tag:blogger.com,1999:blog-12593195954643858432024-02-20T15:30:58.576-08:00CLEARLAW4ALLM. SIVARAMAN, Corporate Lawyer, Researcher and Speaker
M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-1259319595464385843.post-26520459861840291452020-08-28T23:35:00.003-07:002020-08-30T07:51:04.379-07:00YOUR DEVELOPER DELIVERS A DELAYED APARTMENT OR PAYS FLAT COMPENSATION ?<p align="center" class="MsoNormal" style="line-height: 150%; text-align: center;"><b><i><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">YOUR DEVELOPER DELIVERS A DELAYED APARTMENT OR PAYS FLAT
COMPENSATION</span></u></i></b><b><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> ?<o:p></o:p></span></u></b></p>
<p align="right" class="MsoNormal" style="line-height: 150%; text-align: right;"><b><i><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">M. SIVARAMAN<o:p></o:p></span></i></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Plight
of Apartment Buyers:<o:p></o:p></span></u></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Hard earned money and home loan proceeds are shelled
out to developers by the consumers in the fond hopes that the apartments, the
common facilities and other amenities as showcased in the promotional brochure,
advertisements, application forms and the construction agreements would be honoured
and delivered in time and as per the specifications promised by the
developers. The individual consumers who
are not organized when they book the apartments do not stand a chance to the
well organized and advised developers in matters relating to the contractual
terms, most of which remain in fine print with elaborate legal drafting tilting
the scales of balance in favour of the developers. Contractual remedies, if any, available to
the apartment buyers against the delay or defaults by the developers in such
agreements are either inadequate or illusory in nature. On the other hand, the developers are usually
cushioned with various safeguards and favourable terms, often outright denying
or utmost capping their overall liabilities with elaborate clauses which can
save them from claims arising out of delays and defaults. In practical terms, the individual consumers
do not have any say in the negotiation, finalization and execution of the
application forms for booking the apartment and the construction agreements
which typically results in one-sided agreement, broadly protective of the
developers interests only. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">In this backdrop,
when an individual consumer who was promised an apartment is confronted with
huge delay in delivery of possession and / or with the common areas, facilities
and other amenities which have been promised are also not ready or do not meet
the contractual specifications, it results not only in financial strain, but,
also leads to emotional stress and mental agony. This is because a residential apartment or
house is not merely an immovable asset, but, an aspirational ideal in ones’
life. When almost all the installments
towards the apartment have been paid out to the developers by the consumers
from out of their own funds and home loan proceeds, if the possession is not
ready and inordinately delayed, then, it is double whammy for the consumers,
since on the one hand their monies have been fully paid and the apartment is
not delivered, while at the same time, the loan EMIs would have already
kicked-in and in some cases, the consumers may also be constrained to continue
to pay rentals till the apartment possession is delivered.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><u><span style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Remedies under Consumer Protection
Act:<o:p></o:p></span></u></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Such inordinately delayed delivery of possession
and/or non-availability of the common facilities and amenities as per the
contractual specifications can be a subject matter of a consumer dispute in
view of the deficiency of services and/or defect in the construction on the
part of the developers and builders. The
individual consumer can file a consumer complaint. More than one consumers who have a common
interest in the consumer dispute can also file consumer complaint in a
representative capacity against the developers/builders<b>(1)</b>. The Consumer Disputes
Redressal forums created at the district, state and national level under the
Consumer Protection Act are tribunals which usually go by the contractual terms
agreed between the parties and do not deviate from the agreed commercial
bargain even in the face of one-sided agreements. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Are
Separate Car Parking Charges Illegal?<o:p></o:p></span></u></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">But, when builders and developers charged extra for
car parking space in violation of the local state legislation in Maharashtra,
the Supreme Court has held that separate charges for car parking is illegal and
not maintainable<b>(2). </b>This position was further explained &
reiterated by the Supreme Court<b>(3)</b>. However, these arise out of State specific
legislations. For instance, in the State
of Karnataka, the Supreme Court has held that separate car parking charges can
be collected by developers as there is no prohibition against the same under
the Karnataka Apartment Ownership Act<b>(4). <o:p></o:p></b></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></u></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Are
Grossly One-sided Agreements Legally Valid?<o:p></o:p></span></u></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><br /></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Courts ordinarily decide the consumer disputes in
terms of the contractual bargain the parties have arrived at. It was held that when a developer has already
agreed in the building construction agreement that in case of delay in delivery
of possession he would compensate the buyer of an apartment at a specified per
square feet rate, then, courts should not overlook such clauses and order
further compensation; only if there are strong and exceptional reasons,
compensation at a rate more than the contractually agreed rate can be awarded<b>(5)</b>.
But, if the agreements are highly one-sided and have been drafted to
protect the developers’ interest, then, courts can read down the agreed clauses
which are the product of an unfair bargain.
It was also held that contractual terms cannot be final and binding if
they are one-sided and the consumer was forced to sign on the dotted lines of
the developers; such one-sided, unfair and unreasonable terms in the contract
form unfair trade practice by the builder for selling the flats<b>(6)</b>. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Validity
of Compensation Clauses favouring Developers</span></u></b><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Typically, the developers and builders usually ring
fence their liabilities arising out of delays and defaults in the delivery of
possession. In extreme cases, they cap
their liability that in the event of delay in delivery of possession beyond the
promised date and also if there are no <i>force
majeure</i> circumstances, only a per square feet rate at say Rs.3/- or Rs.5/-
per sq. ft. per month for the delayed period would be reduced by them in the
sale consideration. This hardly works
out as any meaningful compensation to the consumers. But, in extreme cases involving huge delay in
delivery of possession, courts came forward to award just and reasonable
compensation over and above the contractually agreed compensation rate<b>(7).
</b>In such cases, courts provided for payment of compensation at
interest rates, which are higher than the per square feet compensation rates
that the developers may have stipulated in the construction agreements.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><br /></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Validity
of Denying Right to Protest or Initiate Legal Challenge:<o:p></o:p></span></u></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">After an inordinate delay of say two to three years
beyond the promised delivery date, the developer is now ready to deliver
possession and also execute deed of conveyance.
But, he levies a precondition that you should accept the possession and
execute the deed of conveyance without registering any protest or reserving
your right to initiate legal challenge against delay and damages. In the event you refuse to comply with such
precondition, the developer is not handing over possession nor executing the
deed of conveyance. Ultimately, out of
frustration or out of necessity, you agree to withdraw your claims or the right
to protest or initiate any legal challenge against the developer and thereupon
only the developer delivers possession and executes deed of conveyance for the
apartment in your favour. Subsequently,
can you challenge the act of the builder that he had forced you to withdraw
your protest and legal claims against him?
<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">It has been held by the Supreme Court in a recent
decision<b>(8)</b> that you can still
challenge the same and secure compensation from the court. But, in the meanwhile, if you have arrived at
a settlement agreement with the builder and have received some compensation
from him, which may be presumably of lesser monetary value, then, you will be
bound by the same and not be able to challenge against the delay and defaults. Suppose, while there has been delay and
default continuing for quite a long period and in the meanwhile, if you have
sold the apartment which is midway in the construction, can your subsequent
buyer or you be able to claim compensation from the developer. It has been answered by the Supreme Court in
the above decision that it is not permissible because the new buyer has come in
after he is aware of the delays and defaults on the part of the developer and
that you have sold out the property with all its rights, title and interest and
therefore both of you cannot claim compensation in such cases.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><u><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Key
Takeaways:<o:p></o:p></span></u></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">Rights of the apartment buyers are not uniform in our
country and vary from State to State, as illustrated in the matter of whether
separate charges could be levied by the developer for car parking. If there are one-sided, unfair and
unreasonable terms and conditions and the consumer had to sign such
construction agreements on dotted lines as drafted by the developer to protect
his interests, then, it will amount to unfair trade practice. In the event of delays which are grossly
inordinate, say two or three years beyond the promised date, then, besides
whatever the square feet rate compensation that the developer may allow, the
buyers can still legally challenge and secure just and reasonable compensation
from the consumer forums or courts. Even
in instances where the buyer is forced by the developer to give up or withdraw
unconditionally his legal right to challenge the delays and only thereupon deed
of conveyance is executed, it will not be a bar for the apartment buyer to
subsequently challenge it before the consumer forums and secure just and
reasonable compensation.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><i><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;"> </span></i></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><i><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">(Author
is a Corporate Lawyer based in Chennai & reachable at </span></i><a href="mailto:clearlaw4all@gmail.com"><i><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">clearlaw4all@gmail.com</span></i></a><i><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">)
<o:p></o:p></span></i></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><i><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">PS:<o:p></o:p></span></i></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">1. This post is subject to the Legal Disclaimer of
this Blog as available in our post dated July 4, 2020 titled “Legal Disclaimer”;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">2. “<b>Clearlaw4all</b>”
has been selected as one of the <b>Top 100
Indian Law Blogs</b> on the web by <b>Feedspot </b>available at https://blog.feedspot.com/indian_law_blogs/ </span><span style="text-align: left;"><span style="font-family: Bookman Old Style, serif;"> </span></span><span style="font-family: "Bookman Old Style", serif; font-size: 12pt;">. </span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><b><span lang="" style="font-family: "Bookman Old Style",serif; font-size: 12pt; line-height: 150%; mso-ansi-language: EN-US;">End
Notes:-<o:p></o:p></span></b></p>
<p class="MsoListParagraphCxSpFirst" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Bookman Old Style", serif; line-height: 150%;"><span style="font-size: 12pt;">1.</span><span style="font-family: "Times New Roman"; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> 1. S</span></span><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">ection 12(1)(c) of the Consumer
Protection Act, 1986.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">2.<span style="font-family: "Times New Roman"; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> 2. </span></span><i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">Nahalchand
Laloochand Private Limited vs. Panchali Cooperative Housing Society Limited </span></i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">(2010)
9 SCC 536<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">3.<span style="font-family: "Times New Roman"; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> 3. </span></span><!--[endif]--><i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">DLF
Limited vs. Manmohan Lowe </span></i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">(2014) 12 SCC 231<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">4.<span style="font-family: "Times New Roman"; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> 4. </span></span><!--[endif]--><i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">Wg.
Cdr. Arifur Rahman Khan & Aleya Sultana & Ors. Vs. DLF Southern Homes
Pvt. Ltd. </span></i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">Civil Appeal Nos.6239 & 6303 of 2019 decided by
the Supreme Court of India on August 24, 2020.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">5.<span style="font-family: "Times New Roman"; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> 5. </span></span><!--[endif]--><i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">DLF
Homes Panchkula Pvt.</span></i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;"> <i>Ltd.
vs. D.S. Dhanda & Ors.</i> (2019) SCC Online SC 689<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">6.<span style="font-family: "Times New Roman"; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> 6. </span></span><!--[endif]--><i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">Pioneer
Urban Land & Infrastructure Limited vs. Govindan Raghavan</span></i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">
(2019) 5 SCC 725<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">7.<span style="font-family: "Times New Roman"; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> 7. </span></span><!--[endif]--><i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">See
Wg. Cdr. Arifur supra. </span></i><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">See
also, <i>R.V. Prasannakumar Vs. Mantri
Castles Pvt. Ltd.</i> (2019) SCC Online SC 226.<o:p></o:p></span></p>
<p><span style="font-family: "Bookman Old Style", serif; line-height: 150%; text-align: justify; text-indent: -18pt;">8.<span style="font-family: "Times New Roman"; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><i style="text-align: justify; text-indent: -18pt;"><span style="font-family: "Bookman Old Style", serif; line-height: 150%;">See
Wg. Cdr. Arifur supra.</span></i> </p>M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-86933050975163138282020-07-04T01:55:00.002-07:002020-07-04T01:55:09.002-07:00LEGAL DISCLAIMER<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div align="center" class="MsoNormal" style="text-align: center;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif;">LEGAL
DISCLAIMER<o:p></o:p></span></u></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif;">“<b style="mso-bidi-font-weight: normal;">Clearlaw4all</b>” blog featured at <a href="https://clearlaw4all.blogspot.com/">https://clearlaw4all.blogspot.com/</a>
<span style="mso-spacerun: yes;"> </span>is the official blog of Mr. M.
Sivaraman, Corporate Lawyer, Researcher and Speaker, based in Chennai,
India.<span style="mso-spacerun: yes;"> </span>Visitors to this blog are bound
by the following terms and conditions:-<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif;">All the information, data, views
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M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-5173628567827352172020-07-03T02:32:00.001-07:002020-07-03T02:32:07.719-07:00QUO VADIS THE CONTRACTOR IN THE TURBULENT TIMES OF COVID-19 ?<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div align="center" class="MsoNormal" style="line-height: 150%; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">QUO VADIS</span></u></i></b><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"> THE CONTRACTOR
IN THE TURBULENT TIMES OF COVID-19 ?<o:p></o:p></span></u></b></div>
<div align="right" class="MsoNormal" style="line-height: 150%; text-align: right;">
<i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></i></div>
<div align="right" class="MsoNormal" style="line-height: 150%; text-align: right;">
<i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><b>M.
