A detailed examination of issues relating to Retail in India

Continuing the trend set by Umakanth of updating issues previously explored on the blog, those who followed the brief discussion about the debate over whether and how foreign retailers should be allowed within India, would be interested in the latest issue of Frontline. The issue dated June 30-July 13 features the issue as its cover story. The lead story provides many of the factual details that discussants on the blog had enquired about. Another story focuses on the regulatory issues involved. Other stories focus on particular cities and the challenges they face in respect of retail. In all, the stories provide a lot more factual information on the issue, which should be helpful for those interested in taking the debate forward, even if they disagree with the analysis.

Opportunity for Review of the SEZ Policy

A previous discussion on this blog (Law and Other Things: SEZs: The Furore Over Land at Nandagudi) had highlighted the need for a review of the Government’s policy on SEZs.

It has been reported in the press today (Panel no to new zones till Act amended, Joshi panel seeks freeze on SEZ clearances) that a Parliamentary Standing Committee on Commerce headed by Murali Manohar Joshi has submitted a report to the Government calling for a freeze on approval of new SEZs unless the entire policy on SEZs including the SEZ Act are reviewed. This comes in the wake of demands from various quarters for a need to take a relook at important concerns such as land acquisition and rehabilitation of displaced land-dwellers.

This provides a timely opportunity for the Government to review the entire policy on SEZs, which has been affected by controversies throughout the country. From and law and policy standpoint, an important aspect relates to land acquisition, where various options are being explored by the policy-makers: (i) have the Government acquire the land (for example, under the Land Acquisition Act); or (ii) have the private developers of the SEZs acquire land directly from the land owners by the process of negotiation without any Government intervention.

As we have discussed on this blog in the past, neither presents a workable solution. What is required is acquisition with full consent of land owners. However, the Government needs to play a supervisory role to ensure that land owners (who, in the case of a large number of SEZs happen to be illiterate or semi-literate farmers) are not shortchanged. These, among other issues, need to be considered in full before the policy and the Act on SEZs is amended. Press Reports suggest that the Commerce Ministry will have to submit an action-taken report on the findings of the Parliamentary Committee.

Foreign Investment in Retail Trade (…contd.)

I had blogged earlier (Law and Other Things: The Continuing Controversy Over Retail Trade) that where franchisee arrangements are permitted by the existing policies, foreign parties should not be disallowed from entering into franchise arrangements in the retail sector. At that time, there was a fear that franchise arrangements would be disallowed altogether by the Government.

However, there appears to be a change in the stance of the Government. Today’s Business Standard reports that officials of the Finance Ministry are of the view that the restrictions on foreign direct investment in the retail sector may not apply to franchise agreements.

The report states:

“Franchise agreements are basically service agreements and in the case of services there can be no distinction between retail and wholesale, hence the present guidelines can only apply to retail in goods and not franchise agreements, hold ministry officials.

This view is significant as there have been speculations about the government banning franchise arrangements, which many consider a loophole that single-brand and multi-brand retail giants have been leveraging to enter India.”

The Government is reviewing its entire policy on foreign investment in the retail sector. We will have to wait and watch whether the Finance Ministry’s view will be accepted once the FDI policy is reviewed.

Specialised Tribunals as an Alternative to Courts

The justice delivery system in India relating to specialised areas of law such as company law, competition law, taxation, intellectual property and so on suffer from two primary drawbacks:

(i) a lack of personnel with the requisite expertise in those specialized fields to resolve complicated disputes;

(ii) an overburdened judicial system with substantial backlog resulting in inordinate delays in resolving such disputes.

One of the basic reasons for these drawbacks is the fact that specialised disputes are decided by mainstream courts such as the High Courts and other civil courts. However, there have been recent efforts to ‘tribunalise’ the justice system for specialised disputes: examples that are the subject matter of debate relate to the National Company Law Tribunal (NCLT), National Tax Tribunal (NTT) and the Competition Commission (CC). Although the enabling legislation for all of these bodies have been enacted by Parliament, they have not only been mired in controversy, but also have been the subject-matter of litigation challenging the establishment of such bodies. For these reasons, the bodies are yet to see the light of day.

In an article titled Will Tribunals Trivialise Justice Delivery? appearing in today’s Economic Times, K. G. Narendranath sets out the advantages as well as shortcomings of establishing specialised tribunals. He says:

“It’s increasingly a conflict between the judiciary and the quasi judiciary, seen by many as closer to the executive than the judiciary. The question is whether the new, powerful tribunals and commissions proposed by the government to speed and “modernise” dispensation of justice in the economic, financial and social arenas would also result in its “trivialisation”.”

