-
hingyas to return to Myanmar was a violation of in-
ternational law.
ROHINGYAS ARE ILLEGAL IMMIGRANTS
Date of Dismissal: October 4, 2018
UNI
UNI

10 January 7, 2019
Court held that candidates cannot be barred from
contesting elections based on the filing of criminal
charge sheets against them. Under the Representa-
tion of the People Act, lawmakers can only be
barred from contesting after they have been con-
victed in criminal cases. The bench, however, urged
the legislature to consider framing legislation to en-
sure decriminalisation of politics.
POLITICAL
CANDIDATES WITH CRIMINAL CHARGES
CANNOT BE BARRED FROM CONTESTING POLLS
The centre and state governments sought reconsid-
eration of the M Nagaraj judgment, saying that it
places needless conditions on granting quota bene-
fits to SCs and STs. The apex court held that the
judgment does not
need to be referred
to a larger bench of
seven judges. The
Court said that
there was no re-
quirement to collect
quantifiable data on
the backwardness of
SCs and STs in
order to provide
reservations in pro-
motions.
NO NEED TO COLLECT QUANTIFIABLE DATA ON
BACKWARDNESS OF SCs/STs
After a long and bitter power struggle between Delhi Chief
Minister Arvind Kejriwal and Lieutenant-Governor (L-
G) Anil Baijal, a three-judge bench of the Supreme Court
held that the L-G is not eligible to act independently and
is mandated to take the advice of the council of ministers.
The Court held that persons holding high office are ex-
pected to conduct themselves in faithful discharge of their
duties so as to ensure smooth running of the administra-
tion so that the rights of all can be protected. It also ob-
served that totalitarian theory, absolutism, anarchy, and
such related terms do not apply in a state like India.
DELHI L-G NOT ELIGIBLE TO ACT INDEPENDENTLY
Date of Judgment: July 4, 2018
SOCIALWELFARE
CENTRE-STATERELATIONS
The Delhi High Court listed exhaustive directions that are
to be mandatorily followed while exercising the power of
preventive detention under Sections 107 and 151 of the
Code of Criminal Procedure, 1973. These directives were
issued looking into the widespread misuse of such powers
by special executive magistrates and the police.
POWER OF PREVENTIVE DETENTION SUBJECT
TO GUIDELINES
Date of Judgment: November 1, 2018
CRIMINALPROCEDURECODE
A three-judge bench of
the Supreme Court
made the judicial system
more accessible by per-
mitting live streaming of
cases which raised cer-
tain questions of consti-
tutional importance.
The bench said such
court proceedings were
of larger public interest
and should thus be made easily viewable for the general
public. However, certain categories of cases such as
those involving juveniles, matrimonial disputes and sex-
ual assault offences were exempted from live streaming.
The bench also directed the government to frame ex-
haustive and holistic guidelines based on which live
streaming can commence on an experimental basis in
one court.
LIVE STREAMING OF COURT PROCEEDINGS
PUBLICINTEREST
—Compiled by Deepankar Malviya
TheBestof
2018
INDIA LEGAL
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12 January 7, 2019
OPINION
ELECTORALBONDS
SYQURAISHI
NE of the defining features in the
Union Budget 2017 was the govern-
ment’s intention to improve trans-
parency in electoral funding. Finance
Minister Arun Jaitley in his speech as-
serted that without transparent fund-
ing of political parties, free and fair
elections were not possible and even
after 70 years of independence, the country has not
been able to evolve a transparent method of political
funding. Parties continue to receive most of their
funds through anonymous donations in cash, he said.
“An effort, therefore, is required to be made to cleanse
the system of political funding in India,” he stressed.
What followed these noble promises of trans-
parency was a proposal to introduce electoral bonds
to fund political parties. Bonds are purchasable from
authorised banks and redeemable only in the desig-
nated account of a registered party within a short
time of 3-4 weeks. Under the proposal, people can
donate to political parties in electoral bonds and not
in cash. This is a good thing as it would certainly stop
cash payments. However, the name of the donor or
receiver would not be declared. But keeping the iden-
tity of the donor a secret takes away the transparency
of funding that existed until now. The reason offered
was that donors want secrecy. Now why should
donors want anonymity unless they don’t want the
favours bestowed by governments on them in the
form of contracts, licences, loans, etc, (quid pro quo)
to become public? It’s a clear case of the private in-
terest of donors being in conflict with the public in-
terest in transparency.
On the other hand, there were the rather hushed
amendments in the Finance Bill, 2017, which
removed the cap of 7.5 percent of net profit of the
last three financial years which a company could do-
nate to a political party. This meant that a company
can exist just to run political parties and through
them, the government.
However, Jaitley in his reply to the Rajya Sabha
debate on the Appropriation Bill, assured the House
that all the concerns, including corporate political
contribution, would be addressed in the electoral
bond scheme. He invited suggestions from every-
one, assuring them that their concerns would be
addressed.
It is against this background that Jaitley an-
nounced the scheme on January 2, 2018. Electoral
bonds, which are interest-free banking instruments,
can be bought from specified branches of the State
Bank of India in multiples of `1,000, `1 lakh, `10
lakh or `1 crore. The life of these bonds is 15 days and
they can be encashed only by registered political par-
ties through a designated bank account. They will be
available for purchase for 10 days each in the months
of January, April, July and October, as specified by
the government. Additionally, a 30-day period will
be specified by the central government in the year of
a general election.
The main argument given by Jaitley in favour of
electoral bonds is that as each party would have to
file returns to the Election Commission declaring the
funds it had received in total, this step would be the
beginning of reforms in political funding. The aim is
to root out the current system of anonymous cash do-
nations made to political parties and eliminate black
money from electoral funding by making all dona-
tions cashless.
A good feature of the new scheme is that parties
More Opacity
Than Transparency?
Theostensibleaimofintroducingthesebondswastoremovecashdonationsfrompolitical
fundingandthereby,blackmoney.Instead,itwillleadtocronycapitalismandmoresecrecy
O

TheBestof
2018
INDIA LEGAL
the country faces today. However, given the objec-
tions discussed above, electoral bonds might not be
the solution towards a more transparent political
funding system. The ideal solution would be to set up
a National Electoral Fund to which all donors can
openly contribute without expressing any preference
for any political party and without fear of harassment
from other parties. In return, these corporates can be
given a tax rebate. The funds could then be allocated
to all registered political parties in proportion to the
votes obtained. This will not only ensure a level play-
ing field, but also address donors’ concern about se-
crecy. It will also ensure that the nexus between big
corporations and political parties is nipped.
In the long run, however, private donations in
political finance must be replaced with public fund-
ing, if we are to move towards a truly transparent
system. It is only then that the problem of black
money in this area will be solved. And as public
funds will be involved, there must be an annual
audit by the Comptroller and Auditor General or an
auditor approved by it. This will be a most decisive
electoral reform that the country needs for trans-
parency of political funding, without which free and
fair elections are not possible.
One hope that remains is that the “government is
willing to consider all suggestions to further
strengthen the cleansing of political funding in
India”, as the finance minister stated.
—The writer is a former
Chief Election Commissioner
which secured more than one percent votes in the
most recent election would only be eligible to receive
funding. This is to eliminate fly-by-night operators
who may form a political party for money laundering.
The finance minister, however, has not dispelled
fears about crony capitalism increasing manifold
with the removal of the 7.5 percent cap on the
amount of profit which companies can donate.
The government expressing its commitment to
transparency of political funding and placing it high
on its agenda is welcome. However, the truth is that
absolutely no one seems to be supporting the finance
minister’s move. Political experts are, in fact, arguing
that instead of increasing transparency, the move will
lead to a more opaque system of political funding.
Milan Vaishnav, a senior fellow and director of the
South Asia Programme at the Carnegie Endowment
for International Peace, writes in a mainstream
paper: “Billed as a victory for transparency in politi-
cal funding, the bonds, in fact, are anything but a vic-
tory. Far from reducing opacity in how politics is
financed, this new vehicle merely legitimises it.”
Many have also said that the scheme is biased in
favour of the ruling parties as they can easily find out
which corporation has bought electoral bonds and
donated to rival parties. It can then harass them in a
myriad ways.
T
he main problem with the scheme is that it
aims to protect the anonymity of the donor
as his name will not be declared. The argu-
ment given to support this aim is that many a time,
donors do not want to disclose which party they are
donating to. However, maintaining donor anonymity
at the cost of transparency is a wrong priority. A com-
pany generally wishes to remain anonymous so that
the public does not find out the ways in which the
ruling regime paid it back. In such a scenario, elec-
toral bonds, instead of improving transparency, will
make it more opaque and the information less acces-
sible to the public. If the aim is to establish a trans-
parent political funding system, it is imperative for
people to know which corporations contribute to-
wards which parties. By protecting donor anonymity,
the scheme seems to be missing the most crucial
point about transparent electoral funding.
The issue of black money is indeed a huge problem
Why should
donors want
anonymity,
unless they
don’t want the
favours
bestowed by
governments
on them in the
form of
contracts,
licences,
loans, etc,
to become
public?
January 29, 2018
ISSUE OF POLL FUNDING: Former UP CM Akhilesh Yadav at a roadshow
UNI