SIVARAMAN</b><o:p></o:p></span></i></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Contractor
Hues & Covid-19 Woes:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The creation of a nation’s critical infrastructure
like roads, bridges, airports, seaports, dams, hydro-electric projects, power
projects, telecommunication and internet, special economic zones and their
continued operation and maintenance is no more the sole preserve of the
sovereign governments. Even the generally reserved activities of a national
like atomic energy, defence, space technology has never been fully
self-reliant.<span style="mso-spacerun: yes;"> </span>There have been an army of
contractors, developers and concessionaires who have catered to this
infrastructure development of a country and India is no exception with the
private sector contractors’ role displaying a continuum ranging from a humble
supply of goods or services contract through turnkey and Engineering,
Procurement and Construction (“<b style="mso-bidi-font-weight: normal;">EPC</b>”)
contracts to the Build, Own, Operate and Transfer (“<b style="mso-bidi-font-weight: normal;">BOOT</b>”) variant concession agreements under the Public Private
Partnership (“<b style="mso-bidi-font-weight: normal;">PPP</b>”) formats.<span style="mso-spacerun: yes;"> </span>Besides the Central and State Governments,
their Public Sector Enterprises and the local bodies, several private
infrastructure developers and other contractors who have been awarded such
public contracts also in turn engage sub-contractors, suppliers, vendors and
other service providers from the private sector.<span style="mso-spacerun: yes;"> </span>Now, what happened to all these private
contractors when the Covid-19 global pandemic onslaught began in our
country?<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">The outbreak and
rapid spread of Covid-19, as a global pandemic, to almost every country in the
globe wrecked catastrophic damage to precious of human lives and led to the
clamping down of virtual lockdown of human activity into quarantine and curfew
restrictions in several parts of the globe, including India.<span style="mso-spacerun: yes;"> </span>In our country, initially employees were
advised to practice social distancing, very soon to be directed to work from
home and thereafter abruptly directed to be confined in their homes, with the
result all the contractors’ offices, as well as project sites and contractual
performances were constrained to be suspended since the beginning of March
2020.<span style="mso-spacerun: yes;"> </span>Several State Governments in India
also announced additional or more stringent measures, including containment
zone restrictions, thereby adversely affecting the ability of staff and
employees of the contractors to perform their services.<span style="mso-spacerun: yes;"> </span>Travel of the project <span style="mso-spacerun: yes;"> </span>and other staff, both domestic and
international, have been abruptly stopped with the cancellation of
international and domestic flights, cessation of train and other surface
transportation in India affecting project execution and completion activities.<span style="mso-spacerun: yes;"> </span>Their suppliers and vendors, both in India
and abroad, have also been in turn affected by similar suspension of all
activities, including the lockdown, non-processing or production and consequent
non-supply of equipment/materials, non-rendering of services to the Indian
contractors, affecting the entire supply chain.<span style="mso-spacerun: yes;">
</span>Almost the entire migrant labour who were working in all the project
sites have fled to their home states thereby crippling the project execution
capabilities.<span style="mso-spacerun: yes;"> </span>Besides, there are severe
lockdown and interstate as well as intrastate movement restrictions in several
parts of the country which is also affecting project execution activities.<span style="mso-spacerun: yes;"> </span>Project and contractual collections from the
employers drastically fell through to nil and the contractors were soon left
with no revenue realisation, despite their obligation to provide for staff
salary, overhead, statutory and tax outgoings. The scope, effect and impact of
this global pandemic on various aspects of human resource availability and
applicability, closure of offices and project operations, inability to achieve
project milestones, loss of projected revenues, statutory and tax outgoings,
idle wages to employees, repayment obligations towards lenders and operational
creditors is presently incalculable, unprecedented and unpredictable and way
beyond the reasonable control of the contractors.<span style="mso-spacerun: yes;"> </span>Under these circumstances, it is only just
and necessary that the contractual obligations need to be excused from
performance till such circumstances cease to exist.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Central
Government Succor to the Contractors:</span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Modi 2.0 Government stepped in with all the
alacrity it deserved and unleashed a slew of relief measures to tide over
Covid-19 pandemic.<span style="mso-spacerun: yes;"> </span>It readily came
forward to extend <i style="mso-bidi-font-style: normal;">force majeure condition</i>
to the outbreak of Covid-19 so as to ensure that contractors do not end up in
default in relation to all supply contracts with the Central Government<b style="mso-bidi-font-weight: normal;">(1).<span style="mso-spacerun: yes;">
</span></b>For its part, the Reserve Bank of India (“<b style="mso-bidi-font-weight: normal;">RBI</b>”) had declared and extended moratorium on term loans and
working capital facilities effectively for a period of 6 months<b style="mso-bidi-font-weight: normal;">(2)</b>.<span style="mso-spacerun: yes;">
</span>The Central Government realized the need to prevent the defaulting
contractors, <i style="mso-bidi-font-style: normal;">inter-alia</i>, from being
hauled over the coals of the Insolvency and Bankruptcy Code, 2016 (“<b style="mso-bidi-font-weight: normal;">IBC</b>”) which could render them
commercially extinct by promulgating relaxations, moratorium on initiation of
corporate insolvency resolution process and associated liquidation process<b style="mso-bidi-font-weight: normal;">(3)</b>.<span style="mso-spacerun: yes;">
</span>However, while ensuring liquidity of cash into the hands of the
contractors and preventing a financial default and its resolution under the
aegis of IBC are welcome, it was a dire legal imperative that the contractors
need to be provided contractual reprieves and relaxations in their contract
conditions and stipulations, which was also duly taken cognizance of by the
Modi 2.0 Government.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Contractual
Performance Relaxations:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In continuation to the February 19, 2020 notification
of the Finance Ministry permitting Covid-19 as a <i style="mso-bidi-font-style: normal;">force majeure</i> condition, the Finance Minister announced </span><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">on May 15, 2020, <i style="mso-bidi-font-style: normal;">inter-alia</i>, to the effect that “</span><i style="mso-bidi-font-style: normal;"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">All central agencies like Railways,
Ministry of Road Transport and Highways and CPWD will give extension of up to 6
months for completion of contractual obligations, including in respect of EPC
and concession agreements.” </span></i><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"><span style="mso-spacerun: yes;"> </span>The Finance Ministry further clarified that
for all contracts which were due to be completed on or after February 20, 2020
shall be duly extended by a period of 3 months to 6 months without imposition
of any cost or penalty on the contractors or the PPP concessionaires<b style="mso-bidi-font-weight: normal;">(4)</b>. <span style="mso-spacerun: yes;"> </span>Besides the above, in order to ease the
working capital requirements and save the bank guarantee commission charges,
the Central Government also issued orders to the Government Departments and
central agencies to reduce the value of the performance bank guarantees submitted
by the contractors to the extent of work already completed by them<b style="mso-bidi-font-weight: normal;">(5).<span style="mso-spacerun: yes;">
</span></b></span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In order to
support the Indian contracting companies, the Central Government also notified
that no global competitive tendering shall be any more mandatory for contracts
valued less than Rs.200 crores<b style="mso-bidi-font-weight: normal;">(6).<span style="mso-spacerun: yes;"> </span></b>The Ministry of Defence also extended the
delivery time of Indian contractors for all capital acquisition contracts by
four months without computing the said period for imposition of liquidated
damages<b style="mso-bidi-font-weight: normal;">(7). </b><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Relief
to PPP Concessionaires:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Ministry of Road Transport & Highways on June
3, 2020 announced relief measures to the contractors, concessionaires and
developers in the road sector, <i style="mso-bidi-font-style: normal;">inter-alia</i>,
providing for release of the retention money <i style="mso-bidi-font-style: normal;">pro-rata</i> to the work completed by them; extension of time under the
contracts between 3 to 6 months depending on site conditions; direct payment to
sub-contractors through escrow accounts; waiver of penalty for delay in
submission of performance bank guarantee; extension of the concession period to
compensate the loss in toll fee collections etc.<b style="mso-bidi-font-weight: normal;">(8).<span style="mso-spacerun: yes;"> </span></b>Real estate developers
were also accorded extended timelines for registration and completion of their
projects in terms of the Real Estate (Regulation & Development) Act, 2016<b style="mso-bidi-font-weight: normal;">(9)</b>.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In case of thermal power generating companies, the
Ministry of Power exhorted them to utilize domestic coal for blending purposes in
the face disruption in global supply chain and offered to make the same
available on priority basis<b style="mso-bidi-font-weight: normal;">(10).<span style="mso-spacerun: yes;"> </span></b>The Ministry of New & Renewable
Energy permitted the granting of suitable extension of time for the achievement
of Scheduled Commissioning Date for the renewable energy projects<b style="mso-bidi-font-weight: normal;">(11) </b>and subsequently the entire
lockdown period plus 30 days normalization period was also directed to be
automatically granted as <i style="mso-bidi-font-style: normal;">force majeure</i>
period<b style="mso-bidi-font-weight: normal;">(12) </b>and it also permitted
that all the renewable energy projects can raise invoices and bills through
emails by relaxing the mandatory norm of hard copy submission<b style="mso-bidi-font-weight: normal;">(13).<span style="mso-spacerun: yes;">
</span></b>DISCOMS were also directed to avail power from the renewable energy
generators with a ‘<i style="mso-bidi-font-style: normal;">must-run</i>’ status
during the lockdown period and that DISCOMS should make payments to the
renewable energy generators as done prior to lockdown<b style="mso-bidi-font-weight: normal;">(14).<span style="mso-spacerun: yes;"> </span></b>Certain relaxations
and extension of time was also provided to the developers, co-developers as
well as units functioning in the Special Economic Zones<b style="mso-bidi-font-weight: normal;">(15).<span style="mso-spacerun: yes;"> </span><o:p></o:p></b></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Deferment of revenue share, royalty and equipment hire
charges was directed to be provided to port concessionaires, besides granting waiver
of lease rentals and licence fees as well as relaxation in minimum guaranteed
through-put (“<b style="mso-bidi-font-weight: normal;">MGT</b>”) obligations and
performance standards obligations<b style="mso-bidi-font-weight: normal;">(16).<span style="mso-spacerun: yes;"> </span></b>In order to enhance the competitiveness
of the Indian contractors and to ward off Chinese contractors, the Minister for
Road Transport & Highways recently declared a ban on Chinese contractors in
all road projects and recommended the lowering of the project experience
qualifications and financial eligibility criteria for Indian contractors<b style="mso-bidi-font-weight: normal;">(17)</b>.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">No
Panacea for Contractors</span></u></b><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">:<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">An illustrative list of the measures as above
highlighted may accord an impression that that the contractors, developers and
concessionaires have been ring-fenced against all the adversities caused by the
Covid-19 pandemic in India.<span style="mso-spacerun: yes;">
</span>Unfortunately, the fact is otherwise.<span style="mso-spacerun: yes;">
</span>It would be palpable that all the above advisories and relief measures
have been announced by the Central Government and are therefore binding only on
the Central Ministries and Departments and the central agencies and their
public sector.<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;">Firstly</i>, even these Central Government advisories did not have any
salutary effect to secure interim measure of protection/ mandatory injunctions
against private parties<b style="mso-bidi-font-weight: normal;">(18).<span style="mso-spacerun: yes;"> </span></b><i style="mso-bidi-font-style: normal;">Secondly,</i><b style="mso-bidi-font-weight: normal;"> </b>in the matter of granting injunction
against bank guarantees and letters of credit, the courts have held that
although Covid-19 qualifies as a <i style="mso-bidi-font-style: normal;">force
majeure</i>, if there had been defaults committed by the contractors prior to
the outbreak of this pandemic and continued thereafter, then, no relief could
be granted in their favour<b style="mso-bidi-font-weight: normal;">(19).<span style="mso-spacerun: yes;"> </span></b>Delhi High Court gave certain reliefs to
a road concessionaire by applying the advisories of the Ministry of Road
Transport & Highways, although it did not effectively prevent the
invocation of bank guarantees<b style="mso-bidi-font-weight: normal;">(20).<span style="mso-spacerun: yes;"> </span></b>No injunction was granted to restrain payments
under letters of credit during Covid-19 pandemic<b style="mso-bidi-font-weight: normal;">(21).<span style="mso-spacerun: yes;"> </span></b><i style="mso-bidi-font-style: normal;">Thirdly, </i>the State Governments who have also awarded several
contractors and concession agreements under PPP format have left the
contractors in the lurch without any written down policy and advisory
pronouncements on granting any relaxation, reliefs or extensions or waivers in
relation to contractual compliance, thus, exposing them to the vagaries of subjective
and unpredictable interpretation in matters relating to determination of <i style="mso-bidi-font-style: normal;">force majeure</i> protection for their
contractors.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">It has been difficult times for the contractors,
developers and the concessionaires to navigate through the turbulent Covid-19
times and there has to be not only policy pronouncements by the Central
Government, but, the State Government should also emulate the same in relation
to the contracts in their realm.<span style="mso-spacerun: yes;"> </span>The
regulators and the judiciary have by and large appreciated the difficulties
faced by the contractors, but, have been generally averse to intervene in
matters of injuncting bank guarantees and letters of credit (possibly as these
are independent contracts between the banks and the beneficiaries) especially
when defaults have been committed by the contractors prior to the onset of the
Covid-19 pandemic.<span style="mso-spacerun: yes;"> </span>However, the
judiciary and the regulators have not fought shy to come to the rescue of the
contractors who had been diligent in their contractual performances, but, <i style="mso-bidi-font-style: normal;">bonafide</i> came to be affected by the
Covid-19 <i style="mso-bidi-font-style: normal;">force majeure</i> circumstances<b style="mso-bidi-font-weight: normal;">(22</b>).<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(Author
is a Corporate Lawyer based in Chennai & reachable at </span></i><a href="mailto:clearlaw4all@gmail.com"><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">clearlaw4all@gmail.com</span></i></a><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">)
<o:p></o:p></span></i></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">End
Notes:-<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">1.
Office Memorandum No.F.18/4/2020-PPD dated February 19, 2020 of the Ministry of
Finance, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">2.
For more details on this subject, see my earlier post dated June 6, 2020 titled
<i style="mso-bidi-font-style: normal;">“</i></span><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">RBI’s Covid-19 Loan
Moratorium & Judicial Responses”</span></i><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"><span style="mso-spacerun: yes;"> </span>in this blog.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">3.
For more details on this subject, see my earlier post dated June 13, 2020
titled “</span><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Covid-19 & Modi 2.0’s Relaxing the Rigours of the
Insolvency and Bankruptcy Code</span></i><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">” in this blog.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">4.
Office Memorandum No.F.18/4/2020-PPD dated May 13, 2020 of the Ministry of
Finance, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">5.
<span style="mso-tab-count: 1;"> </span>Office Memorandum No.F.18/4/2020-PPD
dated May 13, 2020 of the Ministry of Finance, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">6.<span style="mso-tab-count: 1;"> </span></span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Notification F.No.12/17/2019-PPD dated May 15, 2020 issued by the
Ministry of Finance, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">7. <span style="mso-tab-count: 1;"> </span>Press
Release dated June 12, 2010 by the Ministry of Defence, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">8.<span style="mso-tab-count: 1;"> </span>Notification
No.COVID-19/RoadMap/JS(H)/2020 dated June 3, 2020 issued by the Ministry of
Road Transport & Highways, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">9.<span style="mso-tab-count: 1;"> </span>Office
Memorandum No.O-17024/230/2018-Housing-UD/EFS-9056405 dated May 13, 2020 issued
by the Ministry of Housing & Urban Affairs, Government of India. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">10.<span style="mso-tab-count: 1;"> </span>Memorandum
No.F.No.FU/21/2020-FSC dated April 28, 2020 issued by the Ministry of Power,
Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">11.<span style="mso-tab-count: 1;"> </span>Office
Memorandum No.283/18/2020-GRID SOLAR dated March 20, 2020 issued by the
Ministry of New & Renewable Energy, Govt. of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">12.<span style="mso-tab-count: 1;"> </span>Press
Release dated April 21, 2020 issued by the Ministry of New & Renewable
Energy, Govt. of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">13.<span style="mso-tab-count: 1;"> </span>Office
Memorandum No.283/18/2020-GRID SOLAR dated April 1, 2020 issued by the Ministry
of New & Renewable Energy, Govt. of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">14.<span style="mso-tab-count: 1;"> </span>Office
Memorandum No.283/18/2020-GRID SOLAR(ii) dated April 1, 2020 issued by the
Ministry of New & Renewable Energy, Govt. of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">15.<span style="mso-tab-count: 1;"> </span>Press
Release dated March 30, 2020 issued by the Ministry of Commerce & Industry,
Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">16.<span style="mso-tab-count: 1;"> </span>Notification
dated April 21, 2020 of the Ministry of Shipping, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">17.<span style="mso-tab-count: 1;"> </span>See </span><a href="https://www.thehindu.com/news/national/india-to-ban-chinese-companies-from-highway-projects-says-gadkari/article31961852.ece"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">https://www.thehindu.com/news/national/india-to-ban-chinese-companies-from-highway-projects-says-gadkari/article31961852.ece</span></a><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">
as accessed on July 2, 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">18.<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Polytech Trade Foundation vs. Union of India
& Ors</i> decided on May 22, 2020 by the Delhi High Court;<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;">Rashmi
Cements Ltd. vs. World Metals & Alloys (FZC) & Anr.</i> decided on<span style="mso-spacerun: yes;"> </span>June 18, 2020 by the Delhi High Court.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">19.<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Indirajith Power Private Limited vs. Union
of India & Ors</i>. Decided on April 28, 2020 by the Delhi High Court; </span><i style="mso-bidi-font-style: normal;"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">Halliburton Offshore Services Inc.
vs. Vedanta Limited & Anr.</span></i><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"> decided on<span style="mso-spacerun: yes;"> </span>29.05.2020 by the Delhi High Court.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">20.<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">MEP Infrastructure Development Ltd. vs.