Although care needs to be taken to ensure that the tribunals function in a proper manner with due regard to principles of natural justice, there are several advantages as well as checks and balances in establishing such a system:

(i) it enables expert determination on specialised disputes, as the tribunals would have as its members persons who are experts in the relevant field. Apart from this, the constitution of the tribunals can also include members from the higher judiciary so that the proceedings can be carried out like a judicial body rather than an administrative body;

(ii) it would lighten the burden of the already overburdened mainstream judicial system;

(iii) it would have a more flexible procedure (without being bound by the detailed procedures under the CPC, CrPC and Evidence Act), but with due regard to the basic principles of natural justice enshrined in the Constitution;

(iv) the decisions of the tribunals would be subject to appellate review by the higher judiciary.

However, the establishment of these tribunals to accelerate justice delivery has itself been the victim of delay in the judicial process. For example, although the proposal for establishment of NCLT was enacted in the Companies Act in 2002, a decision on its validity is still pending before a Constitution bench of the Supreme Court nearly 5 years later. The establishment of the Competition Commission too has been delayed because of challenges to its constitutional validity.

There is no doubt that there is a dire need for such specialised tribunals. What is required is a final determination from the Supreme Court on the constitutionality of such tribunals and perhaps guidelines on the manner in which they are to be operated so that they system can be put in place sooner rather than later.

Madras High Court ruling on quotas in unaided educational institutions

Today's Hindu is reporting a ruling by the Madras High Court which, if carried to the Supreme Court (a course of action that seems inevitable, given the issue), has the potential to cause a re-examination of the current jurisprudence on quotas in unaided professional educational institutions. Here are extracts from the report:

"The Madras High Court on Monday upheld the constitutional validity of a State legislation and a consequent Government Order directing the unaided professional colleges to surrender a certain percentage of seats to the State quota and also to follow centralised counselling for admission for management quota seats.

Justice V. Dhanapalan, dismissing a batch of writ petitions filed by various associations of self-financing professional colleges, said the Tamil Nadu Admission in Professional Educational Institutions Act 2006 had been given effect to “taking note of the local needs and, specifically, larger interest and welfare of the student community and to promote merit, achieve excellence and curb malpractices.”

The petitions challenged three specific clauses of the Act relating to the surrender of 65 per cent of the total seats to Government by non-minority institutions and surrender of 50 per cent of seats by minority institutions; admission of students for management quota seats through the centralised counselling or single window system (SWS); and admissions on the basis of marks obtained in the qualifying examinations alone."

Presidential Polls : Part III – Similarities between Shiv Kripal Singh case and the present one

Responses by Mr.Arun Thiruvengadam and Mr.Dilip (in the comments section to my previous post) made me further think about the Shiv Kripal Singh case. Here are, what I think, some similarities.

Arun correctly points out that in Shiv Kripal Singh case, the Supreme Court found the allegations against Sanjeeva Reddy, the losing candidate, fictitious and completely baseless. But as Dilip has pointed out, and the reading of the entire judgment shows, we are unable to know how the SC arrived at this conclusion. May be the pamphlet being distributed then was not backed by documentation or evidence.

In Ms.Patil’s case, if one follows the media coverage closely, one can see that Abhishek Singhvi, the Congress spokesperson has disputed even the facts of the allegations against her, the amount of money involved in the transactions alleged against her brother, and whether the borrowers (Ms.Patil’s kin) have returned the loan amount to the bank, and when. May be the Congress wants to wait till the last date for the nomination is over, to properly answer the allegations against her. Why should we insist – as many of the commentators seem to be in a such a hurry as if all would be lost - that the Congress must answer all the charges even before the nominations close. There is a campaign period ahead, when all these allegations will again be raised and answered. There have been good presidents, and bad presidents. In certain cases, bad presidents have turned out to be good presidents because of circumstances. The so-called good presidents, to begin with, did not live upto the expectations.


In Ms.Patil’s case, there is a suspicion that she must have had a hand in the number of allegations against her kith and kin. Now, this suspicion has to be substantiated. Even the complainants in those cases have not alleged this. Being the highest office, the Presidency does not offer any immunity to the incumbents from cases which have to do with her actions in her personal capacity, before she assumed the office.