14 January 7, 2019
FOCUS
JUDICIALCRISIS
N the latest Economic Survey, unveiled
on the eve of the presentation of the
budget, the centre acknowledged the
need to address pendency, delays and
backlogs in the appellate and judicial are-
nas as the next frontier on the ease of
doing business. “These are hampering
dispute resolution and contract enforcement, dis-
couraging investment, stalling projects, hampering
tax collections but also stressing tax payers, and
escalating legal costs. Coordinated action between
the government and the judiciary—a kind of hori-
zontal Cooperative Separation of Powers to comple-
ment vertical Cooperative Federalism between the
central and state governments—would address the
‘law’s delay’ and boost economic activity,” the centre
suggested.
Short of treating the Judiciary as another wing
of the Executive, the centre expressed its concern
that delays and pendency of economic cases are
high and mounting in the Supreme Court, high
courts, economic tribunals and the tax department.
This, it said, is taking a severe toll on the economy
in terms of stalled projects, mounting legal costs,
contested tax revenues and reduced investment.
Delays and pendency, the centre further ex-
plained, stem from the increase in the overall work-
load of the judiciary. This was due to expanding
jurisdictions and the use of injunctions and stays.
In the case of tax litigation, this stems from the gov-
ernment persisting with litigation despite high rates
of failure at every stage of the appellate process.
Therefore, the centre suggested that courts and
the government could act together and considerably
improve the situation. Clearly, the centre is seeking
support for an understanding of the doctrine of sep-
aration of powers, which is different from the man-
ner it is traditionally understood. This doctrine does
not mean that the institutions of Judiciary, Execu-
tive and Legislature are always at loggerheads. But
they are not supposed to be in collusion either, as
the Constitution envisages the Legislature and the
Judiciary to perform the role of watchdogs, even
as the Executive has the power and discretion to ex-
ercise the responsibilities assigned to it fairly and
effectively.
The Economic Survey, it may be noticed, main-
tains an eloquent silence over the centre’s omissions
and commissions for the delays and pendency of
cases in courts. For this, sufficient data is available
in the public domain.
The hiccups in the judiciary have gripped
lawyers and those in the Orissa and Karnataka High
Court Bar Associations went on strike recently over
delays in filling judges’ vacancies.
The sanctioned and working strength of judges
in the 24 high courts in the country are 1,079 and
676 respectively. The judge-case ratio in district and
subordinate courts is calculated to be 1,175 cases
per judge.
As per the Constitution, the selection and ap-
pointment of judges in subordinate courts is the re-
sponsibility of state governments and high courts
concerned. The Supreme Court, through a judicial
Striking
Home IntheEconomicSurvey,thecentre
acceptstheneedtoaddressbacklogs
inthejudiciary.Thisandtheinabilityto
fillvacanciesofjudgesmayshakethe
confidenceofcitizensindemocracy
andtheruleoflaw
By Venkatasubramanian
I

TheBestof
2018
INDIA LEGAL
higher judiciary is staring in its face. Clearly, the
centre cannot absolve itself of its responsibility in
not filling the vacancies in the higher judiciary.
The recent stalemate between the centre and the
Supreme Court’s collegium in appointing two
judges to the apex court is one indication of the ex-
tent of trust deficit between the two. The collegium
recommended the names of the chief justice of the
Uttarakhand High Court, Justice KM Joseph and
senior advocate of the Supreme Court, Indu Malho-
tra to be promoted as Supreme Court judges. Both
the recommendations were hailed by the commu-
nity of lawyers and judges as the best nominations
in recent times.
Justice Joseph, though not high on the all-India
seniority list, is respected for his legal acumen, and
therefore, the collegium justified giving preference
to merit over seniority. As Justice Joseph is likely to
retire as a high court judge at the age of 62 on June
16, 2020, an elevation to the Supreme Court now
would help the country utilise his services till he is
65, the current retirement age of Supreme Court
judges. But the centre does not favour his elevation
because as chief justice of the Uttarakhand High
Court in 2016, he had quashed the imposition of
President’s Rule in the state when the Congress was
in power. Therefore, it is not surprising that the
centre is sitting on the recommendation of the col-
legium, citing his lack of seniority in the all-India
list, and the need to balance regional representation
in the Supreme Court. If the Centre returns the rec-
ommendation to the collegium and the collegium
order in the Malik Mazhar case, has devised a
process and time-frame to be followed for the filling
up of vacancies in the subordinate judiciary. The
order of January 2007 stipulates that the process
for recruitment of judges in subordinate courts
would commence on March 31 of a calendar year
and end by October 31 of the same year. The
Supreme Court has permitted state
governments/high courts variations in the time
schedule in case of any difficulty based on the pecu-
liar geographical and climatic conditions in the
state or other relevant conditions. The centre does
not have a role under the Constitution in the selec-
tion and appointment of judicial officers in dis-
trict/subordinate judiciary.
T
he sanctioned and working strength of ju-
dicial officers in district and subordinate
courts is 22,622 and 16,707 respectively.
There are 5,915 vacancies in these courts at present.
Of the total pending cases in the lower judiciary—
2,64,36,901—those pending for over 10 years alone
is 22,60,620. This constitutes 8.55 percent of the
total. Cases pending between five to ten years con-
stitute 16 percent of the total and number
42,30,507. Cases pending between two to five years
constitute 28.68 per cent and number 75,82,975.
Cases pending less than two years constitute 46.76
percent and number 1,23,62,781.
During a debate in Parliament on January 4 on
increasing judges’ salaries, Union Minister for Law
and Justice Ravi Shankar Prasad said that the cen-
tre favours the All India Judicial Service as an
answer to vacancies and pendency of cases, but the
high courts are against it. Prasad also said that he
was hopeful that he would be able to convince the
high courts to agree to the proposal. He said: “The
high courts feel it is their domain. If there is Indian
Administrative Service, Indian Foreign Service and
Indian Police Service, there is a need to have an All
India Judicial Service having the best minds of
India.” But the centre knows that it is not easy to
persuade high courts to cede their domain to
the centre.
Even as the centre aims at encroaching on the
powers of high courts in order to have a say in filling
vacancies in the lower judiciary, the crisis in the
UPHILL CHALLENGE
Karnataka CM
Siddaramaiah
meeting striking
advocates who
are demanding
appointment of
judges to the
high court
The Advocates Association, Bengaluru