South Delhi Municipal Corporation & Ors</i>. Decided on June 12, 2020 by
the Delhi High Court.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">21.<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Standard Retail Pvt. Ltd. vs. GS Global
Corp. and Ors.</i> Decided on April 8, 2020 by the Mumbai High Court.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">22.<span style="mso-tab-count: 1;"> </span>Order dated 07.04.2020 in Commercial Suit
No.LD-VC-7 of 2020 alongwith IA No.LD-VC-7(IA) of 2020 and <span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Transcon
Skycity Pvt. Ltd. And Ors vs. ICICI Bank and Ors.</i> Order dated 11.04.2020
passed in W.P. Nos.LD-VC No.28 & 30 of 2020 by the Mumbai High Court.<o:p></o:p></span></div>
<br /></div>
M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-33299029936796393242020-06-30T03:44:00.000-07:002020-06-30T03:44:02.087-07:00INDIA'S TRYST WITH DESTINY IN BRIDLING THE DRAGON SPITTING FIRE ON IT<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div align="center" class="MsoNormal" style="line-height: 150%; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">India’s
Tryst with Destiny in Bridling the Dragon Spitting Fire on it<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The
Indo-China Diplomacy:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Wuhan and Mahabalipuram unofficial summits between
the leaders of the world’s two of the most populous countries exuded confidence
of building a new world order and held out prospects for regional co-operation
and peaceful co-existence.<span style="mso-spacerun: yes;"> </span>But, by its
reckless aggression and belligerent bullying displayed against India, the modest
gains made by the unofficial summits were soon decimated by the Chinese side
once again proving that its political system thrives in deceit and treachery
that it can never be trusted.<span style="mso-spacerun: yes;"> </span>Conspiracy
theories to callous negligence allegations against the Chinese establishment in
its failure to contain the outbreak of Covid-19 notwithstanding, there are
reports that China had used the global pandemic to its economic advantage by
shoring up its exports and also by resorting to opportunistic takeover and
acquisition of foreign companies operating in its own country and in other
parts of the globe at highly discounted values. <b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The
Dragon Spitting Fire on India: <o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Chinese investments in Indian corporate sector,
especially in infrastructure, energy, technology start-ups and online marketing
enterprises, has already crossed US$ 26 billions<b style="mso-bidi-font-weight: normal;">(1). <span style="mso-spacerun: yes;"> </span></b>A report by the Confederation
of Indian Industries submitted to the Central Government in the late February
2020 highlights that India’s dependency on China in terms of the share in India’s
import stands at 45% for electronics; 32% for machinery (capital goods); 38%
for organic chemicals; 57% for furniture, bedding etc.; 28% for fertilizers;
25% for automotive parts and 68% for active pharmaceutical ingredients.<span style="mso-spacerun: yes;"> </span>Many of the Chinese investments into Indian
Inc. have been often camouflaged and multi-layered and routed through
unsuspecting countries with non-Chinese shareholders and directors exhibited by
such investor companies thereby not displaying any sign of foreign direct
investment flowing from China rendering the tracking of such investments almost
difficult and complex.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The first wake up call to India came when India’s
premier housing finance company i.e. HDFC Limited announced in March 2020 the
stock exchanges of the acquiring of a little more than 1 per cent of its stake
by the Peoples Bank of China.<span style="mso-spacerun: yes;"> </span>The brutal
attacks by the Chinese army on June 16, 2020 in which 20 Indian soldiers guarding
our Line of Actual Control in the Ladakh region were martyred had sent shock
waves across our country.<span style="mso-spacerun: yes;"> </span>These tell
tale signs of diabolical designs by the Chinese establishment set alarm bells
ringing in the Indian political circles.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">India’s
Responses to Bridle the Dragon:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In the wake of the Peoples Bank of China scaling up
its investments in HDFC, the Indian regulators woke up to the possibility of China
effecting opportunistic takeover/acquisition of Indian companies in the wake of
the Covid-19 pandemic.<span style="mso-spacerun: yes;"> </span>The Modi 2.0
Government introduced changes to its Foreign Direct Investment policy on
17.04.2020<b style="mso-bidi-font-weight: normal;">(2)</b>.<span style="mso-spacerun: yes;"> </span>This Press Note stipulated that investments
by an entity of a country which shares border with India or where the
beneficial ownership of an investment into India is situated in or is a citizen
of any such country, then, such investment can only be made with the approval
by the Government of India and not under the automatic route.<span style="mso-spacerun: yes;"> </span>It was also further stipulated that any
change in the existing or future FDI in an Indian entity, directly or
indirectly, resulting in the beneficial ownership falling within the scope of
the above criteria would also require the approval of the Government.<span style="mso-spacerun: yes;"> </span>Thus, the purport and intent of this Press
Note was mainly aimed at curbing any opportunistic takeover of Indian entities
by the Chinese investors, however, this policy may still fall short of
achieving its intended objectives if the investments were routed through Hong
Kong or by multi-layered camouflaged investments through countries which do not
share borders with India.<span style="mso-spacerun: yes;"> </span>Almost around
the same time, the Securities and Exchange Board of India had also directed all
the designated depository participants to refer for its approval all new
applications received from foreign portfolio investors of the neighbouring
countries specifically with a view to monitor investments coming in from China
or its citizens from other countries to prevent opportunistic takeover when
stock markets have been collapsing due to the Covid-19 global pandemic.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Modi
2.0 Government also notified that no global competitive tendering shall be any
more mandatory for contracts valued less than Rs.200 crores<b style="mso-bidi-font-weight: normal;">(3)</b>, which besides aimed at promoting the domestic industry especially
those under the MSME sector, also has an indirect effect of shutting out
Chinese tenderers from participating in such tenders either alone or in a joint
venture/consortium route with Indian entities.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In order to curb the rampant import of tyres from
China, a notification was issued on June 12, 2020 restricting the import into
India of all categories of the tyres named thereunder<b style="mso-bidi-font-weight: normal;">(4)</b>.<span style="mso-spacerun: yes;"> </span>Although this
notification did not directly name Chinese imports, the purport of the said
notification was exclusively to prevent the dumping of Chinese tyres into India
harming our domestic tyre manufacturers.<span style="mso-spacerun: yes;">
</span>Similar, non-country specific restrictions (but, by product classification
aimed at Chinese goods) have also been issued by India in the recent past.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Cancellation
and Halting of Chinese Projects:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">As a measure of economic retribution to the dastardly
butchering of the Indian soldiers in the Ladakh border, the Indian Government rolled
out calibrated responses to check the expansion of the economic footprint of Chinese
in Indian Inc. which can harm the vital national interests. <span style="mso-spacerun: yes;"> </span>The Indian Railways, Department of Telecom and
several State Governments have recently either cancelled and/or halted the
Chinese contracts and investments into India valued at several thousand crores
of Rupees in the wake of the martyring of the unarmed Indian soldiers.<span style="mso-spacerun: yes;"> </span>The Department of Telecom had also advised BSNL
and other private telecom operators to reduce the dependence on the Chinese
made telecom equipment and devices as there could be possibility of malware and
sharing of critical Indian data and information by these manufacturers with the
Chinese government.<span style="mso-spacerun: yes;"> </span>The Ministry of
Shipping had also directed all the ports in the country to hold up the clearing
of consignments arriving from Chinese ports for exhaustive checks. All supplies
to be made to Indian Government in e-tendering portals have been directed to
designate clearly the country of origin of the goods or equipment to be
supplied by the tenderers so as to keep a watch over the Chinese goods and
products.<span style="mso-spacerun: yes;"> </span>The boycott Chinese goods
movement also picked up rapid pace in the country.<span style="mso-spacerun: yes;"> </span>On June 29, 2020, the Ministry of Electronics
and Information Technology had also issued a notification banning the usage of
59 Chinese apps including Tik Tok, Halo, etc. citing that these apps were
prejudicial to the sovereignty, integrity of India, defence of India, security
of state and public order<b style="mso-bidi-font-weight: normal;">(5)</b>.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Responses
by the Government of India:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Government of India is highly conscious of the
balance of trade between the two countries more skewed in favour of China, with
India being more dependent on import of Chinese goods and services leading to a
huge trade deficit.<span style="mso-spacerun: yes;"> </span>In order to reverse
this trend and to bolster the indigenous industry, the Government of India has
been advocating a multi-pronged approach to reduce the dependency on the
Chinese goods, services and investments, (a) by promulgating notifications and
orders which although do not specifically name China, but, are aimed at
regulating or reducing the Chinese investments or goods into the country, as in
the case of the recent change to the FDI policy, restriction on tyre imports,
removal of global competitive tendering mandatory requirements for less than
Rs.200 crores valued projects etc.; (b) by directly excluding Chinese
investments as in the case of sensitive telecommunication equipment and mobile
apps; (c) by promoting self reliance through ‘Make in India’, ‘Atma Nirbaar’
and ‘Vocal for Local’ initiatives aimed at homegrown technology and expertise;
(d) imposition of additional tariffs and anti-dumping duty on Chinese imports.<span style="mso-spacerun: yes;"> </span>Although the measures intended as above may
not be able to overnight reduce the dependency on the Chinese goods and component,
yet, in the long run, our country may be able to shake off the China dependency
syndrome and move towards self-reliance <i style="mso-bidi-font-style: normal;">vis-à-vis</i>
a neighbor with global dominance tendency and ruthless belligerency.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">End
Notes:-<o:p></o:p></span></b></div>
<div class="MsoListParagraphCxSpFirst" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(1)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Krishnan, Ananth, ‘<i style="mso-bidi-font-style: normal;">Following
the Money: China Inc.’s Growing Stake in India-China Relations’</i>, Brookings
Impact Series 032020-01, March 2020, Brookings Institution India Centre.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(2)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Press Note No.3(2020 series) issued vide DPIIT F.No.5(5)/2020-FDI
Policy dated April 17, 2020 issued by the Department for Promotion of Industry
and Internal Trade, Ministry of Commerce & Industry, Government of India. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(3)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Notification F.No.12/17/2019-PPD dated May 15, 2020 issued
by the Ministry of Finance, Government of India.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(4)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Notification No.12/2015-2020 dated June 12, 2020
issued by the Ministry of Commerce & Industry, Government of India.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(5)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Press Note dated June 29, 2020 issued by the Ministry
of Electronics and Information Technology, Government of India.<o:p></o:p></span></div>
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<br /></div>
<br /></div>
M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-80980630917114194922020-06-13T03:14:00.001-07:002020-06-13T03:14:27.034-07:00COVID-19: MODI-FIED STIMULI AND REGULATORY RESPONSES<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div align="center" class="MsoNormal" style="line-height: 150%; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Part-III:
Covid-19 & Modi 2.0’s Relaxing the Rigours of the Insolvency and Bankruptcy
Code<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Modi
1.0’s Landmark Enactment of IBC, 2016:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">One of the most laudable and bold achievements of the
Modi 1.0 dispensation was to enact and enforce the Insolvency and Bankruptcy
Code, 2016 (“<b style="mso-bidi-font-weight: normal;">IBC</b>”) w.e.f. December
1, 2016. IBC consolidated and amended the laws relating to reorganization and
insolvency resolution of companies, partnership firms and individuals in a time
bound manner for maximization of value of assets of such persons with an
objective “<i style="mso-bidi-font-style: normal;">to promote entrepreneurship,
availability of credit and balance the interests of all stakeholders</i>”.<span style="mso-spacerun: yes;"> </span>It was touted that IBC was structured on the
lines of the Bankruptcy Act of the United States.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Scheme
of IBC:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Part II of the IBC relates to insolvency resolution
and liquidation for corporate persons, while Part III thereof does the same for
individuals and partnership firms and Part IV thereof envisages the regulation
of insolvency professionals, agencies and information utilities.<span style="mso-spacerun: yes;"> </span>Against a corporate person who is in default,
a financial creditor is entitled to initiate Corporate Insolvency Resolution
Process (“<b style="mso-bidi-font-weight: normal;">CIRP</b>”) by filing making an
application under section 7 of the IBC with the National Company Law Tribunal (“<b style="mso-bidi-font-weight: normal;">NCLT</b>”).<span style="mso-spacerun: yes;">
</span>An operational creditor can also file similar application under section 8.
<span style="mso-spacerun: yes;"> </span>A corporate person can voluntarily file
an application for initiating CIRP against itself under section 10.<span style="mso-spacerun: yes;"> </span>The CIRP has to be completed within a period
of 180 days from the date of admission of the application to initiate such
process, which period can be extended by the NCLT up to 90 days, upon an application
made by a resolution professional, in terms of section 12 of the IBC. After admission of the application under section
7 or 9 or 10, the NCLT shall pass an order declaring moratorium and to cause
public announcement of the initiation of CIRP and call for the submission of
claims and the appointment of an Interim Resolution Professional (“<b style="mso-bidi-font-weight: normal;">IRP</b>”).<span style="mso-spacerun: yes;">
</span>In terms of section 14, the moratorium prohibits- (a) the initiation or
continuation of suits or proceedings against the corporate debtor including
execution of any judgement, decree or order in any court of law, tribunal,
arbitration panel or other authority; (b) transferring, encumbering, alienating
or disposing of by the corporate debtor of any of its assets; (c) any action to
foreclose, recover or enforce any security interest created by the corporate
debtor in respect of its property including under the SARFAESI Act, 2002; (d)
the recovery of any property by an owner.<span style="mso-spacerun: yes;">
</span>The IRP is entitled to manage the affairs of the corporate debtor under
section 17 and to carry out the duties enjoined on his under section 18 of the
IBC.<span style="mso-spacerun: yes;"> </span>Per section 21, the IRP is required
to collate all claims received against the corporate debtor and determine its
financial position and thereupon constitute a Committee of Creditors (“<b style="mso-bidi-font-weight: normal;">CoC</b>”).<span style="mso-spacerun: yes;">
</span>There is also provision to appoint a Resolution Professional (“<b style="mso-bidi-font-weight: normal;">RP</b>”) who can be the same IRP or any
other person as approved by the CoC.<span style="mso-spacerun: yes;"> </span>The
RP shall conduct the entire CIRP and manage the operations of the corporate debtor
during the said period in terms of section 23 and discharge the duties cast on
him under section 25 of the IBC.<span style="mso-spacerun: yes;"> </span>The RP
prepares an Information Memorandum (“<b style="mso-bidi-font-weight: normal;">IM</b>”)
for formulating a resolution plan in terms of section 29 and a resolution
applicant may submit a resolution plan on the basis of the IM prepared by the
RP, which will be presented before the CoC for its approval in terms of section
30 of the IBC.<span style="mso-spacerun: yes;"> </span>Once the resolution plan
approved by the CoC is filed before the NCLT, it shall approve the resolution
plan under section 31 which becomes binding on the corporate debtor, its
employees, members, creditors, guarantors and other stakeholders involved in
the resolution plan.<span style="mso-spacerun: yes;"> </span>In case no
resolution plan is received by the NCLT within the stipulated timeframe or if
it rejects the resolution plan for being non-compliant with the provisions of
IBC, then, the NCLT shall pass an order under section 33 to liquidate the
corporate debtor by issuing a public announcement in which case a liquidator
shall also be appointed to exercise the powers vested on him under section 35 of
the IBC.<span style="mso-spacerun: yes;"> </span>The liquidator consolidates and
verifies the claims against the corporate debtor so as to admit or reject the
claims and determine the valuation of claims.<span style="mso-spacerun: yes;">
</span>In terms of section 53 of the IBC, the proceeds from the sale of the
liquidation assets of the corporate debtor shall be distributed in the order of
priority mentioned thereunder and upon completely liquidating the assets of the
corporate debtor, it shall be dissolved by making an application under section
54 before the NCLT.<span style="mso-spacerun: yes;"> </span>Voluntary
liquidation by a corporate person is also envisaged under section 59.<span style="mso-spacerun: yes;"> </span>Appeals against the orders of the NCLT shall lie
with the National Company Law Appellate Tribunal (“<b style="mso-bidi-font-weight: normal;">NCLAT</b>”) under section 61 and any one aggrieved by the orders of NCLAT
may file an appeal before the Supreme Court on a question of law arising out of
such order in terms of section 62 of IBC.<span style="mso-spacerun: yes;">
</span><span style="mso-spacerun: yes;"> </span>IBC has ousted the jurisdiction
of civil courts in terms of section 231 and the provisions of the IBC shall
override other laws in terms of section 238 of the IBC.<span style="mso-spacerun: yes;"> </span>IBC also amended the provisions of the Indian
Partnership Act,1932; the Central Excise Act, 1944; the Income Tax Act, 1961; the
Customs Act, 1962; the Recovery of Debts due to the Banks and Financial
Institutions Act, 1993; the Finance Act, 1994, the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002, the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the
Payment and Settlement Systems Act, 2007, the Limited Liability Partnership
Act, 2008 and the Companies Act, 2013 so as to either delete or modify their
provisions in relation to the matters envisaged under the IBC.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Track
Record of the IBC:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">While upholding the constitutional validity of the IBC
in <i style="mso-bidi-font-style: normal;">Swiss Ribbons Pvt. Ltd. and ors vs.