Take the pamphlets against Sanjeeva Reddy. The allegations might have been true or false. The SC probably found the pamphlets issued by anonymous persons as lacking evidentiary value. None had the courage to provide the evidence, probably. The SC did not explain why it found the pamphlet baseless and fictitious. Had the evidence subsequently come up, and if Sanjeeva Reddy had been elected as President in 1969, would he have enjoyed any immunity? No. Therefore, there is a flawed assumption in the case of Ms.Patil, that she would interfere with the cases faced by her kith and kin, and therefore, she should not stand for the Presidency.


If you read that judgment carefully, the SC did not want to go into the allegations in the pamphlet, to determine whether they had any basis, or even prima facie raised any suspicion of wrong doing. It simply said even the dissemination of such a pamphlet amounted to undue influence because it cast aspersions on the integrity of the candidate. It is not for the pamphlet-distributor to come up with hard evidence to convince the Court. The truth or falsehood of the pamphlet must have been already established, so that there can be no possibility of a debate on it. The crucial paragraph in that judgment is this:


“ It seems to us that these allegations are covered under Section 171-C. even if they may be covered under Section 171G. But we are not concerned with Section 171G because that section has not been made a ground for setting aside an election. We are only concerned with Section 171C. Be that as it may, we cannot add another subsection to Section 171C, as follows :A false statement of fact in relation to the personal character or conduct of any candidate even if made with the intention of interfering with the electoral right shall not be deemed to be interference within the meaning of this section.”


In other words, the SC had two sections before it: Sections 171C and 171G. Section 171C (1) says: Whoever voluntarily interferes or attempts to interfere with the free exercise of any electoral right commits the offence of undue influence at an election. This sub-section is very general, and the subsequent sub-sections (2) and (3) (which are not relevant to this case) have been added without prejudice to sub-section (1).


Section 171G says whoever with intent to affect the result of an election makes or publishes any statement purporting to be a statement of fact which is false and which he either knows or believes to be false or does not believe to be true, in relation to the personal character or conduct of any candidate shall be punished with fine.


As the Supreme Court’s clarification shows, S.171 G is not a ground of attack in that case. Under S.171C also, the court was in no mood to exempt false statements of fact from the purview of “voluntary interference with the free exercise of right”.


In Ms.Patil’s case, it is premature to say whether S.171 G would be relevant. But S.171C? What are the exemptions under S.171C?
S.171C (2) (a) and (b) is not attracted in Ms.Patil’s case. Nor was it attracted in Shiv Kripal Singh case. These refer to some specific illustrations of interference (Readers are requested to refer to IPC), which are not exhaustive of the offences to be covered by S.171C (1).

S.171C (3) says a declaration of public policy or a promise of public action, or the mere exercise of a legal right without intent to interfere with an electoral right, shall not be deemed to be interference within the meaning of this section. This sub-section also will not apply to either cases.


In other words, S.171C does not provide for any exceptions apart from this. The crucial question, therefore, to be asked in both the cases, is: whether the allegations amount to “voluntary interference with the free exercise of right” as meant by S.171C (1). The basis of the allegations, whether it is true or not, is not exactly relevant at this stage. It was not relevant to the court in Shiv Kripal Singh case. The mere dissemination of the pamphlet amounted to “voluntary interference with the free exercise of right” to the Court. Therefore, the argument that the allegations may be true, and that there is no effective challenge to the facts established by the allegations cannot come to the aid of Ms.Patil’s critics. The Court in that case was not bothered about the anonymity of the authors of the pamphlet. Had it been concerned about the truth or otherwise of its contents, it could have ordered an inquiry into it to arrive at the truth. It was not concerned even to explain, as it felt the pamphlet so distributed, in its view, appeared to be fictitious and baseless. But it is not this view which determined the outcome of this case.


I agree that the discussion is largely academic, as Ms.Patil would most probably win the contest, and the occasion for the Court to determine whether the allegations materially affected the result (in terms of S.18 of the Presidential and Vice-Presidential Elections Act) of the election may not arise at all. Be that as it may, as the discussion raised the issue whether allegations against Ms.Patil, would come under S.171C (1), which is independent of the Presidential and Vice-President Elections Act, I thought the SC’s ruling in Shiv Kripal Singh would be highly relevant.


To conclude, I repeat what the Supreme Court said in that case with regard to the scope of S.171C(1):
"The legislature has wisely refrained from defining the forms interference may take. The ingenuity of the human mind is unlimited and perforce the nature of interference must also be unlimited.”


Secondly, the SC judgment in the Association of Democratic Rights case, which directed the E.C. to seek and publicise information about the background of the candidates in terms of the right to information of the voters does not include information about allegations and insinuations being faced by the candidate.