16 January 7, 2019
reiterates it, it is binding on the centre. The mem-
bers of the Collegium, according to reports, are de-
termined to reiterate their recommendation if the
centre sends it back for reconsideration.
The reports suggest that the five senior judges of
the Supreme Court, who comprise the collegium,
are aware that the centre may resist Justice Joseph’s
appointment. That is why, it appears, the collegium
sent the name of only one high court chief justice
for elevation to the Supreme Court. This will allow
it to apply sufficient pressure on the centre to act on
it, so that other pending names could be recom-
mended later.
T
here are currently six vacancies in the
Supreme Court. The number can go up to
12 as six more judges are likely to retire this
year. Due to the stalemate over Justice Joseph, the
appointment of Indu Malhotra, who would be the
fifth woman judge of the Supreme Court and the
first woman member from the Bar to be elevated, is
also getting needlessly delayed.
During the debate in Lok Sabha on January 4,
Prasad explained the reasons for the delay in final-
isation of Memorandum of Procedure (MoP). This
has been hanging fire since December 2015 when
the Supreme Court directed the centre to submit a
revised draft to the collegium in the light of its judg-
ment in the NJAC case. Prasad said: “There are cer-
tain issues where we are insisting that there should
be greater scrutiny and greater screening
so that good people may come…”
On February 7, the Minister of State
for Law and Justice and Corporate Af-
fairs, PP Chaudhary, told the Lok Sabha,
in response to a question: “The views of
the Government were conveyed to the
Chief Justice of India on 03.08.2016. The
inputs on the MoP of the Supreme Court
Collegium was received from CJI through
a letter dated 13.03.2017.”
Since then, according to the govern-
ment’s own admission, there has been no
progress towards finalising the MoP. The
centre has claimed that it has conveyed
the need to make an improvement on the
draft MoP to the secretary general of the
Supreme Court vide letter dated 11.07.2017. “As the
process of finalising the supplementation of the ex-
isting MoP was likely to take some time, at the ini-
tiative of the Government, the matter of continuing
the appointment process was taken up with
Supreme Court and it is continuing in accordance
with the existing MoP to fill the vacancies of Judges
in the Supreme Court and the High Courts,” the
centre told the Lok Sabha. In January this year, only
three fresh appointments of judges in high courts
have been made.
The MoS concluded his reply to the Lok Sabha:
“The prevailing challenges facing the Judiciary are
largely to be addressed by the Judiciary as it is an in-
dependent organ under the Indian Constitution. The
Government is committed to the independence of
Judiciary and does not intervene in its functioning.”
However, there continues to be a huge gap be-
tween what the government is professing and what
is seen in practice. And the strikes by lawyers of
Orissa and Karnataka High Court Bar Associations
on the delay in filling judges’ vacancies are an indi-
cation that all is certainly not well in the judiciary.
As on February 2018, 7,55,459 cases were
pending in the Supreme Court and 41.84 lakh
cases in various high courts. This number is likely
to rise exponentially, if the crisis over appoint-
ments continues.
STUCK IN DISCORD
The Supreme Court
collegium has
recommended the
names of senior
advocate of the
Supreme Court, Indu
Malhotra (left) and
Chief Justice of
Uttarakhand High
Court, Justice KM
Joseph (centre) to be
promoted as
Supreme Court
judges; Minister of
Law and Justice Ravi
Shankar Prasad
March 5, 2018
TheBestof
2018
INDIA LEGAL
FOCUS
JUDICIALCRISIS

18 January 7, 2019
COLUMN
UNNAOANDKATHUAATROCITIES
DILIPBOBB
...More sickening than the actual crime is the man-
ner in which politicians, policemen and even
lawyers have attempted, openly and brazenly, to
shield the accused. Despite the horrific and brutal
nature of the crime, and the national outrage it in-
spired, it was only after a barrage of criticism that
the prime minister broke his silence with a state-
ment. The silence of the bigwigs was as damning as
the evidence regarding the perpetrators of the rapes
that have shamed this nation beyond all the love ji-
hads and lynching of minorities.
Even UN secretary general Antonio Guterres
termed the gangrape and murder in Kathua as a
“horrific” incident and asked Indian authorities to
ensure that the guilty were brought to justice.
There is now a madness gripping this country,
fuelled by motivated and manufactured hyper-na-
tionalism, horribly misplaced Hindu pride, misog-
yny and the perpetual curse of India’s caste system.
That has been reflected in our politics, where hype
and hysteria and abusive exchanges have become
the new normal. This week’s events should be cause
for national mourning, yet there are so few tears, so
little remorse, and, chillingly, no repentance or re-
gret on the part of those sick, twisted minds who de-
stroyed the life of one and took the life of another
innocent girl. It was, in the end, not the rape of in-
nocent girls, it was the rape of India.
The Rape of India
ThisweekhasbeenoneofthedarkestinIndia’scontemporaryhistory.Thenationhasbeenwitness
totheshocking,nauseatingdetailsoftherapeoftwogirls,oneaneight-year-oldchildandtheother
ateenager...
Photos: UNI

morrow. Her father says she was mischievous but
responsible enough to stay out late in the forest to
ensure every horse and sheep they owned had
reached home. The bigger tragedy is the communal
contours of the case. The girl was a Muslim, a mi-
nority in Jammu. Immediately after the rape, a self-
appointed Hindu group staged demonstrations in
support of the rapists, and, predictably, raised na-
tionalist slogans and waved the national flag. That
one act shows the impact of the hate mongering—
fuelled by hyper and TRP-chasing television an-
chors, politicians and right-wing activists. The flag
conceals and covers all sins, or so they believe. It
would be difficult to find a greater level of depravity
than to communalise the rape of a child.
There are places and events which are signposts
to the direction we as a nation and a people are
taking. Nellie, Babri Masjid, Bhopal, the Emer-
gency, Godhra riots, 26/11, Nirbhaya. They are re-
minders of man’s inhumanity to man. That list
now includes Kathua and Unnao. They hold up a
mirror to our darkest side, as people, and as Indi-
ans. There is much wailing and breast-beating on
social media but very little angst. Angst refers to a
feeling of anxiety or dread, typically about the
human condition. Now is that time. If the events
of the past week, and the muted reactions, are any
indication, we have lost the one thing that defines
us as a species—our humanity.
If there is any consolation, it is in the fact that
the Supreme Court has agreed, of its own accord, to
take up both the cases and wants it mentioned in
writing that the lawyers in Kathua, in Jammu, agi-
tated to prevent the filing of a chargesheet against
the rape accused and, additionally, that these
lawyers threatened those representing the family of
the eight-year-old who was raped.
The second case is more revealing of the depths
we now occupy. It took place in Unnao, in India’s
most populous state, and the main accused is a leg-
islator who belongs to the ruling dispensation. Just
reading the account of how the teenager was
raped, in September last year by Kuldip Singh Sen-
gar, a powerful upper caste politician, how the po-
lice refused to act, her attempt to commit suicide
outside the house of the chief minister, and the
subsequent death of her father, tortured in police
custody, is a reality check for those who believe
that ache din are here, that “Beti Bachao, Beti Pad-
hao” was a commitment, not a slogan, and that saf-
fron-clothed politicians like Yogi Adityanath are
God’s chosen ones.
T
his is now the age of hate-mongers. It is also
the age where competitive communalism
and the unending patriarchy of Indian soci-
ety can provide a cloak of invincibility to its practi-
tioners. Just read, if your tears allow you, the details
of the Kathua rape, an act of such perversity that it
actually took place inside a temple. There is a police
chargesheet which, even in its stilted, formatted lan-
guage exposes the barbaric and medieval culture
that survives in many parts of this country. It details
how a little child from a nomadic community had
taken her family’s horses to graze in a nearby forest
and never returned. She was drugged, taken to a
local temple, and eight men, including local police-
men, raped her repeatedly. One of them even invited
a friend from Meerut, hundreds of miles away, to
take part. The eight-year-old child was strangled
and then hit over the head till she was dead.
For all those who have remained silent and in-
different to the rapes, and what is taking place
around us, I have one request. Look at her photo-
graph. This is the carefree innocence of a child, the
eyes full of hope and laughter and the promise of to-
DEATH OF
HUMANITY
BJP MLA from Unnao
Kuldip Singh Sengar
arrested for the
alleged rape; (facing
page) Priyanka
Gandhi at a protest
march in Delhi
April 23, 2018
TheBestof
2018
INDIA LEGAL