Union of India</i> (2019)4 SCC 17, the Supreme Court hailed this piece of
legislation introduced by the Modi 1.0 as it had practically helped in the
timebound resolution of CIRP and the resultant repayment of financial debts infused
capital into economy as banks and financial institutions were able to apply the
money that had been paid back to them to further on-lend to other entrepreneurs
for their businesses.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">However, with the outbreak of the Covid-19 global
pandemic, the banking industry in our country apprehended that there would not
be adequate resolution applicants in the <span style="mso-spacerun: yes;"> </span>country and when the corporate debtor is put through
a CIRP or liquidation process, the chances of the financial creditors receiving
even a fair value of money through either of the processes would get seriously jeopardized
and therefore appealed to the Government of India to suspend the operations of
section 7, 9 and 10 of the IBC for a period of two years. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Covid-19
& Relaxing the Rigours of IBC:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In the wake of the lockdown announced by the Ministry
of Home Affairs, there was a flurry of activities unleashed by the Modi 2.0 to
ensure that the MSME sector and the rest of the corporate sector is afforded the
much needed relief, support and rehabilitation in the face of loss of revenues,
stagnation of finished goods and deterioration of the work in progress, <i style="mso-bidi-font-style: normal;">en masse</i> exodus of migrant labour
deserting their workplaces, all emanating from the closure of factories,
workplaces and offices and the clampdown on the entire supply chain and
logistics and all modes of transportation.<span style="mso-spacerun: yes;">
</span>The Modi 2.0 Government readily came forward to extend <i style="mso-bidi-font-style: normal;">force majeure condition</i> to the outbreak
of Covid-19 so as to ensure that contractors do not end up in default in
relation to all supply contracts with the Government<b style="mso-bidi-font-weight: normal;">(1).<span style="mso-spacerun: yes;"> </span></b>For its part, the
Reserve Bank of India (“<b style="mso-bidi-font-weight: normal;">RBI</b>”) had
declared and extended moratorium on term loans and working capital facilities
effectively for a period of 6 months<b style="mso-bidi-font-weight: normal;">(2)</b>.<span style="mso-spacerun: yes;"> </span>In order to effectively protect the majority
of the corporate entities falling under the MSME sector from being hauled up
for defaults before the NCLT, the Modi 2.0 enhanced the pecuniary applicability
of defaults under the IBC from a minimum of Rs.1.00 lakhs to Rs.1.00 crores<b style="mso-bidi-font-weight: normal;">(3)</b>.<span style="mso-spacerun: yes;">
</span>This was aimed at preventing the filing of CIRP applications against
MSMEs for alleged defaults of any amount less than One Crores Rupees.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Supreme Court acting <i style="mso-bidi-font-style: normal;">suo motu</i> W.P.(C) No.3/2020 had declared on 23.03.2020 that limitation
period for all filing matters before any court, tribunal or appellate
authorities shall stand extended till the period of lockdown subsists.<span style="mso-spacerun: yes;"> </span>For the purposes of IBC, the entire period of
lockdown was directed to be excluded for any activity that could not be
completed due to such lockdown in relation to a CIRP, notwithstanding the
timelines prescribed under the Regulations<b style="mso-bidi-font-weight: normal;">(4).</b>
<span style="mso-spacerun: yes;"> </span>Akin to the effect granted to the CIRP,
in relation to the liquidation process also the entire period of lockdown in
the wake of Covid-19 was directed not to be computed for the purposes of
completion of tasks that could not be completed due to such lockdown in
relation to any liquidation process under the IBC.<span style="mso-spacerun: yes;"> </span>The NCLAT directed that for all cases in
which CIRP has been initiated and/or is pending before any bench of the NCLT or
in appeal before NCLAT, <span style="mso-spacerun: yes;"> </span>the entire
period of lockdown, including their extended periods would stand excluded for
the purpose of determining the outer-limit of 330 days within which a CIRP is
required to be completed as per section 12 of the IBC and that all its earlier interim
orders/stay orders passed by it under IBC will continue until further orders<b style="mso-bidi-font-weight: normal;">(5).<span style="mso-spacerun: yes;">
</span></b>The NCLT vide its notification dated March 15, 2020 directed that
all its benches will only take up matters which require urgent hearing and all
other matters will be adjourned and on March 22, 2020, it directed the closing
of all benches of NCLT for judicial work until April 14, 2020 which was further
extended up to May 3, 2020 in view of Covid-19.<b style="mso-bidi-font-weight: normal;"><span style="mso-spacerun: yes;"> </span></b>The above had the effect of
enlarging the period of limitation for filing and also overcame the period statutorily
prescribed for CIRP and liquidation processes which was further fortified by
denying the fresh filing or the adjudication of applications before the NCLT
and NCLAT during the lockdown periods which had the cumulative relief of
providing the much needed reprieve to the corporate persons against any default
applications from being filed against them during the global pandemic.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In addition the moratorium on term loans and working
capital facilities earlier unveiled by it, the RBI permitted the extension of
timeline for resolution of large accounts default by adding additional 90 days
to the earlier available 210 days in relation to the Prudential Framework of
Resolution of Stressed Assets dated June 7, 2019 such that the banks, lending
institutions and NBFC do not immediately initiate the mechanism under the IBC<b style="mso-bidi-font-weight: normal;">(6) </b>and subsequently modified it to the
effect that the lending institutions my exclude the entire moratorium/deferment
period from March 1, 2020 to August 31, 2020 from the calculation of 30-day
Review Period or 180-day Resolution Period in relation to the said Prudential
Framework, if the Review /Resolution Period had not expired as on March 1, 2020<b style="mso-bidi-font-weight: normal;">(7).<span style="mso-spacerun: yes;">
</span></b>The effect of the same was to afford a longer period to such
borrowers of large ticket debts from being pursued in terms of the IBC.<o:p></o:p></span></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Ordinance
to Amend IBC:<o:p></o:p></span></u></b></div>
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<br /></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Modi 2.0 Government signaled its intention to
suspend the operation of sections 7, 9 and 10 of the IBC (which enables the
filing of application for CIRP) for a period of 6 months to prevent companies
being pushed into CIRP in the event the lockdown were to be extended beyond
April 30, 2020<b style="mso-bidi-font-weight: normal;">(8).<span style="mso-spacerun: yes;"> </span></b>Recognising that the Covid-19 pandemic has
impacted business, financial markets and economy all over the world, including
India, and created uncertainty and stress for business for reasons beyond their
control and as the lockdown in force since March 24, 2020 has led to disruption
of normal business operations and in such a backdrop it is becoming difficult
to find resolution applicants to rescue the corporate persons who end up in
default in discharge of their debt obligations, in view of the unprecedented
situation, considering it expedient to suspend the operation sections 7, 9 and
10 of the IBC, an Ordinance was passed on June 5, 2020<b style="mso-bidi-font-weight: normal;">(9)</b>.<span style="mso-spacerun: yes;"> </span>This Ordinance
introduced a new Section 10A, as a <i style="mso-bidi-font-style: normal;">non
obstante</i> provision to IBC, <i style="mso-bidi-font-style: normal;">inter alia</i>,
to the effect that no application for initiation of CIRP under sections 7, 9 or
10 of the IBC shall be filed for any default arising on or after March 25, 2020
for a period of 6 months or such further period, not exceeding one year from
such date as to be notified in that behalf.<span style="mso-spacerun: yes;">
</span>The proviso to the said section clarifies that for any defaults arising
during this period no applications for initiation of CIRP shall ever be filed,
which is intended to dispel the tendency to file such application even after
the suspension period may be over.<span style="mso-spacerun: yes;">
</span>However, the explanation appended to this section clarifies that nothing
contained in the said section will apply to defaults which have been committed
in relation to sections 7, 9 or 10 prior to March 25, 2020.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<br /></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Through the said Ordinance, a new subsection (3) was
inserted to section 66 of IBC to provide that notwithstanding anything to the
contrary contained in the said section, no application shall be filed by
resolution professional in respect of such default against which initiation of
CIRP has been suspended in terms of section 10A of the IBC.<span style="mso-spacerun: yes;"> </span>Thus, the effect of the Ordinance appears to
not only prohibit the filing of any application for initiation of CIRP in
relation to defaults under section 7, 9 or 10 of IBC, but, also to disentitle
the filing of any resolution application in respect of such defaults which have
been suspended in terms of section 10A.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<br /></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">It would be evident that the Modi 1.0 had unveiled a laudable
piece of legislation aimed at timebound resolution of insolvency and bankruptcy
in our country and when it was faced with the onslaught of the Covid-19
pandemic, the Modi 2.0 did not fight shy to relax the rigours of the provisions
of the IBC by suspending the right to initiate CIRP, regulators like RBI, NCLT
and the NCLAT acted in tandem to further provide relief to the corporate sector
by extending the limitation period and to enlarge the time period for
completion of the CIRP and the liquidation processes and the Ordinance also
laid to rest the lack of the legislative sanction by suspending the right to
initiate CIRP during the Covid-19 period.<o:p></o:p></span></div>
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<br /></div>
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<br /></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">End
Notes: <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">1.
Office Memorandum No.F.18/4/2020-PPD dated February 19, 2020 of the Ministry of
Finance, Government of India.<o:p></o:p></span></div>
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<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">2.
For more details on this subject, see my earlier post dated June 6, 2020 in
this blog.<o:p></o:p></span></div>
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<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">3.
Notification No.S.O.1205(E) dated 24.03.2020 of the Ministry of Corporate
Affairs, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">4.
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) (Third Amendment) Regulations, 2020 notified on March 29,
2020.<o:p></o:p></span></div>
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<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">(5)
Order dated March 30, 2020 passed by NCLAT in <i style="mso-bidi-font-style: normal;">Suo Motu</i> – Company Appeal (AT)(Insolvency) No.01/2020.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">(6)
</span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">RBI Governor’s Statement,
April 17, 2020 and RBI reference No.2019-RBI/2019-20/220
DOR.No.BP.BC.63/21.04.048/2019-20 dated April 17, 2020.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(7) RBI Press Release No.2019-2020/2392 dated May 22,
2020.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(8) Press Release dated March 24, 2020 of the
Government of India.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(9) The Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2020, No.9 of 2020 notified on June 6, 2020.<o:p></o:p></span></div>
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M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-70120111794465477832020-06-06T05:08:00.003-07:002020-06-06T05:08:47.956-07:00COVID-19: MODI-FIED STIMULI AND REGULATORY RESPONSES<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
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<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Part-II:
RBI’s Covid-19 Loan Moratorium & Judicial Responses<o:p></o:p></span></u></b></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">RBI’s
Covid-19 Interventions & Relief Measures:<o:p></o:p></span></u></b></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Reserve Bank of India (“RBI”), as the Central Bank
of our country, did not remain a mute witness in the face of the Covid-19
global pandemic.<span style="mso-spacerun: yes;"> </span>Taking a cue from the
various steps initiated by the Modi Government for the prevention and control
of the local transmission of the disease, the RBI for its part devised and put
in place operational and business continuity plans for the banking sector, with
a view to ensuring that one of the major critical infrastructures of any
country, is not derailed by the rapid spread of the disease. <span style="mso-spacerun: yes;"> </span>On March 16, 2020, RBI issued advisories to
all the scheduled commercial banks, local area banks, small finance banks,
payment banks, urban cooperative banks and Non-Finance Business Companies
(“NBFCs”) aimed at (a) devising strategy and monitoring mechanism concerning
the spread of the disease within the said organisations and their employees and
to prevent spread of panic amongst staff and members of the public; (b) taking
stock of critical processes and revisiting business continuity plans to prevent
any disruption of banking services due to absenteeism arising from infections
or quarantine of employees; <span style="mso-spacerun: yes;"> </span>(c)
sensitizing employees at all levels on preventive measures from time to time;
(d) encourage their customers to use digital banking facilities as far as
possible and it also called upon the sector to constitute a Quick Response Team
to monitor the situation closely from business and social perspective<b style="mso-bidi-font-weight: normal;">(1)</b>.<span style="mso-spacerun: yes;">
</span>The RBI had since March 19 sequestered and quarantined <span style="mso-spacerun: yes;"> </span>a cross-disciplinary and critical team of 150
officials to operate from a remote location in a hotel (away from their homes
so as not to be affected by Covid-19) closer to its data centre so that it can
continue to seamless operate, issue advisories and directives to the banking
sector, maintain its oversight and control over the sector, protect its data
centres and run the entire gamut of RBI activities on a 24X7 basis without any
hindrance during the pandemic<b style="mso-bidi-font-weight: normal;">(2).<span style="mso-spacerun: yes;"> </span></b>In this fashion, RBI managed not only to
stay afloat without being down and drowned in the gulf of the global pandemic,
but, also managed to provide critical leadership and direction to the banking
sector in the country paving way for the continued availability and
accessibility to the banks, ATMs and their digital payment platforms even when
the entire country had remained in lockdown which is no mean an achievement
considering the massive population, technology barriers and social and geographical
challenges of our country.<b style="mso-bidi-font-weight: normal;"><u><o:p></o:p></u></b></span></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">RBI’s
Covid-19 Loan Moratorium Announcements:<o:p></o:p></span></u></b></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Recognising the extraordinary and unprecedented
situation caused by Covid-19 outbreak, the RBI had been in action on an almost
daily basis to alleviate the financial stress, build confidence and keep the
financial system sound and functional.<span style="mso-spacerun: yes;">
</span>It recognized the significance of mitigating the burden of debt
servicing brought about by disruptions on account of Covid-19 pandemic and
decided to devise moratorium on term loans; deferring interest payments on
working capital; easing of working capital financing, amongst others.<span style="mso-spacerun: yes;"> </span>In line with the same, all commercial banks
(including regional rural banks, small finance banks and local area banks),
co-operative banks, all-India Financial Institutions and NBFCs (including housing
finance companies and micro-finance institutions) (“Lending Institutions”) were
permitted by its March 27, 2020 announcement to allow a moratorium of three
months on payment of installments in respect of all term loans outstanding as
on March 1, 2020<b style="mso-bidi-font-weight: normal;">(3)</b>.<span style="mso-spacerun: yes;"> </span>The said announcement also permitted the
Lending Institutions to allow deferment of three months on the payment of
interest in respect of working capital facilities such as cash credit/overdraft
so as to collect the accumulated interest for the period after the expiry of
the deferment period.<span style="mso-spacerun: yes;"> </span>It also took care
to stipulate that the moratorium on term loans and the deferring of interest
payments on working capital shall not result in asset classification downgrade
i.e. NPA declaration or as a default for the purposes of reporting to the credit
information companies or have any adverse impact on the credit history of the
borrowers.<span style="mso-spacerun: yes;"> </span>Soon, the Indian Banking
Association clarified on April 1, 2020 that this RBI announcement will be
applicable to all term loans (including agricultural term loans, retail, crop
loans and loans under Pool Purchases) and cash credit/overdraft facilities
whose accounts were standard assets as on 1<sup>st</sup> March 2020<b style="mso-bidi-font-weight: normal;">(4)</b>.<span style="mso-spacerun: yes;">
</span>It was also clarified that due to this relief package no penal interest
or charges will be payable to the banks and SEBI had also allowed Credit Rating
Agencies not to consider the delay as default by listed companies.<span style="mso-spacerun: yes;"> </span>Indian Banking Association also assured that
the borrowers need not get upset if any bank staff or its collection agents
approach for repayment and that all that they need to inform is that they wish
to avail the benefit of being extended under the regulatory package.<span style="mso-spacerun: yes;"> </span>It was also clarified that the RBI moratorium
will also apply to credit card dues.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In continuation to its earlier announcement dated
March 27, RBI realized that the onset of Covid-19 had exacerbated the
challenges of borrowers even to honour their commitments which had fallen due
on or before February 29, 2020 in standard accounts.<span style="mso-spacerun: yes;"> </span>Hence, it directed the Lending Institutions to
grant moratorium or deferment to all accounts which were standard as on March
1, 2020 by excluding the moratorium period from the 90-day NPA norm i.e. to
effect a standstill in the asset classification for all such accounts from
March 1, 2020 to May 31, 2020<b style="mso-bidi-font-weight: normal;">(5)</b>.<span style="mso-spacerun: yes;"> </span>In view of the extension of the lockdown and
continuing disruptions on account of Covid-19, on May 22, 2020, RBI permitted
the Lending Institutions to extend moratorium by another three months i.e. from
June 1, 2020 to August 31, 2020, both in respect of the term loans and working
capital facilities and also clarified that the asset classification would be
subject to a standstill from March 1, 2020 to August 31, 2020<b style="mso-bidi-font-weight: normal;">(6)</b>.<o:p></o:p></span></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Covid-19
Moratorium and Judicial Responses:<o:p></o:p></span></u></b></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">While the RBI had initiated laudable relief packages
to borrowers who were having difficulty in servicing their loan obligations,
the judiciary, also rose up to the occasion and doled out reliefs
liberally.<span style="mso-spacerun: yes;"> </span>As ‘procedure is only a handmaiden
of justice’, the higher judiciary in this country accepted online writ
petitions and suits and entertained the submissions of the counsels through
video conferencing and orders were passed subject to the condition that court
fees and other filing formalities will need to be complied with by the
applicants with a timeframe after lockdown is formally lifted.<span style="mso-spacerun: yes;"> </span>In this fashion, in order to protect critical
operations and asset classifications as well as the inescapable consequences
that may befall on a borrower being declared NPA during the Covid-19 pandemic <i style="mso-bidi-font-style: normal;">de hors</i> the RBI announcements, the higher
judiciary moulded and granted equitable reliefs which we will trace briefly
hereunder.<o:p></o:p></span></div>
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<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Intervention
in SARFAESI proceedings during lockdown:<u><o:p></o:p></u></span></b></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Karnataka High Court intervened and granted
interim protection to borrowers restricting the banks from auctioning the
secured properties initiated under the SARFAESI Act during the lockdown period<b style="mso-bidi-font-weight: normal;">(7)</b>.<span style="mso-spacerun: yes;">
</span>Andhra Pradesh High Court came to the rescue of a defaulting borrower