1974 AMENDMENT:

S.18 of the Presidential and Vice-Presidential Election Act, 1952 was amended in 1974. The amendment, apart from other things, carried out two major changes in the Act, which are relevant to the present discussion. One is the word connivance was changed as consent in S.18(1) (a). The second important change, which I missed, but which formed the basis of the Shiv Kripal Singh judgment is this: it omitted S.18(1) (b) as it stood in the unamended Act. This sub-section in the unamended Act said as follows:

(b) that the result of the election has been materially affected (i) by reason that the offence of bribery or undue influence at the election has been committed by any person who is neither the returned candidate nor a person acting with his connivance....the Supreme Court shall declare the election of the returned candidate to be void.

The effect of this amendment would be that the pamphlet against Sanjeeva Reddy, which was the issue in the Shiv Kripal Singh case, is unlikely to be an issue in a similar case. At the most, those who make similar allegations against Presidential candidates in the recent election could be prosecuted under S.171C or S.171G under IPC, and can get away with a punishment of fine, if found guilty. The successful candidate cannot be unseated even if the campaign of undue influence – carried out without the consent of the candidates or his representative - materially affected the results. The discussion in the posts and the comments section, therefore, must be understood in the background of this important change, which I missed earlier.

I stand corrected insofar as the 1974 amendment almost eclipsed the similarity between the Shiv Kripal Singh case and the present campaign, by deleting S.18(1)(b) of the unamended Act. But the similarity with regard to S.171C(1) remains, even though the prospect of the Court declaring the election as void on this ground, if others without the candidates' consent, are found guilty of this offence, is no longer there. The Supreme Court is mercifully spared of the effort to determine whether the result is materially affected by the undue influence of those who did not have the consent of the candidates. Was this amendment a result of the legislative wisdom that the Shiv Kripal Singh judgment's reasoning, as Arun argues in the Comments section, is inadequate? But if the plea of implied consent is taken, then perhaps the original objective of the 1952 Act in keeping the Presidential and Vice-Presidential election campaign free from undue influence of any kind, may be given effect to.

Continuing the discussion on "undue influence"

I want to begin by thanking V. Venkatesan for his prompt and detailed response to my comment and for setting out the facts and decision in the Shiv Kripal Singh case, as well as the provisions of law that are directly relevant, in the previous post. While I understand the argument now, I am still not convinced that the case is a direct precedent for the Patil imbroglio.

Before getting to the main issue of 'undue influence,' it is important to understand the Congress' response to the allegations against Ms Patil so far. Mr. Venkatesan is right to correct me by pointing out that there have in fact been responses by the Congress to the allegations. Shekhar Gupta has a column in the Express today, where he discusses these responses at some length. Relying on his account, here are the responses so far:

"What are the various arguments the Congress is putting forward in Pratibha Patil’s defence? That she is not to be blamed for loan defaults by her sugar mill because the entire sugar sector has seen a slump anyway. Second, that she is not to be blamed for all the shenanigans in the bank founded by her, and named after her, because, barring a small period, she did not have a formal position in its top management. And third, and probably the most honest of all, that all the charges thrown at her could be thrown at any other Maharashtra politician anyway because each one of them owns three things, a co-operative bank, a sugar mill and a bunch of colleges, and finally, that each one of these businesses lends itself to controversies."

One can debate whether these amount to substantive responses, but what is more significant is that the Congress is not denying these facts, but seeking to explain them away. There lies the first important distinction between this and the Shiv Kripal Singh case, where the Court found the allegations against Mr. Sanjiva Reddy to be "fictitious" and completely without basis.

As Gupta explains, given the reality, it seems highly likely that Ms. Patil will become our next President, which makes the scenario of an election dispute where she alleges 'undue influence' highly unlikely. Even if this were to somehow transpire, I think there are important reasons why the Court will not hold in her favour. Apart from the nature of the facts in this case (which have now gone beyond being a smear campaign, given that some of the most damaging allegations have not been disputed), I believe that the Court has given many more rulings since 1969 which would cast this case in a different light. We now have a Right to Information Act(which the Court would like to believe was a direct result of some of its rulings), as well as decisions of the Court which have emphasised the need for close scrutiny of the backgrounds of candidates in elections. Given this recent background, it would be hard for the Court to try and argue that asking legitimate questions about a candidate's background (especially when this is in the context of the highest office in the nation) amount to 'undue influence' in relation to the voters in the electoral college.

My present position is still dictated more by gut instinct than by a close examination of the applicable law and precedents (including the Shiv Kripal case). This discussion will make me focus on those issues, but my initial view is that it would be hard to assail at least the legitimate questions being asked about Ms Patil's past conduct.