20 January 7, 2019
t’s been nine months since India imple-
mented GST. There cannot be any doubt
that the country needed it. Efforts were
on since 2006 to get this tax regime im-
plemented. Finally, it was introduced in
July 2017. The question now is how has
the GST regime worked since its launch.
Before coming to GST revenue collec-
tion, which, of course, is of paramount importance,
let us first look at some fundamental issues. Did the
policy decisions work out well? Were they properly
implemented? Was the technology support ade-
quate? What was the impact?
One of the five basic aims of GST was to substan-
tially reduce, if not totally eliminate, the cascading
of taxes by providing seamless flow of input tax
credit at each stage of the flow of goods and services
in the supply chain. The second aim was to cut
down the compliance costs by clubbing together 17
indirect taxes of the centre and states. These two
targets have been achieved substantially, except that
five petroleum products and alcohol for human con-
sumption could not be brought within GST. This
broke the credit flow and dented the efforts to re-
duce compliance costs in the supply chain of petro-
leum products and alcohol.
The third aim was to reduce logistics and trans-
portation costs. Under GST, this was achieved by re-
placing Central States Tax (CST) with Integrated
GST (IGST) for inter-state trade. This resulted in
consolidation of warehouses, abolition of entry tax
(octroi) and sharp reduction in transportation time
BoththeGSTCouncilandtaxpayerswillhavetolookatthisnewtaxregimeas“workinprogress”for
atleastonemoreyear,andcontinuetotakequickcorrectiveactions
By Sumit Dutt Majumder
I
Illustration: Anthony Lawrence
Has It
Worked?
LEAD
GSTSOFAR...

tion, and thereby attract in-
dustries. Thus, in course of
time, all these populous states
would also become industri-
alised. Green shoots are ex-
pected in two or three years.
On the issue of technology
support, it was clear from the
beginning that for adminis-
tering GST, a robust IT infra-
structure would be sine qua
non. Thus, we got GSTN, the
IT infrastructure. The role of
GSTN was to facilitate the ad-
ministering of certain basic business processes like
registration, payment, filing of returns and claiming
of refunds. It was also to facilitate invoice uploading
and matching of returns/invoices so as to ensure
that the credit taken by the recipient was actually
paid by the supplier. Given the huge responsibility
on GSTN, it was expected that it would undergo test
runs in respect of all the aforesaid business
processes before implementation. However, the pol-
icymakers finalised all the business processes and
formats only a few days before the target date for
GST, thus leaving very little time
for GSTN to make all the business
processes operational on the day of
implementation. Worse still, full-
scale test runs could not be under-
taken for all the operations before
the day of introduction. There
must have been some com-
and cost.
However, there are some dark clouds. As GST
revenues started going south, both the centre and
states decided to have a system of generation of e-
way bills that would contain particulars of the goods
and transportation. GST officers have been empow-
ered to stop trucks, examine the bill and goods any-
where on highways. The scheme was implemented
from April 1, 2018—first for inter-state movement,
and later for intra-state movement. Trade and in-
dustry felt this was a disruption in the free flow of
goods. In fact, instead of random highway checks, a
better option would be strengthening of the Direc-
torate of GST Intelligence so that the checks can be
undertaken in specific cases based on intelligence
and risk assessment. Another step to check evasion
of taxes would be quick finalisation of the scheme
of invoice matching.
T
he fourth aim was to make India a common
economic market. In the pre-GST era, state
VAT rates differed in different states. This
led to distortions in investment decisions based
solely on tax considerations. Entry tax and manda-
tory stopping of trucks at inter-state checkposts,
coupled with different state VAT rates, were ideas
contrary to a common economic market. These
malaises have been remedied in the GST regime.
Therefore, one can now look at India as “one nation,
one commodity, one tax”.
The fifth aim that stemmed from the structure
of GST was to have equitable growth of industry
across the country. While some states were highly
industrialised, there were others which were popu-
lous and lagged far behind. As GST is a destination-
based consumption tax, in cases of inter-state trade,
the state’s share of GST accrues to the destination
state. Broadly, 40 percent of the country’s trade is
inter-state and destination-consumption states,
such as UP, Bihar and Odisha, will
have more revenue from IGST, be-
sides their own SGST for intra-
state trade. Since these states
would get richer in revenue, it is
expected that this extra money
would be spent in development of
infrastructure and power genera-
As GST revenues started
going south, both the
centre and states decided
to have a system of gener-
ation of e-way bills that
would contain particulars
of the goods and
transportation.
Tax base (1): 1.05 crore taxpayers
Number of composition dealers (2):
18.7 lakh
Number of taxpayers expected
to file Monthly Returns (GSTR 3B)
[(1)-(2)] = (3): 86.37 lakh
Monthly Returns GSTR 3B filed (4):
59.51 lakh
Number of Non-Filers [(3)-(4)]:
26.86 lakh
Numberofnon-filers
Photos: Anil Shakya
GST EFFECT
Businesses feel officers
stopping trucks for checks has led to
disruption in the flow of goods
TheBestof
2018
INDIA LEGAL

22 January 7, 2019
pelling reasons for the government to stick to the
target date. But, the consequence was that there
were many glitches in the GSTN system in the first
month of implementation itself. As a stop-gap
measure, some of the processes were made offline
and a new simplified return, GSTR 3B, was put in
place. The scheme of invoice matching for ensuring
compliance was also postponed. To add to the woes
of small and medium businesses, the much-publi-
cised services of GST Suvidha Providers for helping
them in their interaction with GSTN were also not
made available. Thus, the first taste of GST imple-
mentation was bitter. All these things could have
been avoided if the imple-
mentation had been deferred
by two months.
As for policy issues, by
and large, these worked out
well except for some monu-
mental blunders. One was
with regard to small busi-
ness. First, the threshold ex-
emption for small business
was the lowest in the world at
only `20 lakh. Internation-
ally, the threshold varies be-
tween `80 lakh and `1 crore.
Then, there was a decision
that there would be no
threshold exemption for
inter-state trade. It meant
that the moment someone
did inter-state supply like,
say, from Okhla in Delhi to Gurgaon in Haryana, he
would forfeit the benefit of threshold exemption of
`20 lakh, and he would have to pay GST and all the
compliance requirements. So, many small busi-
nesses decided to stop inter-state trade but in the
process, they lost business in a big way. Their busi-
ness shrank for another reason—reverse charge
mechanism. Big businesses were mandated to pay
GST and meet all compliance requirements on be-
half of the unregistered suppliers (read small busi-
ness below the threshold). The result—big business
stopped transactions with small suppliers. Coming
soon after demonetisation, this broke the back of
small business. On a rough estimate, small busi-
nesses contribute around 75-80 percent of total em-
ployment in the country.
N
ow let’s come to GST rates. Leaving aside
the exempted goods, GST has a four-tier
rate structure—5, 12, 18 and 28 percent.
Broadly, the rate structure is based on the principles
of “capacity to pay” and “who uses those goods”—
very poor, poor, common man, rich and super rich.
Besides, most of the items in the 28 percent slab
also suffer a compensation cess—a cess collected by
the centre to compensate states for the revenue loss
after implementation of GST. Most countries, ex-
cept Australia, Singapore, Malaysia, and some oth-
ers, have more than one GST/VAT rate (mostly two
slabs); France has five slabs. In a country like India
where people are at different economic levels, it is
appropriate to have four slabs. Of course, there is
scope to reduce the slabs to three after GST settles
down next year. As for the items put in different
slabs, there were many discrepancies. Too many
items were put in higher slabs of GST, and there was
discontent.
In the light of these issues, there were protests
across the country. Small business was the worst af-
fected. So were exporters when huge amounts of ex-
port refund claims were blocked because of the
skewed procedure. This compelled the GST Council
to undertake a series of course corrections.
First, the clause regarding withdrawal of exemp-
tion in the case of inter-state supplies which affected
small businesses most was suspended. Also kept in
abeyance was the clause relating to reverse charge
August
September
October
November
December
January
February
July
0
10
20
30
40
50
60
70
80
90
100
Initialhiccups
GST revenue collection
over the last year
In `1,000 crore
INEQUITABLE
IMPLEMENTATION
Under the new tax
regime, it is the small
businesses that have
been hit the hardest
LEAD
GSTSOFAR...