and instead of auctioning the hospital mortgaged with banks under the SARFAESI
Act which would lead to closure of its operations, the Court accepted the
request of the borrower to use the hospital alongwith their doctors and the
medical facilities available therein to treat Covid-19 patients <span style="mso-spacerun: yes;"> </span>until further orders<b style="mso-bidi-font-weight: normal;">(8)</b>.<span style="mso-spacerun: yes;"> </span>The Delhi High Court
permitted a borrower and his family with minor children who was disposed of the
secured property under SARFAESI Act to temporarily re-occupy a portion of the
secured property until lockdown is lifted<b style="mso-bidi-font-weight: normal;">(9)</b>.<o:p></o:p></span></div>
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<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></b></div>
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<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Intervention
in Sale of Pledged Shares and Credit Rating Downgrade during lockdown:<u><o:p></o:p></u></span></b></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Bombay High Court restrained a debenture trustee by
way of interim injunction against the sale of the shares pledged by the
borrower when the share values had collapsed in the market during Covid-19
lockdown<b style="mso-bidi-font-weight: normal;">(10)</b>.<span style="mso-spacerun: yes;"> </span>An injunction was issued to restrain a credit
rating agency from proceeding to downgrade the credit rating of the borrower<b style="mso-bidi-font-weight: normal;">(11)</b>.<o:p></o:p></span></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Intervention
in NPA Declaration during lockdown:<u><o:p></o:p></u></span></b></div>
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<br /></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The Delhi High Court came to the rescue of a borrower by
liberally interpreting RBI’s moratorium announcement to cover default periods
falling earlier to March 1, 2020 thereby temporarily restraining the bank
against declaring such account as NPA<b style="mso-bidi-font-weight: normal;">(12)</b>.<span style="mso-spacerun: yes;"> </span>The Bombay High Court in similar
circumstances took a view to protect both the borrower and the bank’s interests
and passed interim order directing the borrower to regularize the defaulted
instalments prior to March 1, 2020 so as to take benefit of the RBI moratorium
order within a timeframe fixed by it and in the meanwhile restrained the bank
from selling the pledged shares or declare the account as NPA<b style="mso-bidi-font-weight: normal;">(13) </b>and relying on this decision,
although a writ petition (and not a commercial suit) was preferred against a
private bank, notwithstanding the non-maintainability of writ petition and
other defects in the writ petition, the Bombay High Court once again balanced
both the borrower and bank’s interest in view of the Covid-19 and lockdown by
temporarily injuncting the bank from declaration of NPA till the lockdown
period subsists and subject to the condition that the petitioner regularize the
earlier two monthly instalments which had fallen due prior to March 1, 2020<b style="mso-bidi-font-weight: normal;">(14)</b>.<span style="mso-spacerun: yes;">
</span>The Delhi High Court restrained byway of <span style="mso-spacerun: yes;"> </span>an interim injunction a bank from declaring
the borrower’s account as NPA as it could not collect fees from its students
during the lockdown period in view of the orders issued by the Uttar Pradesh
Government directing educational institutions not to collect fees from students
during the lockdown<b style="mso-bidi-font-weight: normal;">(15)</b>.<span style="mso-spacerun: yes;"> </span>The Delhi High Court also granted interim
injunction against the invocation and encashment of bank guarantees until such
time the National Company Law Tribunal (which had closed its sittings) resumes
its hearings in view of the lockdown<b style="mso-bidi-font-weight: normal;">(16)</b>.<span style="mso-spacerun: yes;"> </span>Telangana High Court restrained by way of
interim injunction a bank from debiting amounts due under Letters of Credit<span style="mso-spacerun: yes;"> </span>or taking other coercive steps including
imposition of ancillary interest<b style="mso-bidi-font-weight: normal;">(17)</b>.<span style="mso-spacerun: yes;"> </span>Delhi High Court once again granted the restoration
of <i style="mso-bidi-font-style: normal;">status quo ante</i> to a borrower’s
account rather than declaring it NPA in terms of the RBI’s moratorium announcement
by directing it to regularize the past defaults which arose in December 2019<b style="mso-bidi-font-weight: normal;">(18)</b>.<span style="mso-spacerun: yes;">
</span>Assessment orders passed by income tax authorities in disregard to the
lockdown period and rejecting the requests for adjournment were set aside and liberty
was granted to the authorities to issue fresh showcause notices after the
lockdown is lifted by granting due opportunities to the assessee<b style="mso-bidi-font-weight: normal;">(19)</b>.<span style="mso-spacerun: yes;">
</span>In the light of its earlier orders, the Delhi High Court once again
restrained a financial institution from taking any coercive action against the
borrower including declassification of it in relation to a factoring facility
availed by it<b style="mso-bidi-font-weight: normal;">(20)</b>.<span style="mso-spacerun: yes;"> </span>During the lockdown period, the Delhi High
Court had also restrained the disconnection of the interconnecting feeder lines
of the wind turbine generators and power generation to the pooling substation
until further orders<b style="mso-bidi-font-weight: normal;">(21)</b>.<span style="mso-spacerun: yes;"> </span>The Supreme Court had also issued a direction
to the RBI to ensure the implementation of its moratorium announcement dated
27.03.2020 in its letter and spirit<b style="mso-bidi-font-weight: normal;">(22)</b>.<span style="mso-spacerun: yes;"> </span>The Delhi High Court had also restrained a
bank in relation to the borrower (which is an NBFC having several fixed
deposits created with the bank) from not insisting on replenishment of the
amount till the next hearing<b style="mso-bidi-font-weight: normal;">(23)</b>.<span style="mso-spacerun: yes;"> </span>Delhi High Court had also directed the RBI to
permit customers during the pandemic from withdrawing their money from their
accounts by relaxing the moratorium against withdrawal from the PMC Bank<b style="mso-bidi-font-weight: normal;">(24)</b>.<span style="mso-spacerun: yes;">
</span>Rajasthan High Court restrained a secured lender from auction and sale
of the property of the borrower in a very unusual manner to third parties despite
the borrower was willing to purchase the same<b style="mso-bidi-font-weight: normal;">(25).<span style="mso-spacerun: yes;"> </span></b>However, the Delhi
High Court refused to grant injunction against the encashment of bank
guarantees established on behalf of the contractor despite recognizing that
Covid-19 constitutes <i style="mso-bidi-font-style: normal;">force majeure</i>, since
the contractor had committed the contractual breaches and default well before
the Covid-19 pandemic arose and lockdown was imposed in the country<b style="mso-bidi-font-weight: normal;">(26).<o:p></o:p></b></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">It would be evident from the above that taking a cue
from the Modi 2.0 Government’s resolve to grant reliefs and ameliorative
measures to the borrowers during the Covid-19 pandemic, the RBI, as a
regulator, and the higher judiciary reveled each other in coming to the rescue
of the hapless borrowers who were/are bearing the brunt of the pandemic with
their businesses hit and employees affected and revenue streams having almost
dried up.<span style="mso-spacerun: yes;"> </span>It is heartening to note that
all the powers that be are working in a mission mode during this hour of
unprecedented crisis and it is only satisfying that law and its just
enforcement has not lagged behind in this regard.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">End
Notes:<o:p></o:p></span></u></b></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(1)<span style="mso-tab-count: 1;"> </span>RBI
Letter No.RBI/2019-20/172 DoS.CO.PPG.BC.01/11.01.005/2019-20 dated March 16,
2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(2)<span style="mso-tab-count: 1;"> </span>See </span><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"><a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/a-secret-rbi-team-is-fighting-a-parallel-war-against-covid-19/articleshow/74743678.cms?from=mdr">https://economictimes.indiatimes.com/industry/banking/finance/banking/a-secret-rbi-team-is-fighting-a-parallel-war-against-covid-19/articleshow/74743678.cms?from=mdr</a>
as last accessed on May 22, 2020.<span style="mso-spacerun: yes;"> </span>See
also <a href="https://www.business-standard.com/article/economy-policy/rbi-s-coronavirus-contingency-plan-keep-it-going-from-a-secret-location-120032100060_1.html">https://www.business-standard.com/article/economy-policy/rbi-s-coronavirus-contingency-plan-keep-it-going-from-a-secret-location-120032100060_1.html</a>
as last accessed on May 22, 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(3)<span style="mso-tab-count: 1;"> </span>RBI
Governor’s Statement – Seventh Bi-monthly Monetary Policy Statement, 2019-20,
March 27, 2020 and RBI Press Release No.2019-2020/2130 dated March 27, 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(4)<span style="mso-tab-count: 1;"> </span>Frequently
Asked Questions: RBI Allowed Banks to Declare Moratorium on Term Loans, issued
by Press Information Bureau on April 1, 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(5)<span style="mso-tab-count: 1;"> </span>RBI
Governor’s Statement, April 17, 2020 and RBI reference No.2019-RBI/2019-20/220
DOR.No.BP.BC.63/21.04.048/2019-20 dated April 17, 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(6)<span style="mso-tab-count: 1;"> </span>RBI
Press Release No.2019-2020/2392 dated May 22, 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(7)<span style="mso-tab-count: 1;"> </span>Order
dated 24.03.2020 in W.P.No.6632, 6641, 6643, 6645 and 6653 of 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(8)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Purna Sai Hospitals vs. Syndicate Bank and
Anr.</i> Order dated 31.03.2020 in W.P. No.8150/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(9)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Ajay Kumar vs. IIFL Home Finance Limited</i>
Order dated 09.04.2020 passed in W.P.(C) 2958/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(10)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Rural Fairprice Wholesale Limited & Anr.
vs. IDBI Trusteeship Services Limited & ors.</i> Order dated 30.03.2020
passed in commercial suit No.(L) 307/2020. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(11)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">India Bulls Housing Finance Ltd. Vs.
Securities Exchange Board of India and Anr.</i> Order dated 03.04.2020 passed
in W.P.(C) Urgent No.7/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(12)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Anant
Raj Limited vs. Yes Bank Ltd.</i> Order dated 06.04.2020 in W.P.(C) Urgent 5/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(13)<span style="mso-tab-count: 1;"> </span>Order dated 07.04.2020 in Commercial Suit
No.LD-VC-7 of 2020 alongwith IA No.LD-VC-7(IA) of 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(14)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Transcon
Skycity Pvt. Ltd. And Ors vs. ICICI Bank and Ors.</i> Order dated 11.04.2020
passed in W.P. Nos.LD-VC No.28 & 30 of 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(15)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Shakuntla
Educational & Welfare Society vs. Punjab & Sind Bank</i> Order dated
13.04.2020 passed in W.P.(C) No.2959/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(16)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Ashwini
Mehra vs. Indian Oil Corporation Limited and Ors</i>. Order dated 17.04.2020
passed in W.P.(C) No.2966/2020 & CM Appeals.10297-99/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(17)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Pennar
Industries Limited & Anr. vs. Reserve Bank of India and Anr.</i> order
dated 01.05.2020 passed in I.A No.3 of 2020 in WP No.6573/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(18)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">JR
Toll Road Private Limited vs. Yes Bank Ltd.</i> Order dated 17.04.2020 passed
in W.P (C) No.2970/2020<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(19)<span style="mso-tab-count: 1;"> </span> <i style="mso-bidi-font-style: normal;">BT
India Private Limited vs. Income Tax Officer</i> Order dated 22.04.2020 passed
in W.P.(C) Nos.2981 & 2984 of 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(20)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Eastman
Auto & Power Limited vs. Reserve Bank of India and Ors.</i> Order dated
27.04.2020 passed in W.P.(C) No.2997/2020 & CM Appl. 10397-10399 of 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(21)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Vanilla
Clean Power Pvt. Limited and Anr. vs. Inox Wind Infrastructure Services Limited</i>
Order dated 29.04.2020 passed in OMP.(I) (Comm) 103 & 104 of 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(22)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Kamal
Kumar Kalia vs. Union of India and Anr.</i> Order dated 30.04.2020 passed in Diary
No.10955/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(23)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">India
Bulls Housing Finance Ltd. vs. HDFC Bank Ltd. & Ors.</i> Order dated
01.05.2020 passed in W.P (C) 3033/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(24)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Bejon
Kumar Mishra vs. Union of India & Ors.</i> Order dated 28.05.2020 in W.P(C)
11543/2019<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(25)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Gyanesh
Kumar Sharma and Anr. vs. RBI & Ors.</i> Order dated 29.05.2020 in S.B.
Civil WP No.5748/2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">(26)<span style="mso-tab-count: 1;"> </span><i style="mso-bidi-font-style: normal;">Halliburton
Offshore Services Inc. vs. Vedanta Limited & Anr.</i> Order dated
29.05.2020 in OMP(I) (Comm.) No.88/2020 & I.A.s.3696-3697/2020.<o:p></o:p></span></div>
<br /></div>
M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-6639104291206710882020-06-03T02:14:00.003-07:002020-06-03T02:14:20.326-07:00COVID-19: MODI-FIED STIMULI AND REGULATORY RESPONSES<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div align="center" class="MsoNormal" style="line-height: 150%; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Part-I:
Modi 2.0 Government’s Swift Actions to Contain & Combat Covid-19<o:p></o:p></span></u></b></div>
<div align="center" class="MsoNormal" style="line-height: 150%; text-align: center;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">“<i style="mso-bidi-font-style: normal;">Some will say
this discussion of the Avian Flu is an overreaction.<span style="mso-spacerun: yes;"> </span>Some may say, “Did we cry wolf?”<span style="mso-spacerun: yes;"> </span>The reality is if the H5N1 virus does not
trigger pandemic flu, there will be another virus that will</i>” is what the
United States Department of Health and Human Services Secretary Michael Leavitt
predicted in November 2005.<span style="mso-spacerun: yes;"> </span>The United
States had rightly acknowledged that such a pandemic will test the critical
infrastructure of both the United States and the world. Several policies and
protocols were developed in the United States to ensure the resilience of
critical infrastructure in the face of a pandemic.<span style="mso-spacerun: yes;"> </span>However, notwithstanding all such plans,
protocols and the preparations made nearly for two decades, when the Covid-19
tested the preparedness of United States’ critical infrastructure, it showed
chinks in its armory and displayed dysfunctional abnormalities of a virtually
collapsing health care critical infrastructure in the country.<span style="mso-spacerun: yes;"> </span>As on June 2, 2020, given its population of
330.85 millions, the United States had contracted<span style="mso-spacerun: yes;"> </span>1,865,459<span style="mso-spacerun: yes;">
</span>Covid-19 cases and have had a casualty of 1,07,314, while India with a much
more staggering population of 1.30 billions for the same period had only 2
lakhs Covid-19 cases and a casualty of 5,598.<span style="mso-spacerun: yes;">
</span>The striking contrast in which India had so far witnessed a very low
casualty figure suggests either of the two things, <i style="mso-bidi-font-style: normal;">viz</i>. the no-nonsense ingenuity with which the Modi Government had
handled the pandemic or the natural immunity of Indians to outwit the virus.<span style="mso-spacerun: yes;"> </span>Let us briefly chronicle what the Modi 2.0
Government did in containing and combating the Covid-19 in our country.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Initial
Global Responses to Covid-19:<o:p></o:p></span></u></b></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The outbreak of the Covid-19 from the Wuhan district
of China was initially never taken seriously by any country in the globe during
the initial days of January 2020 given the abject lack of any meaningful
information from China on the contagious nature of the disease pushing the
world community into complacency.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>China informed the World Health Organisation (“WHO”)
of the outbreak on January 3, 2020.<span style="mso-spacerun: yes;"> </span>However,
the fact remains that China did not fully share the genome of the Covid-19
virus, nor did it alert the world on the human to human transmissions. There
were initial gaffes in the way WHO approached and handled the issue.<span style="mso-spacerun: yes;"> </span>Initially, on January 5 & 14, 2020, WHO
maintained that there was no evidence of human to human transmission of
Covid-19 or health care workers being affected in China, despite Taiwan
alerting WHO by its email dated December 31, 2019 that there were news of such
happenings in China.<span style="mso-spacerun: yes;"> </span>WHO delayed the
declaration of a global pandemic and declared it to be so only on January 30,
2020 as a Public Health Emergency of International Concern, by which time the
Covid-19 virus had spread from China to other countries. After undertaking a
visit to China in February 2020, WHO praised the disease containment and
prevention measures taken by China<b style="mso-bidi-font-weight: normal;">(1).<span style="mso-spacerun: yes;"> </span></b><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Health
& Travel Advisories and Initial Containment in India</span></u></b><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">:<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Although there was very little public information
available on the nature of Covid-19 and mode of its transmission, the Modi
Government did not shy away from initiating a slew of measures to prepare the
country against its onslaught.<span style="mso-spacerun: yes;"> </span>The
Ministry of Finance, Government of India recognized the spread of Covid-19 as a
<i>force majeure </i>condition and issued a notification on February 19, 2020 in
relation the procurement of goods by the Government of India.<span style="mso-spacerun: yes;"> </span>On March 5, 2020, the Ministry of Health and
Family Welfare of the Government of India (“MHFW”) issued an advisory to the
State Governments to reduce mass gatherings with a view to prevent the spread
of Covid-19.<span style="mso-spacerun: yes;"> </span>On March 11, 2020, the High
Level Group of Ministers decided to implement visa restrictions and put in
place travel advisories against visiting certain countries and in the wake of
the same, on the same date, the Bureau of Immigration under the Ministry of
Home Affairs (“MHA”) issued visa restrictions to foreigners visiting India and
introduced 14 days quarantine of passengers arriving from or having visited
countries of China, Italy, Iran, South Korea, France, Spain and Germany and on
the same day, MHFW had also issued travel advisory against Indians visiting
such countries.<span style="mso-spacerun: yes;"> </span>Again on March 16, the MHFW
issued the advisory on social distancing to prevent spreading of Covid-19 and
thereafter on March 19, MHFW banned the arrival of any scheduled international
flights to India. <span style="mso-spacerun: yes;"> </span>The Indian Railways
initially discontinued its train services on March 22, 2020 which was from time
to time extended further.<span style="mso-spacerun: yes;"> </span>In the
meanwhile, on March 13, 16 and 20 of 2020, the MHFW had issued various
guidelines and directives to the Chief Secretaries of the States and Union
Territories to implement social distancing and quarantine advisories to contain
the spread of Covid-19.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In the meanwhile, several state governments also
announced their own covid-19 infection prevention and control regulations under
the Epidemic Diseases Act, 1897 and the Public Health Act of the concerned
states like the one introduced by Tamil Nadu on March 15, 2020.<span style="mso-spacerun: yes;"> </span>Pursuant thereto, the Government of Tamil
Nadu announced its own lockdown on March 23, 2020 under the Epidemic Diseases
Act, 1897.<span style="mso-spacerun: yes;"> </span>Following a televised address
to the nation by Modi, the country went in for a ‘Janata Curfew’ between 7 am
to 9 pm on March 22, 2020.<span style="mso-spacerun: yes;"> </span>On March 24,
the MHA invoked the provisions of the Disaster Management Act directing all
authorities in the Central Government, State and Union Territories Governments
to strictly implement a host of Covid-19 prevention and control measures,