TheBestof
2018
INDIA LEGAL
April 23, 2018
Among the
course
corrections
undertaken by
the GST
Council was
suspension of
the clause
regarding
withdrawal of
exemption in
inter-state
supplies which
affected small
businesses the
most.
of the total expected returns, which means there are
around 30 percent non-filers. Among them, a good
number would be those who got registered as per
the law on threshold in the beginning, but came out
of GST after the clauses relating to inter-state sup-
ply and reverse charge mechanism were amended.
Leaving them aside, there will be a substantial num-
ber of non-filers who could be potential tax evaders.
There has also been evasion by way of misutilisation
of input tax credit, particularly during the transition
period. Therefore, a more active role for Directorate
General of GST Intelligence and quick introduction
of invoice matching will have to be considered on
top priority to catch these tax evaders. Surely, intro-
duction of the e-way bill cannot be a substitute for
the measures mentioned above; it will at best be a
clumsy effort.
Notwithstanding the misadventure of introduc-
ing GST in July 2017 at a time when GSTN was not
ready, efforts by the GST Council to set it right and
rectify wrong policy decisions and skewed tax rate
structure have made GST move ahead. Both the
Council and taxpayers will have to look at the
progress of GST as “work in progress” for at least
one more year, and continue to take quick corrective
action.
Though there seems a slow-down in decision-
making by the GST Council, one would expect it to
be as active, if not more, as it was in the months of
September-October last year so that GST can move
forward with alacrity.
—The author is former chairman,
Central Board of Excise and Customs
mechanism. These provided some relief
to small business. Further, relief was pro-
vided to the MSME sector by expanding
the scope of the composition scheme.
The upper limit of eligibility was raised
to `1 crore. Export procedures were also
simplified and certain innovative export
facilitation schemes were outlined.
The list of items in different slabs of
GST was also rationalised. Initially, there
were more than 250 items in the 28 per-
cent slab. But by November, 178 items
were taken out of this highest slab and put in lower
slabs. Similarly, many items in the 18 percent and
12 percent slabs were brought down to the 12 per-
cent and 5 percent slabs, respectively.
IT glitches, irrational tax structure and certain
policy glitches jointly contributed to giving a bad
name to GST in its initial months of implementa-
tion. However, it is creditable that the GST Council
acknowledged the mistakes and undertook imme-
diate course correction. GSTN too got into the act
quickly. As of now, their challenge is to provide a
seamless e-way bill system, finalise the formats of
returns and provide an effective invoice-matching
mechanism.
F
inally, let’s come to GST revenue collection.
It is a given that in almost every country, in
the first year of implementation, GST rev-
enue collection takes a dip due to various reasons
related to beginner’s hiccup. Notably, GST collec-
tion was higher in the first three months of imple-
mentation—`93,590 crore, `93,029 crore and
`95,132 crore in July, August and September, re-
spectively. It fell in October and November to
`85,931 crore and `83,716 crore, respectively. Then
the collections picked up a bit in December with
`88,929 crore, only to fall in January and February
at `86, 318 crore and `85, 174 crore, respectively.
As for the tax base, 1.05 crore taxpayers have
been registered till March 25, out of which 18.17
lakh are composition dealers who are required to
file returns every quarter. Thus, the balance of 86.37
lakh taxpayers were required to file monthly re-
turns. As against this, only 59.51 lakh filed GSTR
3B returns for February. This is around 70 percent
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
Australia Canada* Japan Mexico New
Zealand
Turkey Poland UK IndiaGermany
* Provinces in Canada charge additional rates Source: Bloomberg
GlobalGSTratesRate
VATRates

24 January 7, 2019
POINT-COUNTERPOINT
IMPEACHMENTDILEMMA
PROF
NRMADHAVA
MENON
WOULD characterise the January 12
press conference by some judges of
the Supreme Court and the conse-
quent assault on the judiciary from
several quarters as “a self-inflicted
wound”. The ill-conceived impeach-
ment motion by Opposition parties,
knowing fully well its futility, can be
termed “an unnecessary political gambit”. The Re-
public and We, the People of India, are the losers in
the game which some judges and a section of politi-
cians played to settle personal scores, advance parti-
san agendas or whatever else.
Having been associated with the National Judicial
Academy at Bhopal and the Commonwealth Judicial
Education Institute in Canada, I can say that the In-
dian judiciary is held in very high esteem not only
within India but across the world. The independence
and impartiality in judicial decision-making in In-
dian courts, despite shortcomings in infrastructural
support and pressure of mounting arrears, is a matter
of amazement for judges in other jurisdictions. All
that became suspect with the Justice CS Karnan
episode in which a sitting High Court judge was
jailed for contempt and by an indictment of the ju-
dicial system by judges themselves.
Asking for judicial reform needs to be welcomed,
but condemning the system as a threat to democracy
and imputing mala fide intentions to the head of the
judiciary in a press conference cannot be acceptable.
Though the justices said later that impeachment is
not a solution to the problem, they unwittingly in-
vited the Opposition parties to initiate action against
their senior colleague, the chief justice of India.
Some sections of the media even say that the game
was somehow to get the chief justice out, rather than
reform the system of allocation of cases.
The impeachment motion submitted to the
chairman of the Rajya Sabha by some Opposition
party members led by the Congress is said to be a fol-
low-up to the allegations raised in the judges’ press
conference, though the wording and timing of the
initiative speak a different story. It is indeed ill-con-
ceived, unfortunate and regrettable in the present
circumstances.Nobody can question parliamentari-
ans raising an impeachment motion in appropriate
cases. It is their right and, I would say, a constitu-
tional duty as well. But the measure is supposed to
be used in extreme cases of serious misconduct of a
criminal nature and never in a casual manner on
frivolous grounds. Otherwise, the constitutional pro-
vision of impeachment itself can be a threat to the
independence of the judiciary.
One can debate as to what is meant by “proved
misbehaviour” in Article 124(4) of the Constitution
and whether the five grounds advanced in the im-
peachment motion fit that definition. But if those
grounds and the materials submitted in support of
them do not convey a prima facie case to a reason-
able person, certainly no one who understands the
spirit of the constitutional provision can expect the
motion to be put through the procedure prescribed.
In this regard, the function of the chairman of the
Rajya Sabha or Speaker of the Lok Sabha who re-
A Self-inflicted Wound
TheactionofthechairmanoftheRajyaSabhainrejectingthemotiontoimpeach
thechiefjusticeisjustifiedandstrictlyconstitutional.Hehassavedthejudiciary
fromfurtherridicule
I
Photos: UNI

sat on those benches rather than mis-
behaviour on the part of the chief jus-
tice. This would have been disastrous
for the Indian judiciary, which the
vice-president wisely avoided. There
is not enough material in the public
domain to draw any conclusion on the
allegation based on the Prasad Edu-
cation Society matter. It is said to be
under investigation and there is no
charge yet against the chief justice. In
the circumstances, to make it a
ground for impeachment is abusive of
process and not within the definition
of “proved misbehaviour”.
Whatever course this matter takes
in future, the damage is done and it
will take a long time and great effort
on the part of judges, particularly of
constitutional courts, to redeem public
trust and confidence in the impartial-
ity and independence of judges. Re-
sponsible politicians should refrain
from fishing in troubled waters and let
the judiciary work out the scheme for
the future in the best way possible.
Meanwhile, the government and Parliament can
do three things immediately to strengthen the judi-
ciary. Firstly, bring back the National Judicial Com-
mission Bill with judges having a majority in the
forum and make the procedure of appointment ab-
solutely transparent and objective. Secondly, make
a law raising the age of retirement of judges of con-
stitutional courts to 70 years with an option on the
part of the National Judicial Appointments Com-
mission to retire inefficient judges early based on
objective criteria. Thirdly, adopt the Judicial Stan-
dards and Accountability Bill introduced in the
Rajya Sabha in 2012 which seeks to acknowledge
judicial accountability.
—The writer is a renowned legal educator and is
considered the father of modern legal education in
India. He is also the founder-director of the National
Judicial Academy, Bhopal and was
conferred the Padma Shri in 2003
ceives the petition is not just to count the signatures
to ascertain the required number or to verify their
genuineness, but to examine the gravity of the
charges in terms of materials supplied and form an
opinion of the prospects of establishing “proved
misbehaviour” as per Article 124(4). If he does oth-
erwise and sends it for inquiry, doing a post office
job, he is doing violence to the constitutional provi-
sion and can be accused of subverting the inde-
pendence of the judiciary by short-circuiting
constitutional procedures.
In this regard, precedents will be of little use as
facts can vary significantly and records may reveal
how conclusions can also differ in apparently similar
situations. In fact, in the present matter concerning
the chief justice, there is no precedent available. If
the chairman of the Rajya Sabha had passed on the
matter to the Inquiry Committee mechanically, a
wrong precedent would have been set, which, in turn,
would have encouraged disgruntled politicians in fu-
ture to gang up against judges whom they are un-
comfortable with, rendering the system a handmaid
of politicians.
T
he action of the chairman of the Rajya Sabha
in rejecting the petition, according to me, is
fully justified and strictly constitutional. In
the process, he has saved the judiciary from further
ridicule and put an end to an unsavoury debate in
public. It is true that the allegations are to be proved
before the Inquiry Committee and not before the
chairman. Nevertheless, if the materials supplied do
not even indicate to a reasonable mind that there is
a provable case with credible and admissible evi-
dence, it deserves to be dismissed at the threshold.
After all, it is a serious step against the head of the
Indian judiciary and will have long-term impact on
the whole judicial system.
In this regard, one may ask how allotment of
cases to particular benches (which function is repeat-
edly declared by the Supreme Court as within the ex-
clusive jurisdiction of the chief justice) can ever
become “misbehaviour” even if it is proved that its
exercise is not ideal or transparent? If one were to
argue that it was done with a view to get an outcome
which the chief justice desired, it goes to prove dis-
honesty on the part of the Supreme Court judges who
SAGA OF DEFIANCE
(Top) Vice-President
M Venkaiah Naidu;
(above) Justice CS
Karnan served in jail
for contempt of
court;
(facing page) the
Supreme Court
judges’ press confer-
ence on January 12
May 7, 2018
TheBestof
2018
INDIA LEGAL