including the first lockdown in the country, which was followed by another
directive to the States and Union Territories issued on April 2, to strictly
implement the penal provisions under the Disaster Management Act, 2005 and the Indian
Penal Code against anyone found violating the lockdown orders.<span style="mso-spacerun: yes;"> </span>This phase marked the Lockdown 1.0.<span style="mso-spacerun: yes;"> </span>Soon, the Lockdown 2.0, 3.0. 4.0 and lastly
the Lockdown 5.0 versions followed with several relaxations in activities.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Not only the Modi Government used the lockdowns to
prevent and contain the spread of the Covid-19, but, effectively utilized the
opportunity to spruce up and augment the health care infrastructure in the
country.<span style="mso-spacerun: yes;"> </span>Front line Covid-19 warriors
were mobilized and sensitized from the doctors, nurses and other health care
community, besides, the police, municipal and sanitation workers.<span style="mso-spacerun: yes;"> </span>Hospitals and testing facilities and kits
were augmented and revamped.<span style="mso-spacerun: yes;"> </span>The country
clamped down on the export of essential Covid-19 drugs, PPE, ventilators,
gloves and masks so as to build up adequate buffer stock when India had to face
the surge of Covid-19 cases.<span style="mso-spacerun: yes;"> </span>It also took
steps to protect the frontline covid-19 warriors against social discrimination
and attacks.<span style="mso-spacerun: yes;"> </span>Hoarding and profiteering
in the sale of masks, sanitizers and other drugs related to Covid-19 was also
significantly curbed by invoking the Essential Commodities Act.<span style="mso-spacerun: yes;"> </span>India also supplied essential medicines to
125 countries as a gesture of solidarity.<span style="mso-spacerun: yes;">
</span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Given the size of its population, the country had to
unleash quick and successive steps to put in place surveillance at points of
entry into the country, evacuation of Indian nationals stranded overseas,
massive community surveillance through robust disease surveillance network and
contract tracing, strengthening of health care sector, capacity building of
over two million frontline human resources, risk communication and community
involvement, requisitioning public and private spaces for quarantine
facilities, ramping up testing facility and providing essential supplies.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">We have never in the past witnessed a massive seamless
coordination and almost daily release of advisories, actions, relaxations,
concessions and relief measures by various ministries, departments of the
Central Government and the regulators, courts and tribunals in our country,
some of which salient aspects will be appropriately addressed in the successive
posts.<span style="mso-spacerun: yes;"> </span>However, to set the tone, we will
commence with understanding how the Modi Government utilized the statutory
powers to weave and enforce a web of Covid-19 prevention and control
regulations in a more federal manner.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Mode
of Exercise of Statutory Powers by Modi: <o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">The initial advisories issued by the Modi Government
were premised on the provisions of the Epidemic Diseases Act, 1897 and the
Indian Penal Code, 1860 and the Criminal Procedure Code exhorting the States to
implement the provisions of the Epidemic Diseases Act to prevent the emergence
of an epidemic from Covid-19<b style="mso-bidi-font-weight: normal;">(2)</b>.<span style="mso-spacerun: yes;"> </span>Subsequently, the Central Government called
upon the States & Union Territories to invoke and implement the powers
vested on to them under the provisions of the Epidemic Diseases Act, 1897, the
Disaster Management Act, 2005 and the Indian Penal Code, 1860 and the Criminal
Procedure Code, to give effect to the advisories of the Central Government to
combat Covid-19<b style="mso-bidi-font-weight: normal;">(3)</b>.<span style="mso-spacerun: yes;"> </span>Up to this stage, the Modi Government had
requested the States & Union Territories to implement the provisions of the
above legislations to handle the situation on the ground.<span style="mso-spacerun: yes;"> </span>In reality, on a national scale, there were
several disparities and uneven implementation of the advisories leading to
non-uniform compliance levels.<span style="mso-spacerun: yes;"> </span>This
called for a centre-driven and controlled statutory regime to combat Covid-19.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">It was at this juncture that pursuant to the decisions
taken at the High Level Group of Central Ministers meeting held on March 24,
2020, the MHA invoked the powers vested under the Disaster Management Act, 2005
to strictly direct the ministries/departments under the Central Government and
the States/Union Territories governments to strictly implement the lockdown
guidelines issued by it<b style="mso-bidi-font-weight: normal;">(4)</b>.<span style="mso-spacerun: yes;"> </span>All subsequent lockdown orders have also been
issued by the Central Government under the provisions of the Disaster
Management Act.<span style="mso-spacerun: yes;"> </span>This is because the
powers of the Central Government and the National Disaster Management Authority
under the Disaster Management Act are very extensive and has overriding effect
on other laws.<span style="mso-spacerun: yes;"> </span>The directives issued by
the Central Government under this Act will bind all authorities in the Union
Government, the State & Union Territories and the State Disaster Management
Authorities.<span style="mso-spacerun: yes;"> </span>This is why the Modi
Government had effectively exercised the powers under this Act to contain the
Covid-19 pandemic in our country.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">End
Notes:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(1)<span style="mso-tab-count: 1;"> </span>Report
of the WHO-China Joint Mission on Coronavirus Disease, 2019 [Covid-19] dated
16-24 February 2020.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(2)<span style="mso-tab-count: 1;"> </span>Letter
No.DO.Z 28015/19/2020-EMR dated March 13, 2020 issued by the Secretary,
Ministry of Health & Family Welfare, Government of India to the Chief
Secretaries of States and Union Territories.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(3)<span style="mso-tab-count: 1;"> </span>Letter
No.DO.Z 28015/01/2020-EMR(Pt) dated March 20, 2020 issued by the Secretary,
Ministry of Health & Family Welfare, Government of India to the Chief
Secretaries of States and Union Territories.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">(4)<span style="mso-tab-count: 1;"> </span>Order
No.40-3/2020-DM-I(A) dated March 24, 2020 issued by the Home Secretary, MHA.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<br /></div>
M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-6152821558177560192020-05-28T08:56:00.001-07:002020-05-28T08:56:34.624-07:00LOAN WRITE-OFF TO WAIVERS – THE LAW OF POLITICS<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div align="center" class="MsoNormal" style="line-height: 150%; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">LOAN WRITE-OFF TO WAIVERS – THE LAW OF POLITICS<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">The RTI Trigger:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Recently, on April 24, 2020, when the
Reserve Bank of India (“RBI”) replied to Shri Saket Gokhale under the RTI Act providing
the details of 50 willful defaulters and the amounts owed by them as on
September 30, 2019<b style="mso-bidi-font-weight: normal;">(1)</b>, it immediately
snowballed into a political controversy with the Opposition alleging that the
Modi government had favoured its friendly industrialists (some of whom have
also gone fugitive economic offenders) with the waiver of Rs.68,607 crores.<span style="mso-spacerun: yes;"> </span>The Press also fell prey to surmises and
wrote that the RBI had effected this waiver.<span style="mso-spacerun: yes;">
</span>Twitter tirade soon broke out that a Minister in the Centre schooled an
opposition leader to take tuitions from a former finance minister belonging to
his party to appreciate the differences between loan ‘write-offs’ and ‘waivers’.<span style="mso-spacerun: yes;"> </span>The law of politics on this subject had
become murkier and we do not know whether tuitions were taken and lessons learnt
on the subject, but, we will endeavor to understand the legal nuances
associated with the issue and before wrapping up <span style="mso-spacerun: yes;"> </span>this piece of work come to a determinative conclusion
on the issue.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">A Peep into Bankers’ Policies and Practices</span></u></b><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">:<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Before we proceed to unravel the above
issue, it would be imperative to understand and underscore the policies and
practices prevalent with the banking industry on this subject.<span style="mso-spacerun: yes;"> </span>Banks and lenders have always enjoyed a
discretion to either postpone and/or scale down the recoveries of bad loan
accounts.<span style="mso-spacerun: yes;"> </span>When the loan repayments hit
roadblocks arising out of genuine circumstances, lenders have often permitted
moratorium against recoveries and even took haircuts and sacrifices on their
principal and interest receivables with a view to reviving and rehabilitating
the borrowers.<span style="mso-spacerun: yes;"> </span>Traditionally, under the
voluntary route, the lenders have acted through the non-statutory mechanisms
such as One Time Settlement (“OTS”), Roll Over, Corporate Debt Restructuring
(“CDR”), Strategic Debt Restructuring and Sustainable Structuring of Stressed
Assets schemes. Involuntarily, the banks were also, from time to time, enjoined
by popular governments to enforce agricultural loan and other cooperative loan
waivers.<span style="mso-spacerun: yes;"> </span>In terms of statutorily
recognized schemes envisaged by the Sick Industrial Companies Act, Insolvency
legislations, Companies Act, 1956 and the SARFAESI Act, the lenders were/are
permitted to legitimately take haircuts and make sacrifices in the loan
recovery.<span style="mso-spacerun: yes;"> </span>In the recent times, under the
Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”), the financial creditors end
up making significant sacrifices of the loans owed by corporate entities when
resolution plan is approved by the NCLT and implemented during the course of
the Corporate Insolvency Resolution Process (“CIRP”).<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Lenders’ Sacrifices in Some Circumstances:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Re-scheduling or offering
rehabilitation package to the borrowers to genuine and deserving cases of
borrowers has now become well recognized and entrenched in our fiscal policy
and law.<span style="mso-spacerun: yes;"> </span>The banks cannot declare
borrowers as ‘willful defaulters’ without following the due process of law<b style="mso-bidi-font-weight: normal;">(2)</b>.<span style="mso-spacerun: yes;">
</span>They have no escape and are obliged to act within the guidelines of RBI in
extending OTS in a non-discriminatory fashion, provided the borrower’s case
falls within the guidelines issued by RBI<b style="mso-bidi-font-weight: normal;">(3)</b>.
<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Some of the means and mechanisms through
which banks and lenders typically offer certain sacrifices towards their
borrowers are illustrated below:-<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(a)<span style="font: 7.0pt "Times New Roman";"> </span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Roll-over of Loans and Ever-greening:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Roll-over of loans is a legitimate
process when the lender agrees to extend the period of loan repayment of a
borrower’s account for bonafide business difficulties. However, ever-greening
is an invidious practice adopted by some banks to sanction fresh loans so as to
settle the overdue loan accounts which would otherwise slip into Non-Performing
Assets accounts.<span style="mso-spacerun: yes;"> </span>Both these processes,
however, have an effect of reduced or doubtful recovery chances which over a
period of time may affect the lenders’ ability to collect chronic loan
defaults.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(b)<span style="font: 7.0pt "Times New Roman";"> </span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Moratorium on Repayments and Recovery Proceedings:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">In the normal course of things, banks
have discretion to effect a moratorium on the repayments in case borrowers have
genuine difficulties in servicing the loans.<span style="mso-spacerun: yes;">
</span>The repayment is merely deferred and delayed in the case of moratorium
of repayment for a definite period as in the case of CDR and upon the expiry of
said moratorium period, the repayment instalments, with or without interests,
would commence.<span style="mso-spacerun: yes;"> </span>The loss of interests arising
out of such moratorium erodes the lender’s capital.<span style="mso-spacerun: yes;"> </span>Suspension of legal proceedings, including
recovery of loans, as envisaged under section 22 of the Sick Industrial
Companies Act, 1984 (“SICA”) was greatly abused by the borrowers in our country
resulting in the perpetual deferment of recovery proceedings by lenders.<span style="mso-spacerun: yes;"> </span>The successor legislation to the SICA <i style="mso-bidi-font-style: normal;">viz</i>. IBC, 2016 which introduced
moratorium under section 14 of IBC is limited in duration for 180 days
extendable by another 90 days.<span style="mso-spacerun: yes;"> </span>These
moratorium sometimes have the effect of not only delaying, but also defeating
the recovery possibilities of the loan account causing losses to the banks.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(c)<span style="font: 7.0pt "Times New Roman";"> </span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">One Time Settlement: <o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">RBI guidelines as adopted by the
individual scheduled commercial banks policies hold the field in relation to
the entertaining of borrower’s requests for approval of OTS, mostly in relation
to the Micro, Small and Medium Enterprises Sector<b style="mso-bidi-font-weight: normal;">(4)</b>, which usually seeks to realise at least the outstanding
principal and in most circumstances the banks forgo the interests where the
borrowers have acted genuine and have not resorted to either diversion or
siphoning of the funds.<span style="mso-spacerun: yes;"> </span>In this process,
banks end up sacrificing the interests, costs and other charges over the
outstanding loans with the haircuts taken by the banks often in the range
of<span style="mso-spacerun: yes;"> </span>40-60 per cent which in some cases even
extend up to 90% of the loan receivables<b style="mso-bidi-font-weight: normal;">(5)</b>.<span style="mso-spacerun: yes;"> </span>RBI only lays down guidelines for such
haircuts, but, it is the prerogative of each commercial bank to decide on the
quantum of haircut it can take for its borrowers’ loans.<span style="mso-spacerun: yes;"> </span>In this process, the only advantage which
accrues to the banks is the immediate liquidity of the principal amount whose
Net Present Value is better than the uncertainties associated with recovery
proceedings.<span style="mso-spacerun: yes;"> </span>OTS results in the
compromise and settlement of all pending cases and the relinquishment of right to
initiate any fresh cases against the borrowers.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(d)<span style="font: 7.0pt "Times New Roman";"> </span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Scheme of Arrangements:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">The scheme of compromise with lenders
and scheme of arrangement by companies under section 391 to 394 of the
erstwhile Companies Act, 1956 was one of the most resorted practices which
resulted in the restructuring of companies with huge loan recasts, deferments,
moratorium and haircuts and sacrifices made by the banks and financial
institutions so as to revive the companies under schemes which are approved by
the High Courts.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(e)<span style="font: 7.0pt "Times New Roman";"> </span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Revival Scheme under SICA:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="background: white; font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Most rehabilitation
packages cast an obligation upon the participating banks/creditors (who might
be entitled to claim outstanding dues from the sick company) to not only forego
some part of the interest liabilities or even accept a lumpsum settlement, but
also to do something positive, i.e. to increase/enhance or continue with
recurring funding of a venture which otherwise would be wound-up.<span style="mso-spacerun: yes;"> </span>Under section 19 of the SICA when any scheme
is sanctioned by BIFR, it had required lenders to provide further financial
assistance to a sick industrial company by way of loans, advances or guarantees
or reliefs or concessions or sacrifices which led to the widespread of
frittering away of the financial resources of the banks in our country.<span style="mso-spacerun: yes;"> </span></span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">In the case of BIFR scheme, the sick industries were given
financial assistance by way of loans, advances or guarantees or reliefs or
concessions or sacrifices by Government, banks public financial institutions
and other authorities.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(f)<span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Corporate Debt Restructuring:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">CDR was introduced by RBI as a
voluntary non-statutory arrangement by banks to restructure the accounts of
borrowers who are not classified as willful defaulters and whose accounts do
not involve any frauds.<span style="mso-spacerun: yes;"> </span>Several
corporates in our country have availed CDR and some of them even availed CDR
twice.<span style="mso-spacerun: yes;"> </span>The CDR cell has approved
restructuring of stressed loans worth Rs. 4 trillion since its inception in
2001, of which Rs. 84,677 crore worth of loans exited the CDR cell successfully
while Rs. 1.84 trillion exited without success and now nearly Rupees 1.32
trillion worth of bad loans are presently undergoing restructuring in the cell<b style="mso-bidi-font-weight: normal;">(6)</b>.<span style="mso-spacerun: yes;">
</span>In a typical case of<span style="mso-spacerun: yes;"> </span>CDR, the
lenders agree to a moratorium, sacrifice of loan principal and interest
receivables, recasting the loans, extending the repayment schedule and in some
cases releasing of additional and fresh loans to help revive the borrower
companies.<span style="mso-spacerun: yes;"> </span>In some cases, the lenders
may also agree to convert their debt into equity in the borrower company thereby
reducing the quantum of loans and in return may seek a right of recompense which
is very illusory.<span style="mso-spacerun: yes;"> </span>In all instances of
CDR, there is a significant write-off and loss to the receivables of a bank, by
way of hair-cuts and sacrifices.<span style="mso-spacerun: yes;"> </span><b style="mso-bidi-font-weight: normal;"><u><o:p></o:p></u></b></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"><br /></span></span></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(g)<span style="font: 7.0pt "Times New Roman";"> </span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Assignment to Asset Reconstruction Companies:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">With the enactment of the SARFAESI Act,
2002, the banks and financial institutions were permitted to assign and sell
their loans to Asset Reconstruction Companies (“ARC”) in terms of section 5
thereof, at huge discounts.<span style="mso-spacerun: yes;"> </span>This enabled
the banks and financial institutions to quickly get rid of their sticky loans
and NPAs to ARCs and realise only a part of the value of the outstanding loan
receivables of its borrowers.<span style="mso-spacerun: yes;"> </span>ARCs remit
only a small upfront money and subsequently settle a heavily discounted
consideration to the banks for such assignment and same was neither considered
to be against public policy nor the receipt of only a meagre portion of their
loan receivables from the ARCs were struck down by our courts<b style="mso-bidi-font-weight: normal;">(7)</b>.<span style="mso-spacerun: yes;">
</span>The banks and financial institutions lost heavily on these assignment of
loans, but, in the process managed to clean-up their balance-sheets.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(h)<span style="font: 7.0pt "Times New Roman";"> </span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Loan Write-off and Waivers:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; margin-right: 1.3pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">As per the RBI data on global
operations, public sector banks have written off, including compromise, an
amount of Rs. 2,41,911 crores from 2014-15 till September 2017 which amount
stood at Rs.<span style="letter-spacing: -.3pt;"> 3,16,500 crore as on April 2018.<span style="mso-spacerun: yes;"> </span></span>Government of India has clarified
that “<i style="mso-bidi-font-style: normal;">w</i></span><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">riting off of loans is done, inter alia, for tax benefit and
capital optimization. Borrowers of such written off loans continue to be liable
for repayment. Recovery of dues take place on ongoing basis under applicable