26 January 7, 2019
LEAD
SUPREMECOURT
HERE has been more
heat than light over the
motion initiated by indi-
vidual members of seven
opposition parties reg-
arding removal proceed-
ings against Chief Justice
of India (CJI) Dipak
Misra. The motion was
moved on April 20, 2018,
disallowed by the Rajya Sabha Chair on April 23,
2018, and challenged as arbitrary and unconstitu-
tional by two Congress signatories in the Supreme
Court on May 7, 2018. The plea argued that “the im-
pugned order, in a cavalier, cryptic and abrupt man-
ner, shockingly holds that none of the other charges
are made out without disclosing as to on what basis
this finding was returned”.
The petition was moved first before the Justice
Jasti Chelameswar-led bench which adjourned the
hearing till the next day. On May 8, a Constitution
Bench was convened, comprising the five senior-
most justices (discounting the collegium justices,
four of whom had held a press conference on Janu-
ary 12, 2018). The substantive issues before the
Bench were never argued as senior advocate Kapil
Sibal, who was representing the petitioners, raised
a threshold point: How was the order constituting
the bench made?
His essential argument was that even when ac-
cepting that the CJI is a master of the roster, an
order under the rule-making powers prescribes a
five-judge bench when a “substantial question of
law” (Article 145) is involved. The order making
such a determination should be made available;
when the Court asked him to proceed on merits,
T
UPENDRABAXI
Politics of
Embarrassment
Theglacialpaceofactionincreasinglyimperilsbothjudicialindependenceandthe
constitutionalrepublic

matter; often, a judge would recuse herself on the
ground of conflict of interest and propriety. But in
Subrata Roy Sahara (2014), Justice JS Khehar
(speaking also for Justice Radhakrishnan) ruled
that while recusal is an appropriate remedy when
pecuniary bias is demonstrated, there is a general
Third Schedule constitutional duty to adjudge all
cases and controversies coming before the Supreme
Court without “fear and favour”.
T
hus, a constitutional convention was made
subject to judicial review process and
power. In the 2016 NJAC case, Justices
Chelameswar and Adarsh Kumar Goel even added
that a recusal would fall foul of the oath under the
Third Schedule to do justice without fear or favour.
Their Lordships further referred to the “doctrine of
necessity”, a doctrine resting on the idea that
necessity knows no law. This is very sparingly used
to validate extra-legal/unconstitutional acts by
state authorities.
Its contemporary usage first occurred in a dubi-
ous Pakistan decision by Chief Justice Muhammad
Munir in 1954 where he invoked the maxim of a me-
dieval British jurist, Henry de Bracton, which said
“that which is otherwise not lawful is made lawful
by necessity”.
What remains to be debated is the extension of
this doctrine in situations suggesting an official bias
to all justices (say in matters of judicial appoint-
Sibal withdrew the petition, which was then dis-
missed by the Court as withdrawn. The political
economy of speed characterising the motion and its
withdrawal/dismissal is indeed amazing; perhaps
an equally expeditious judicial decision may also
have greeted the decision on merits.
Sibal is entirely right in claiming that a citizen
litigant is entitled to know whether the bench was
constituted by a judicial order and if necessary, to
contest it. And one hopes that the situation is ade-
quately clarified. On the other hand, eminent
lawyers have publicly suggested that the argument
on merits could have well proceeded, incidentally,
also raising a challenge to a judicial order.
If the CJI has the power to constitute benches,
being the master of the roster, can his order be chal-
lenged on the ground of natural justice whose ven-
erable and valuable maxim is that no
person shall be a judge in her cause? Can one object
to a bench of five other seniormost non-collegium
justices, other than the four who had taken part in
a press conference on January 12, 2018?
Surely, it is unworthy to suggest that the CJI
passed any substantive instructions in his own
favour. And it is contemptuous to say that the five-
judge bench will not decide in accordance with its
constitutional duties.
The situation warrants comparison with judicial
recusal. Recusal was ordinarily granted when the
counsel mentioned that a judge should not hear a
BRIEF ENCOUNTER
The challenge to the
Rajya Sabha Chair’s
dismissal of the im-
peachment motion
against CJI Dipak
Misra (left) first came
up for hearing before
Justice Jasti
Chelameswar
TheBestof
2018
INDIA LEGAL

28 January 7, 2019
ments, transfer of high court justices or other mat-
ters concerning the judicial collegium). At the
same time, if all justices were to recuse, who then
will decide the matter? This was not a “result”
legally permitted, their Lordships ruled, by the
“doctrine of necessity”.
S
imilarly, the mere motion of removal does not
deprive the CJI of his functions as a master
of rolls. Nor does the Constitution require a
chief justice (or any justice) to stand down during
the removal proceedings. Nor does any question of
propriety even arise when the allegations against a
justice are held not to have been made out by the
Chairman of the Rajya Sabha or the Speaker of the
House. Any change in the Judges (Inquiry) Act,
1968, which blueprints the procedures to be fol-
lowed in an inquiry for “proven misconduct” against
a judge would have now to run the gauntlet of the
basic structure doctrine as developed by the Sup-
reme Court.
One hopes that this politics of judicial embar-
rassment will now cease, given that the incumbent
CJI retires on October 2 and any proceedings for
removal thereby become infructuous. Among the
urgent issues that remain are the expeditious final-
isation of the Court-approved Memorandum of
Procedure, quick moves in filling all judicial vacan-
cies, and a sorely needed workforce expansion of ju-
dicial services. The glacial pace of action
increasingly imperils both judicial independence
and the constitutional republic. What Justice Arun
Mishra remarked from the Bench as recently as
May 10 is that not merely daily media “discussion
of court proceedings is happening” but that “every
judge is targeted”. However, destruction of “this in-
stitution” may also mean, he said, that “you people
won’t survive….” Modern history archives that the
shining knights of accountability may also be the
unwitting pioneers of destruction of residual insti-
tutional autonomy.
—The author is an international law scholar,
an acclaimed teacher and a well-known writer
May 21, 2018
STUCK IN DISCORD
The Supreme Court
collegium has
recommended the
names of senior advo-
cate of the Supreme
Court Indu Malhotra
(above left) and Chief
Justice of Uttarakhand
High Court, Justice KM
Joseph (above right) to
be promoted as
Supreme Court judges;
Minister of Law and
Justice Ravi Shankar
Prasad
“The Supreme Court has
become a political football”
Top legal minds analyse on APN’s show, Mudda, two Congress
MPs’ withdrawal of a plea in the SC challenging the rejection
of an impeachment motion against CJI Dipak Misra by
vice-president M Venkaiah Naidu
“The impeachment law states that
charges should be proven. One
should not proceed on assump-
tion. The vice-president’s decision
was well within the framework of
the Constitution. Kapil Sibal kept
on harping that the CJI has no
roster power. The fact is that ver-
dict on the master of roster is
yet to come. The collegium
should have found out avenues to
talk before washing dirty linen
in public.”
—Pradeep Rai, senior advocate,
Supreme Court
“Kapil Sibal had nothing to argue
with. Why should questions be
raised on the bench? The chief
justice of India constituted the
bench, leaving out those who
held the press conference. What
more does Sibal want? How can
he himself choose the bench?
This is outlandish. A judge is a
judge, and you can be heard by
any judge.”
—MC Dhingra, senior advocate,
Supreme Court
“The Supreme Court has become
a political football. Sibal is seeking
a double-edged sword, and wants
to keep the CJI under pressure.
Sibal is both a politician and
lawyer. He is now virtually asking
the Constitution Bench to recuse
itself… Where there is smoke,
there is fire. Of course, the
Supreme Court has become a
political football. We support an
independent judiciary, but that
does not mean that we cannot
be critical.”
—Inderjit Badhwar, Editor,
India Legal
“The Congress is playing a dan-
gerous game. It did so in 1977 as
well. This time, it is attacking the
Supreme Court. What do Sibal
and the Congress want? What I
understand is that they want to
drag just four judges in, again and
again. Are all judges worthless ex-
cept those four? Congress wants
to keep up pressure on judges.”
—Ashok Thakur, spokesperson,
BJP
Kapil Sibal is entirely right in claiming that
a citizen litigant is entitled to know whether
the bench was constituted by a judicial
order. And one hopes that the situation
is adequately clarified.
LEAD
SUPREMECOURT TheBestof
2018
INDIA LEGAL

SUPREMECOURTCALENDAR2019 TheBestof
2018
INDIA LEGAL
HOLIDAYS
NAMEOFHOLIDAY MONTH&DATE DAYSOFTHE
WEEK
New Year Holiday January 1 Tuesday
Republic Day January 26 Saturday
Maha Shivaratri March 4 Monday
Holi Holidays March 18 to Monday to
March 23 Saturday
Ram Navami April 13 Saturday
Mahavir Jayanti April 17 Wednesday
Local Holiday April 18 Thursday
Good Friday April 19 Friday
In-ul-Zuha (Bakrid) August 12 Monday
Independence day & August 15 Thursday
Rakshabandhan
Janmashtami August 24 Saturday
Local Holiday September 9 Monday
Muharram September 10 Tuesday
Mahatma Gandhi's October 2 Wednesday
Birthday
Dussehra Holidays October 7 Monday to
to October 12 Saturday
Diwali Holidays October 28 to Monday to
November 12 Saturday
Local Holiday November 11 Monday
Guru Nanak's November 12 Tuesday
Birthday
Christmas & December 17 Thursday to
New Year Holidays to January 1 2020 Wednesday
Sundays and Supreme Court Holidays are shown in red.
Orange colour squares indicate the actual date of festivals.
SUPREMECOURTOFINDIA-2019
JANUARY
S M T W T F S
1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31
MAY
S M T W T F S
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5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
SEPTEMBER
S M T W T F S
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30
FEBRUARY
S M T W T F S
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28
JUNE
S M T W T F S
1
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30
OCTOBER
S M T W T F S
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6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31
MARCH
S M T W T F S
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10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31
JULY
S M T W T F S
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7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31
NOVEMBER
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10 11 12 13 14 15 16
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APRIL
S M T W T F S
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AUGUST
S M T W T F S
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DECEMBER
S M T W T F S
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8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31

30 January 7, 2019
LEAD
INDIA’SBANKINGMESS
NDIA’S banking crisis is not a passing
storm. It is a hurricane gathering force
that could make landfall within the next
six to nine months. The end game for
India’s government banks (PSBs) could
be drawing near. For the fiscal year 2017-
18, 19 of the 21 government banks re-
ported losses totalling `87,000 crore. Bad
loans, called NPAs, threaten the viability of these
banks and pose significant risks to India’s financial
stability. Despite the country’s high economic
growth, the risk of bank failures and a systemic con-
tagion is real and increasing in probability.
The Punjab National Bank scam made head-
lines because of its magnitude, but there are thou-
sands of such scams which are only now surfacing.
People with access to the levers of government
power have made off with billions of dollars of
public money. Their modus operandi for looting
banks would make the bank-robbing duo of Bonnie
and Clyde look like bumbling amateurs. A letter
from a minister or a bureau-
crat, a small slice of the pie as
gratitude for the bank man-
ager, and off they go with a
loan that is never repaid.
These scams have been going
on since banks were nation-
alised in 1969, but few, if
any, have ever been caught
or punished.
The more relevant issue
now is how to solve the problem and contain the
damage. One thing is clear: fixing the problem will
require a higher level of thinking than the one that
created the problem. The solution, therefore, will
come not from the politicians, bureaucrats and
bank managers that created this mess but from the
private sector and free markets.
Let’s first understand the problem so we can
better grasp the solutions. Banks create money by
issuing loans using a process called fractional-re-
serve banking. This is how it works. Say you deposit
`100 in your bank. The bank is required to hold
only a small portion of that deposit as reserves and
can loan out the rest. If the reserve requirement is
10 percent, the bank can loan out 90 percent of the
deposit or `90 in this case. The borrower, in turn,
deposits the money in her bank which can now loan
90 percent of that or `81 to another borrower. The
`81 of new deposits further creates another loan of
`72.9 and the cycle goes on.
Fractional-reserve banking allows banks to cre-
ate credit far beyond the underlying base deposits
in the system. In the example above, a single de-
posit of `100 can create loans worth `1,000 which
is calculated by adding `90 + `81 + `72.9+ ....
(mathematically this is the same as dividing the ini-
tial deposit of `100 by the reserve requirement of
10 percent). Most countries only have a cash reserve
requirement (CRR). In India, there is an additional
Statutory Liquidity Requirement (SLR) by which
banks are forced to keep a certain portion of the de-
posit in government bonds. In India, the current
Surviving the Great
Bank Robbery
BurgeoningNPAsofbankscanbetackledbycreatinga“bad”bankandusingtheexpertiseof
distresseddebtspecialistsfromtheprivatesector
By Sanjiv Bhatia
I
THE GAPING HOLE
The Punjab National
Bank scam involves
an alleged fraud of
around `11,400 crore

result of bad loans and poor risk
management. This is the creative-
destruction process of free mar-
kets that enables efficient
allocation of scarce resources—
bad ideas lose out, and the re-
sources invested in them get
released and invested in good ideas.
T
he government of India has offered three
solutions to resolve the crisis, all untenable:
recapitalisation of PSBs using taxpayer
money, merging smaller PSBs with a larger entity
and requiring banks to recover and dispose the as-
sets of companies that have defaulted.
Government recapitalisation using public funds
is a bad idea. In the last six months, the govern-
ment has injected `88,000 crore to recapitalise
PSBs, but the funds have been used instead to cover
their losses for 2017-18. Recapitalisation is a mas-
sive waste of taxpayer money because it is an at-
tempt to cover a hole that is getting deeper by the
minute. There is an idiom every student of Eco-
nomics learns: “Never throw good money after
bad.” Recapitalising is an excellent example of this.
It won’t work.
Recapitalisation was tried in the 1990s when the
government injected `20,000 crore into PSBs, fol-
lowed by another `58,600 crore in 2008. This did
not improve the banks but instead created a moral
hazard problem which encouraged them to engage
in riskier lending practices knowing that if the
CRR is 4 percent, and the SLR is
19.5 percent, which is a total of
23.5 percent. So a `100 deposit
can create loans worth `425 (100
divided by 235). This practice is
hugely profitable for banks be-
cause they make interest on
money created out of thin air. The process of credit
creation works fine until loans start to default. If the
bad debt becomes large, relative to the bank’s total
lending, the bank is in trouble because it does not
have the funds to pay interest to depositors or re-
turn their deposits. This is what is currently hap-
pening in India. Almost 14 percent of all bank loans
have become nonpayable (NPLs) because borrow-
ers cannot repay either the principal or the interest
on these loans. The money loaned by a bank is an
asset on its balance sheet, so when a loan becomes
nonpayable, it reduces the bank’s assets, which cor-
respondingly must also reduce its equity capital by
the same amount. As a result, banks find themselves
needing additional funds to meet their capital ade-
quacy requirements.
Indian banks currently need about `2.5 lakh
crore to meet the minimum capital adequacy re-
quirements of an international banking agreement
called Basel III. This capital must come from the
owners of the bank—in the case of PSBs from the
taxpayers, and in the case of private banks from ex-
isting shareholders or new investors. In the absence
of this capital infusion, the bank must close down.
Every year, hundreds of banks worldwide fail as a
People with access to gov-
ernment power have made
off with billions of dollars of
public money. Their modus
operandi would make the
bank-robbing duo of Bonnie
and Clyde look like amateurs.
Illustration: Anthony Lawrence
TheBestof
2018
INDIA LEGAL