legal mechanisms. Therefore, write-off does not benefit borrowers<b style="mso-bidi-font-weight: normal;">(8)</b></span></i><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">.”<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; margin-right: 1.3pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; margin-right: 1.3pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Our judiciary holds that a bank may
exercise its "right of waiver" unilaterally to absolve the debtor
from its liability to repay and upon such exercise, the debtor is deemed to be
absolved from the liability of repayment of loan subject to the conditions of
waiver<b style="mso-bidi-font-weight: normal;">(9)</b>. <span style="mso-spacerun: yes;"> </span></span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">The last debt waiver
scheme <i style="mso-bidi-font-style: normal;">viz</i>. Agricultural Debt
Waiver and Debt Relief Scheme, 2008 ("ADWDRS, 2008") announced by the Union
Government was implemented in the year 2008, whereunder the debt waiver
portion of the ADWDRS, 2008 was closed by its due date i.e. 30.6.2008, while
the debt relief portion of the Scheme was closed on 30.6.2010, with its benefits
having been extended to 3.73 crore farmers to an extent of Rs. 52,259.86 crore<b style="mso-bidi-font-weight: normal;">(10)</b>.<span style="mso-spacerun: yes;">
</span>This was followed up by several state governments extending their own
loan waiver schemes as part of their election manifestos, despite objections by
RBI<b style="mso-bidi-font-weight: normal;">(11)</b> and it is estimated that if
every state were to waive even 50% of their agricultural debt, it would cost 1%
of India’s GDP in terms of 2016-17 price<b style="mso-bidi-font-weight: normal;">(12)</b>.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; margin-right: 1.3pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"><br /></span></span></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Bookman Old Style"; mso-fareast-font-family: "Bookman Old Style";"><span style="mso-list: Ignore;">(i)<span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><!--[endif]--><b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Lenders’ Sacrifices under IBC, 2016:<o:p></o:p></span></u></b></div>
<div class="MsoListParagraph" style="line-height: 150%; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">In terms of IBC, 2016, financial
creditors are entitled to initiate CIRP against corporate debtors under section
7 which when admitted by NCLT under section 13 will result in a declaration of
a moratorium under section 14 and the appointment of an interim resolution
professional.<span style="mso-spacerun: yes;"> </span>Unlike SICA, the
moratorium period and the CIRP period is also limited in duration and cannot
extend indefinitely and therefore resolution of insolvency of corporate debtors
is time-bound.<span style="mso-spacerun: yes;"> </span>Under IBC, 2016, the
financial creditors will constitute a Committee of Creditors which will evaluate
and recommend a resolution plan submitted by a resolution applicant for its
approval by NCLT.<span style="mso-spacerun: yes;"> </span>Once the resolution
plan is approved by NCLT under section 31, it will be binding on the corporate
debtor, its employees, members, creditors, guarantors and other stakeholders
involved in the resolution plan.<span style="mso-spacerun: yes;"> </span>In case
there is no approval of any resolution plan, then, the corporate debtor
proceeds for liquidation in which case the right of the financial creditor to
receive the distribution of the assets of the company is regulated by section
54 of IBC, which ranks secured creditors ahead of the unsecured creditors.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Although the provisions of IBC, 2016
are much more effective and time-bound than those in SICA, yet, its actual
implementation remains dogged with the resolution plans approved by NCLT
involving huge haircuts and sacrifices by the banks<b style="mso-bidi-font-weight: normal;">(13)</b>.<span style="mso-spacerun: yes;"> </span>It has been held by
our Supreme Court that initiation of CIRP is not a recovery proceedings against
borrowers and is aimed at only resolving the corporate insolvency of a
corporate debtor<b style="mso-bidi-font-weight: normal;">(14)</b>.<span style="mso-spacerun: yes;"> </span>The RBI had issued a circular in February
2018 disbanding all CDR schemes and urging banks to evolve a resolution plan
within 180 days for those borrowers who have cumulative exposure of more than
Rs.2000 crores borrowings<b style="mso-bidi-font-weight: normal;">(15)</b> and
upon its failure to initiate proceedings against such borrowers under the
provisions of IBC, 2016.<span style="mso-spacerun: yes;"> </span>In the wake of
the Supreme Court striking down the said RBI circular as unconstitutional<b style="mso-bidi-font-weight: normal;">(16)</b>, upon carrying out the changes
necessitated by the verdict, the RBI had once again issued a revised statutory
directions on initiating resolution plan for big ticket stressed assets<b style="mso-bidi-font-weight: normal;">(17)</b>.<span style="mso-spacerun: yes;">
</span>Consequently, this process had also result in huge sacrifices and
hair-cuts to the lenders when the resolution plans for big ticket borrowers are
approved and implemented.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Loan Waiver Practices & Criticism:<o:p></o:p></span></u></b></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div style="border-bottom: solid windowtext 1.0pt; border: none; mso-border-bottom-alt: solid windowtext .75pt; mso-element: para-border-div; padding: 0cm 0cm 1.0pt 0cm;">
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">However, at the same time, both the
Government and the regulators like the RBI have been engaged in a turf war on
the advisability of loan waivers.<span style="mso-spacerun: yes;"> </span><em><span style="background: white; border: none windowtext 1.0pt; font-family: "Bookman Old Style",serif; mso-border-alt: none windowtext 0cm; padding: 0cm;"><span style="mso-spacerun: yes;"> </span></span></em>When our apex court was approached
to regulate the matter of waivers, write-offs, rescheduling of repayments,
moratoriums and one-time settlements by banks which result in loss of
substantial amount of public funds, it merely proceeded to flag the issue for
consideration by the Committee of Experts under the Chairmanship of Shri Vepa
Kamesan, Ex-Deputy Governor of Reserve Bank of India<b style="mso-bidi-font-weight: normal;">(18)</b>.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>There is criticism from successive RBI
Governors that loan waivers breed a dishonest culture amongst borrowers and it
has only a temporary poverty alleviation results on the small farmers and
therefore agricultural and crop loan waivers should not be encouraged<b style="mso-bidi-font-weight: normal;">(19)</b>.<span style="mso-spacerun: yes;">
</span>A World Bank study on India’s debt waiver scheme also suggests that although
temporarily it provides for alleviating the conditions of the rural agriculturists,
it does not provide a long term solution to their economic conditions<b>(20). </b>But, it is always the legal prerogative of elected governments to honour their electoral promises contained in the manifesto promising loan waivers, subject to balancing the overall economic impact on the GDP and the economy and the targeted results of providing reliefs.<span style="font-weight: bold;"> </span><b><o:p></o:p></b></span></div>
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<br /></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Finally, the Write-off <i style="mso-bidi-font-style: normal;">vs.</i>
Waiver Conclusion:<o:p></o:p></span></u></b></div>
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<b style="mso-bidi-font-weight: normal;"><u><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><br /></span></u></b></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">We have traced in reasonable detail on
the ways and means by which banks in their normal course of business end up
suffering haircuts and sacrifices, either through voluntary mechanisms or
through statutory binding processes which may entail writing-off.<span style="mso-spacerun: yes;"> </span>However, we need to distinguish between
write-offs and waivers as <span style="mso-spacerun: yes;"> </span>discerning
individuals.<span style="mso-spacerun: yes;"> </span>A write-off of a loan by a
bank is merely an accounting treatment which results in provisioning for usually
unrecoverable (but, not impossible to recover) bad debts and aims at securing a
tax deduction to the bank.<span style="mso-spacerun: yes;"> </span>It does not
legally relinquish or extinguish its statutory claims against the
borrowers.<span style="mso-spacerun: yes;"> </span>A mere act of cleaning up its
balance sheet cannot result in the legal extinguishment of a bank’s right to
recovery.<span style="mso-spacerun: yes;"> </span>RBI had also clarified that in
case of such ‘technically written-off’ accounts, the loan is written-off in the
accounts maintained at the head office of the banks without forgoing the right
of recovery and that they are generally carried out from the accumulated provisioning
maintained for bad loans; it has also reminded that once the recoveries are
made, then, the money flows back into the profit and loss account of the banks
concerned<b style="mso-bidi-font-weight: normal;">(21)</b>.<span style="mso-spacerun: yes;"> </span>Thus, viewed, in the case of write-offs there
is neither a forgoing or relinquishment or extinguishment of the right to
recover the loans.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>Incidentally, it will also be evident that
even in relation to the written-off dues of Rs.4,32,584 crores made by the PSU
banks for the period between 2015-16 to 2018-19, when the banks were able to
recover an amount of Rs.8,033 crores in relation to such written-off accounts<b style="mso-bidi-font-weight: normal;">(22)</b>, it will prove beyond doubt that
in case of written-off accounts, the banks’ right to recovery dues are not
waived or relinquished.<span style="mso-spacerun: yes;"> </span>On the other
hand, a loan waiver is an express and irrevocable relinquishment of the right
of recovery agreed to by a bank or lender in pursuance to a debt relief scheme
announced by the competent government (Union or the State Government) and
subject to compliance with the eligibility and other conditions stipulated
under the scheme.<span style="mso-spacerun: yes;"> </span>Once a borrower’s application
for waiver is accepted in terms of the scheme, then, the bank irrevocably looses
its right to recovery any monies from the borrower thereafter.<span style="mso-spacerun: yes;"> </span>Therefore, loan write-off and waiver is
neither synonymous nor supplanting the other and it is only the sensational
press and the opportunist political lobby which seeks to thrive in a
non-existing confusion, when the facts and law on the subject remain beyond any
pale of doubt.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Thus viewed, the RBI reply under the
RTI Act dated April 24, 2020 referred to in the beginning of this work
abundantly makes it clear that it has been only a matter of write-off and not
waiver of the loan dues.<span style="mso-spacerun: yes;"> </span>The language employed
therein that “… <i>amount outstanding & amount technically/prudentially
written-off as on September 30, 2019 reported in CRILC by the Banks</i>…” clarifies
that it is the concerned banks and not the RBI which has written-off and that
it is nothing by a technical/prudential writing-off of the outstanding loan
amount.<span style="mso-spacerun: yes;"> </span>It is also for this reason that
none of the proceedings, including, those initiated under the Fugitive Economic
Offenders Act, 2018 against some of the individuals who feature in the list of
the 50 willful defaulters have either been abandoned or relinquished by the
CBI/Enforcement Directorate, which would otherwise have been an inescapable corollary if
the loans have been irrevocably waived <i style="mso-bidi-font-style: normal;">vis-à-vis</i>
them.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">End Notes:<o:p></o:p></span></b></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">(1)<span style="mso-spacerun: yes;"> </span>Letter no.DOS.CO.RIA Cell/AM(14)/09.39.003/2019-20
dated April 24, 2020 issued by the Reserve Bank of India to Shri Saket Gokhale.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">(2)
</span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">See </span><i style="mso-bidi-font-style: normal;"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-IN; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-weight: bold; mso-fareast-language: EN-IN;">Subhiksha
Trading Services Limited, Chennai, Company Secretary, M. Rathinakumar vs. Kotak
Mahindra Bank Limited, and Ors. </span></i><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-IN; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-weight: bold; mso-fareast-language: EN-IN;"><span style="mso-spacerun: yes;"> </span></span><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-IN; mso-bidi-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">2009 INDLAW MAD 1694 and <i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-weight: bold;">Sudarshan Overseas Limited vs. Reserve Bank
of India and Another</span></i> 2009 INDLAW DEL 626.<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(3)<span style="mso-spacerun: yes;">
</span><i style="mso-bidi-font-style: normal;">Sardar Associates and Ors. vs.
Punjab and Sind Bank and Ors</i>. (31.07.2009 - SC) : MANU/SC/1351/2009<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(4) </span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">See
RBI Circular No.<span style="color: black;">RBI/2008-09/467<br />
RPCD. SME&NFS. BC.No.102/06.04.01/2008-09 dated May 4, 2009<o:p></o:p></span></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">(5)
</span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">See </span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"><a href="https://www.financialexpress.com/industry/banking-finance/idbi-bank-default-cases-settled-with-90-pct-haircut-malvika-steel-to-usha-ispat-see-how-surprisingly-low-settlement-was/950181/"><span style="mso-bidi-font-family: "Times New Roman";">https://www.financialexpress.com/industry/banking-finance/idbi-bank-default-cases-settled-with-90-pct-haircut-malvika-steel-to-usha-ispat-see-how-surprisingly-low-settlement-was/950181/</span></a></span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"> as last accessed on 16.11.2018<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">(6)
</span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">See <a href="https://www.livemint.com/Industry/k2S0MIBwJ1Imv7x6PXPxSJ/RBI-moves-to-wind-up-CDR-system.html%20as%20accessed%20on%2012.12.2018">https://www.livemint.com/Industry/k2S0MIBwJ1Imv7x6PXPxSJ/RBI-moves-to-wind-up-CDR-system.html
as accessed on 12.12.2018</a><o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(7) See <i style="mso-bidi-font-style: normal;">ICICI Bank vs. Official Liquidator of APS Star Ltd</i>. AIR 2011 SC
1521<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(8) The Press Release dated March 28,
2018 of the Ministry of Finance, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(9) <i style="mso-bidi-font-style: normal;">The
Commissioner vs. Mahindra and Mahindra Ltd.</i> (24.04.2018 - SC) :
MANU/SC/0513/2018<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(10) The Press Release dated March 28,
2018 of the Ministry of Finance, Government of India.<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(11) </span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">See
<a href="https://www.orfonline.org/expert-speak/are-loan-waivers-breeding-a-defaulter-nation/"><span style="letter-spacing: -.3pt;">https://www.orfonline.org/expert-speak/are-loan-waivers-breeding-a-defaulter-nation/</span></a><span style="letter-spacing: -.3pt;"> accessed on 12.12.2018<o:p></o:p></span></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">(12)
</span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">Nilanjan
Banik, <i style="mso-bidi-font-style: normal;">Are Loan Waivers a Panacea for
Rural Distress?</i>, Economic & Political Weekly, Vol. LIII No.47, December
1, 2018<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(13) See </span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"><a href="https://www.thehindubusinessline.com/money-and-banking/bankruptcy-code-babysteps-towards-recovery-of-bad-loans/article10002680.ece%20visited%20on%2016.11.2018"><span style="mso-bidi-font-family: "Times New Roman"; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 18.0pt;">https://www.thehindubusinessline.com/money-and-banking/bankruptcy-code-babysteps-towards-recovery-of-bad-loans/article10002680.ece
visited on 16.11.2018</span></a></span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 18.0pt;">.<span style="mso-spacerun: yes;"> </span>Also, see </span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><a href="https://www.rediff.com/business/report/why-banks-are-uncomfortable-with-bankruptcy-code/20171004.htm%20as%20accessed%20on%2016.11.2018">https://www.rediff.com/business/report/why-banks-are-uncomfortable-with-bankruptcy-code/20171004.htm
as accessed on 16.11.2018</a><o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(14) <i style="mso-bidi-font-style: normal;">B.K. Educational Services Private Limited vs. Parag Gupta and
Associates</i> MANU/SC/1160/2018<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(15) RBI/2017-18/131
DBR.No.BP.BC.101/21.04.048/2017-18 dated February 12, 2018 <o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(16) <i style="mso-bidi-font-style: normal;">Dharani Sugar & Chemicals Limited vs. Union of India</i> Supreme
Court of India order dated April 2, 2019.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(17) The Reserve Bank of India
(Prudential Framework for Resolution of Stressed Assets) Directions, 2019
issued by RBI vide reference no.RBI/2018-19/2003 DBR
No.BP.BC.45/21.04.048/2018-19 dated June 7, 2019.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(18) <i style="mso-bidi-font-style: normal;">Common Cause (A Regd. Society) vs. Union of India (UOI) and Ors.</i>
(18.08.2010 - SC) : MANU/SC/0615/2010<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(19) Opening remarks of Mr. Urjit
Patel, RBI Governor in the Seminar on ‘Agricultural Debt Waiver – Efficacy and
Limitations’ held on August 31, 2017 and the views of Mr. Sakthikanth Das, RBI
Governor that ‘generalised farm loan waiver will affect credit culture’ expressed
in his interview to the press given on January 7, 2019. <span style="mso-spacerun: yes;"> </span>See also, the case study by Deepa S. Raj &
Edwin Prabu.A “<i style="mso-bidi-font-style: normal;">Agricultural Loan Waiver: A
Case Study of Tamil Nadu’s Scheme</i>”, RBI Occasional Papers, Vol.39,
No.1&2, 2018. <o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(20) Martin Kanz, “<i style="mso-bidi-font-style: normal;">What Does Debt Relief Do for Development? Evidence from India’s Bailout
Program for Highly-indebted Rural Households’</i>, World Bank Policy Research
Working Paper 6258, November 2012.<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(21) Reserve Bank of India’s
clarification dated February 9, 2016 titled “<i style="mso-bidi-font-style: normal;">Banks Write-offs: Clarification</i>’.<o:p></o:p></span></div>
<div class="MsoNormal" style="border: none; line-height: 150%; mso-border-bottom-alt: solid windowtext .75pt; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding: 0cm; text-align: justify;">
<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">(22) See </span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"><a href="https://www.newindianexpress.com/business/2020/may/08/just-10-per-cent-of-bank-loan-write-offs-are-recovered-rti-reply-2140578.html">https://www.newindianexpress.com/business/2020/may/08/just-10-per-cent-of-bank-loan-write-offs-are-recovered-rti-reply-2140578.html</a>
accessed on 28.05.2020.</span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"><o:p></o:p></span></div>
</div>
<br /></div>
M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-46518987554521093092020-05-27T03:03:00.003-07:002020-05-27T03:03:43.871-07:00Modi 1.0 Regime Unveiling of the Fugitive Economic Offenders Act, 2018 & its Fruits<div dir="ltr" style="text-align: left;" trbidi="on">
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 107%;">The Origin:<o:p></o:p></span></b></div>
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<span style="background: white; color: #212529; font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Arial;">The United Nations
Convention against Corruption<b style="mso-bidi-font-weight: normal;">(1)</b>
ratified by India on 9<sup>th</sup> May 2011 is the only legally binding
universal anti-corruption instrument, whereunder countries are bound to render
specific forms of mutual legal assistance in gathering and transferring
evidence for use in court, to extradite offenders. Under this Convention, countries
are also required to undertake measures which will support the tracing,
freezing, seizure and confiscation of the proceeds of corruption.<span style="mso-spacerun: yes;"> </span>In his 2017-18 Budget Speech, the then
Finance Minister Mr. Arun Jaitley <span style="mso-spacerun: yes;"> </span>announced that the Government was considering
to introduce legislative changes or even a new law to confiscate the assets of
such absconders till they submit to the jurisdiction of the appropriate legal
forum in India.<span style="mso-spacerun: yes;"> </span>In reply to a Lok Sabha
question<b style="mso-bidi-font-weight: normal;">(2)</b> on the action to be
initiated against absconding fraudster businessmen, the Minister for External
Affairs revealed to the Parliament a list of such absconding businessmen whom
it seeks extradition from foreign countries and also notified the House of its
intention to bring in a special legislation <i style="mso-bidi-font-style: normal;">viz</i>.