32 January 7, 2019
loans failed, the government would bail them out.
The culmination of fraudulent and poor lending
practices in a fractional-reserve lending system is
now a full-blown banking crisis.
The second solution offered by the govern-
ment—merging several underperforming PSBs into
a bigger entity—is even wackier. Merging several
overstaffed and poorly managed banks will not
magically create a viable entity. Mergers work only
if there are synergies to be exploited, and combining
two inefficiently managed and troubled PSBs offers
no such synergies. If anything, merging different
work cultures will only exacerbate the problem.
The government’s third solution, requiring PSBs
to recover and sell their distressed assets, also defies
logic. Punjab National Bank, for example, has cre-
ated a distressed asset recovery cell in each of its
6,900 branches and deployed close to 25,000 em-
ployees to recover bad loans. Now that’s putting the
fox in charge of the henhouse. How can the same
people who created the problem be expected to
solve it?
So, how can this banking crisis be resolved
quickly and with a minimal loss to taxpayers and
the credibility of India’s financial institutions? Here
is what should be done:
The first step should be the establishment of a
“bad” bank, structured with the specific purpose of
holding the bad loans of other banks. Bad loans
consist of the out-and-out frauds and the distressed
loans of good companies going through a bad time.
There is little hope of recovering much from fraud-
ulent loans, so the focus should be on distressed
loans. Taking these bad loans off the balance sheets
of the PSBs removes the requirement for taxpayer-
funded recapitalisation. The responsibility for sell-
ing these distressed loans then shifts to the “bad”
bank. Restructuring distressed companies is a spe-
cialised business handled by a rare group of profes-
sionals who understand how to value and revive
them. People from the government or bureaucracy
are not skilled at handling this task. It is, therefore,
essential to staff the “bad” bank with experts from
the private sector who are specially trained to han-
dle distressed debt, and not ex-bureaucrats.
T
he next step is for the government to liqui-
date its ownership stake in PSBs by setting
up a bank investment company, again man-
aged by professionals from the private sector. The
PSBs will become more attractive (and valuable) to
potential buyers once their balance sheets have
been cleansed by offloading nonpayable loans to the
“bad” bank.
It is vital that India’s financial system be run
with minimal government intervention. Capital is
the lifeblood of any modern economy, and a
healthy and vibrant financial sector is essential to
the efficient allocation of this capital to its best use.
This can only happen in the absence of political
pressure. Privatising India’s banking system is a
Offer to sell fixed assets of
`1,699 crore attached by the ED
Fixed deposits of `215 crore
lying with the ED and debt recov-
ery tribunals
Proceeds of `73 crore from the
sale of Kingfisher Villa
Deposit of `1,473 crore with
the Karnataka High Court
Shares worth attached `7,609
crore
Shares worth `2,888.14 crore in
United Spirits Ltd, United Brew-
eries Ltd and McDowell Holdings
Ltd held by his six firms.
Interestingly, Mallya’s new
offer came three days after the
ED had filed a court application
to declare him a “fugitive eco-
nomic offender” and confiscate
his assets worth `12,500 crore
under the Fugitive Economic Of-
fenders Ordinance, 2018.
A London court is also
expected to rule on India’s extra-
dition case against him on
July 31.
Vijay Mallya, the flamboyant ex-liquor baron and promoter of
the failed Kingfisher Airlines, says he has requested the Kar-
nataka High Court to allow him to sell assets worth `13,900
crore under judicial supervision so that he can repay his credi-
tors. Mallya's creditors, which include 17 public sector banks,
have declared him a “wilful defaulter”. The Enforcement Direc-
torate, Central Bureau of Investigation, and Serious Fraud In-
vestigation Office are prosecuting him and Kingfisher Airlines
for loan defaults worth `9,990 crore. Mallya denies being a wil-
ful defaulter, saying that he had made two settlement offers to
banks in 2016, but both were rejected.
This is how Mallya has worked out his repayment
arithmetics:
Mallya’s repayment arithmetics
LEAD
INDIA’SBANKINGMESS

Merging poorly
managed
banks will not
magically
create a viable
entity. Mergers
work only if
there are
synergies to be
exploited, and
combining two
inefficient
PSBs offers
no synergy.
ment should dispense with burdensome and unnec-
essary regulations and provide favourable tax incen-
tives to the ARCs, so the process of securitisation
can begin.
F
inally, a long overdue reform is the major
overhaul and modernisation of India’s cap-
ital markets and a revamping of its regula-
tor SEBI. There is an urgent need to create a viable
secondary market for debt which includes the abil-
ity to repackage and securitise loans and sell them
in the capital markets. Banks still dominate India’s
lending structure providing almost 70 percent of all
the credit in the economy. In the US, on the other
hand, the vast majority of capital is raised in the
capital markets using equities, corporate and mu-
nicipal bonds, while bank lending is limited to retail
lending. This reduces the stress on the banking sys-
tem, and since capital market credit is subject to
greater market discipline, it ensures a more efficient
allocation of capital.
The window to solve India’s banking crisis is
closing fast. The only way to successfully resolve the
problem is to use market-based solutions. Politi-
cians and bureaucrats must resist the urge to micro-
manage and control the process because they don’t
have the required skill set to do so. Their interfer-
ence will only aggravate the problem and jeopardise
the country’s economy.
—The writer is a leading financial economist
and founder, contractwithindia.com
necessary step to solving the NPA problem.
The global financial sector is also undergoing
structural changes, and alternative suppliers of fi-
nancial services (fin-tech and other non-banking
entities) are challenging existing business models.
Cost reduction and innovation are the keys to sur-
vival in this environment, and it is clear that per-
sonnel-heavy and non-innovative PSBs are
completely ill-equipped to compete in this rapidly-
changing, high-technology, low-cost environment.
It is imperative that India’s state-owned banks be
allowed to exit in a controlled way so their market
share can be freed up for other viable banks.
Once the nonpayable loans have been trans-
ferred to the “bad” bank, the government should in-
vite global asset reconstruction companies (ARCs)
to buy these distressed assets from the “bad” bank.
Foreign investors are eager to invest in India’s dis-
tressed debt, especially since the passing of the In-
solvency and Bankruptcy Code, 2016, which
expedites the insolvency process to less than one
year. But they are very sceptical about anything con-
nected to the government and the public sector be-
cause of the usual issues related to poor
implementation, burdensome and inconsistent reg-
ulation and lack of transparency. If the NPA prob-
lem is to be resolved quickly and successfully, this
outside capital must be tapped using market-based
solutions combined with a supportive regulatory,
tax and market environment. The government must
limit its involvement and back off the regulatory
pedal, and help create an environment that encour-
ages ARCs and outside investors to take on the size-
able risks associated with buying and rehabilitating
India’s distressed companies.
ARCs will want to repackage the assets of the
distressed companies they buy from the “bad” bank
into smaller units (shares) and sell them to in-
vestors. This diversifies the risk from these bad
loans across a wide range of investors. This process
is called securitisation, and the SARFAESI Act (Se-
curitisation and Asset Reconstruction of Financial
Assets and Enforcement of Security Interest Act) of
2002 was designed for this purpose. But as with
everything else in India, mindless government reg-
ulations and coercive tax laws have impeded the
growth of the securitisation market. The govern- July 9, 2018
TheBestof
2018
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