the Fugitive Economic Offenders Bill, 2018.<span style="mso-spacerun: yes;">
</span><o:p></o:p></span></div>
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<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">On
1st March 2018, the Union Cabinet approved the introduction of the Fugitive
Economic Offenders Bill, 2018 to provide for measures to deter fugitive
economic offenders from evading the process of law in India by staying outside
the jurisdiction of Indian courts. The Bill sought to confiscate properties of
economic offenders involved in offences having value of Rs.100 crores or
more.<span style="mso-spacerun: yes;"> </span>The Bill was introduced in the Lok
Sabha on March 12, 2018, but, as it could not be taken up for consideration and
passed in the House, <span style="mso-spacerun: yes;"> </span>it was promulgated
as the Fugitive Economic Offenders Ordinance<span style="mso-spacerun: yes;">
</span>on April 21, 2018. <o:p></o:p></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">Objectives and Scheme of the
Fugitive Economic Offenders Act, 2018: <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></b></div>
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<span style="background: white; color: #171617; font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"><br /></span></div>
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<span style="background: white; color: #171617; font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">The Ordinance was replaced by a reintroduced
Fugitive Economic Offenders Bill, 2018 passed by the Parliament which received
the assent of the President on 31-07-2018 and the Fugitive Economic Offenders
Act, 2018 [“<b style="mso-bidi-font-weight: normal;">FEO Act</b>”] was
retrospectively brought into force w.e.f. 21-04-2018.<o:p></o:p></span></div>
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<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">The
FEO Act was enacted in the backdrop of several instances of economic offenders
fleeing the jurisdiction of Indian courts anticipating the commencement of
criminal proceedings or sometimes during the pendency of such proceedings,
which obstructed the investigation in criminal cases undermining the rule of
law in India. Such cases of economic offences also involved non-repayment of
bank loans thereby worsening the financial health of the banking sector in
India. The Modi 1.0 regime realised that the existing civil and criminal
provisions in law were inadequate to deal with the severity of the problem and
in order to address the said problem and lay down measures to deter economic
offenders from evading the process of Indian law by remaining outside the
jurisdiction of Indian courts, it proceeded to enact and enforce the FEO Act to
ensure that fugitive economic offenders return to India to face the action in
accordance with law.<o:p></o:p></span></div>
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<span style="color: #333333; font-family: "Bookman Old Style",serif; mso-bidi-font-family: Helvetica;">The FEO Act which has applicability to the whole of India is
attracted when the value of such Scheduled Offence must be at least Rs. 100
crores.<span style="mso-spacerun: yes;"> </span>The FEO Act defines a ‘fugitive
economic offender’ (<strong><span style="font-family: "Bookman Old Style",serif; mso-bidi-font-family: Helvetica;">FEO</span></strong>) as a person against whom
an arrest warrant has been issued by any Indian court for committing a
‘Scheduled Offence’ and who has either left India to avoid criminal
prosecution, or being abroad, refuses to return to India to face criminal
prosecution<b style="mso-bidi-font-weight: normal;">(3)</b>.<span style="mso-spacerun: yes;"> </span>The ‘Scheduled Offences’ are enumerated in
the schedule to the FEO Act, which include: counterfeiting, forgery, fraudulent
removal of property and cheating under the Indian Penal Code, 1860; <span style="mso-spacerun: yes;"> </span>and dishonor of cheque under the Negotiable
Instruments Act, 1881; offences under the Reserve Bank of India Act, 1934,
Central Excise Act, 1944, the Customs Act, 1962, Prohibition of Benami Property
Transactions Act, 1988, SEBI Act, 1992 and the Black Money (Undisclosed Foreign
Income & Assets) and Imposition of Tax Act, 2015; taking of gratification
to influence a public servant under the Prevention of Corruption Act, 1988; <span style="mso-spacerun: yes;"> </span>money laundering offences under the Prevention
of Money Laundering Act, 2002; fraud under the Companies Act, 2013; and
defrauding creditors under the Insolvency and Bankruptcy Code, 2016, offences
under the Central GST Act, 2017 etc.<span style="mso-spacerun: yes;"> </span>The
Central Government is vested with powers to either add or omit any offences to
the list of the Scheduled Offences<b style="mso-bidi-font-weight: normal;">(4)</b>.<o:p></o:p></span></div>
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<strong><span style="color: #333333; font-family: "Bookman Old Style",serif; mso-bidi-font-family: Helvetica; mso-bidi-font-style: italic;">Authorities & Powers Under the FEO
Act:</span></strong><span style="color: #333333; font-family: "Bookman Old Style",serif; mso-bidi-font-family: Helvetica;"><o:p></o:p></span></div>
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<span style="color: #333333; font-family: "Bookman Old Style",serif; mso-bidi-font-family: Helvetica;">The Director appointed in terms of the Prevention of Money
Laundering Act, 2002 has been empowered under the FEO Act to move the Special
Court to declare an individual as a ‘Fugitive Economic Offender’<b style="mso-bidi-font-weight: normal;">(5)</b>.<span style="mso-spacerun: yes;">
</span>In order to achieve its objective, section 5 of the FEO Act enables the
Director to attach any property which is a proceeds of<span style="mso-spacerun: yes;"> </span>crime or is a property or a benami property belonging
to a Fugitive Economic Offender.<span style="mso-spacerun: yes;"> </span>The properties
of a Fugitive Economic Offender whether in India or abroad by a Special Court can
be confiscated if such person is declared to be an FEO under the FEO Act<b style="mso-bidi-font-weight: normal;">(6) </b>and all rights and title in such
properties shall vest with the Central Government with free from any
encumbrances. If the confiscated properties are situated outside India, then,
the Special Court is empowered to request a court or authority in the
contracting State for execution of the confiscation order<b style="mso-bidi-font-weight: normal;">(7)</b>.<span style="mso-spacerun: yes;"> </span>Upon confiscation, the
Central Government may appoint an Administrator under sec. 15 of the FEO Act to
receive, manage and dispose of such properties.<span style="mso-spacerun: yes;">
</span>Unlike the Prevention of Money Laundering Act, 2002, the power of
attachment under the FEO Act is not limited to the ‘proceeds of the crime’ and
extends to any property owned by the FEO. In addition to the above, the FEO Act
also vests with the Director the powers of a civil court in trying a suit and
also the powers to carry out survey, search and seizure of properties, search
and detain a person.<span style="mso-spacerun: yes;"> </span>Once an individual
is declared an FEO, he or she is disallowed from proceeding with or defending
any civil claim before any court or tribunal in India<b style="mso-bidi-font-weight: normal;">(8)</b>. Similarly, a company or a limited liability partnership is not
allowed to proceed with or defend any civil claim, if the individual who has
been declared an FEO has either filed the claim on its behalf, is the promoter
or key managerial personnel or majority shareholder of the company, or has a
controlling interest in limited liability partnership.<span style="mso-spacerun: yes;"> </span>The FEO Act ousts the jurisdiction of civil
courts and also enjoys an overriding effect over other legislations<b style="mso-bidi-font-weight: normal;">(9)</b>.<o:p></o:p></span></div>
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<span style="background: white; font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">Fugitive Economic Offenders (Procedure for Conducting Search
and Seizure), Rules, 2018 superseded the earlier rules framed under the
replaced ordinance and deleted all references to the applicability of Criminal
Procedure Code in relation to the conduct of search and seizure functions
thereby giving more teeth to the authorities for faster attachment and
confiscation of the properties of a FEO.<o:p></o:p></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;"><br /></span></b></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">Fruits of the FEO Act:<o:p></o:p></span></b></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">Vijay Mallya case:<o:p></o:p></span></b></div>
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<span style="font-family: "Bookman Old Style",serif;"><br /></span></div>
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<span style="font-family: "Bookman Old Style",serif;">Pursuant
to the enactment and enforcement of the FEO Act, Vijay Mallya who is evading
Indian legal system for bank defaults of Rs.9,000 crores became the first
individual to be declared as the FEO in January 5, 2019.<span style="mso-spacerun: yes;"> </span>Earlier, on September 1, 2014, he was
declared as a wilful defaulter and on March 2, 2016, he slips away from
India.<span style="mso-spacerun: yes;"> </span>At the request from India, his
extradition trial begins in London on December 4, 2017.<span style="mso-spacerun: yes;"> </span>Allowing India’s request for extradition, the
Senior District Judge Arbuthnot (“the SDJ”), sitting at Westminster
Magistrates’ Court, on 10 December 2018 decided to send Vijay Mallya's case to
the Secretary of State.<span style="mso-spacerun: yes;"> </span>William Davis J
rejected his appeal on 5 April 2019.<span style="mso-spacerun: yes;"> </span>He
further renewed his application orally in front of Leggatt LJ and Popplewell J
on 2 July 2019:<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;">R (Mallya) v Government of India and Another (1)</i> [2019] EWHC 1849
(Admin) which rejected all his grounds except for one.<span style="mso-spacerun: yes;"> </span>Consequently, his final appeal came to be
heard in February 2020 and disposed of by the High Court (Queens Bench
Division), London on 20.04.2020 holding that the earlier decision of the SDJ of
Arbuthnot cannot be faulted and that his extradition has to be certified to the
Secretary of State<b style="mso-bidi-font-weight: normal;">(10)</b>.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>When
Vijay Mallya sought leave to approach the UK Supreme Court against the
rejection of his appeal, Lord Justice Stephen Irwin and Justice Elisabeth
Laing, the two-member bench at the Royal Courts of Justice in London presiding
over the appeal refused on May 14, 2020 to grant the same holding that Mallya’s
appeal to certify a point of law was rejected on all three counts – of hearing
oral submissions, grant a certificate on the questions as drafted, and grant
permission to appeal to the Supreme Court thereby clearing the decks for his
extradition to India.<span style="mso-spacerun: yes;"> </span>This has been
possible because of the untiring efforts taken by the Enforcement Directorate
and the CBI in presenting India’s case before the courts in London to seek the
extradition of Mallya.<b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Bookman Old Style",serif;">Nirav Modi & Mehul Choksi case:<o:p></o:p></span></b></div>
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<span style="font-family: "Bookman Old Style",serif;">Nirav
Modi and his uncle Mehul Choksi who are accused of cheating and defaulting a
consortium of Indian banks led by the Punjab National Bank have escaped from India
and are wanted for bank fraud of over Rs.13,500 Crores.<span style="mso-spacerun: yes;"> </span>Nirav <span style="background: white;">Modi has
been lodged at Wandsworth prison in south-west London since his arrest in March
2019 on an extradition warrant executed by Scotland Yard.<span style="mso-spacerun: yes;"> </span>Choksi is at present based in the Caribbean
nation of Antigua. India has sought his extradition from that country and an
Interpol arrest warrant has also been issued against him.<o:p></o:p></span></span></div>
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<span style="font-family: "Bookman Old Style",serif;">Applications
filed by the Enforcement Directorate for their declaration as FEO are pending
before the Special Court, Greater Mumbai and in the meanwhile, their efforts to
stall the proceedings of the Special Court by appealing to the Bombay High
Court was rejected<b style="mso-bidi-font-weight: normal;">(11)</b>.<span style="mso-spacerun: yes;"> </span>Thereafter, on December 5, 2019, Nirav Modi
became the second person, after Mallya, to be declared as the FEO by a Special
Court.<span style="mso-spacerun: yes;"> </span>Meanwhile, Nirav who is held in a
London prison since March 19, 2019, d<span style="color: black;">espite offering
to raise the bail security amount to 4 million pounds, could not secure from
the UK courts any bail since he posed a flight risk and had the means to
influence witnesses and tamper with evidence.<span style="mso-spacerun: yes;">
</span>His extradition trial has already been commenced by the CBI and the
Enforcement Directorate before the UK Court in May 2020 and the proceedings are
now <i style="mso-bidi-font-style: normal;">sub judice </i>before the District
Judge Samuel Goozee of the Westminster Magistrates’ Court in London.<i style="mso-bidi-font-style: normal;"> </i></span><o:p></o:p></span></div>
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<span style="font-family: "Bookman Old Style",serif;">Indian law enforcement agencies,
including the CBI, Enforcement Directorate and Directorate of Revenue and
Intelligence (DRI), are currently pursuing around 50 fugitives – mostly
economic offenders – living abroad, through red notices, extradition requests
and look out circulars (LoCs).<span style="mso-spacerun: yes;"> </span>Some of
the big names include Vijay Mallya, Nirav Modi, Neeshal Modi, Mehul Choksi,
Nitin and Chetan Sandesara, Lalit Modi and European middlemen Guido Ralph
Haschke and Carlo Gerosa.<span style="mso-spacerun: yes;"> </span>There are at
least 16 extradition requests made by Indian authorities pending in the UAE,
the UK, Belgium, Italy, Egypt, the US and Antigua and Barbuda against various fugitives.<span style="mso-spacerun: yes;"> </span>The list of economic offenders on the run has
been increasing over the past few years. Ministry of Finance had reported to
the Rajya Sabha in December 2019 that over the last few years, 67 economic
offenders had fled India, fearing prosecution. These economic fraudsters
defrauded the Indian banks and other financial institutions to the tune of Rs
17,947.11 crore.<span style="mso-spacerun: yes;"> </span>Among these 67 fugitive
economic offenders, six cases are being investigated and reported by the
Central Board of Indirect Taxes & Customs, while 10 cases have been
reported by the Enforcement Directorate and 51 by the CBI. <o:p></o:p></span></div>
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<span style="color: black; font-family: "Bookman Old Style",serif;"><br /></span></div>
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<span style="color: black; font-family: "Bookman Old Style",serif;">The Modi 1.0 regime paved the way for the enactment of the FEO Act
and it is heartening to note that the subsequent Modi 2.0 government has been
relentlessly pursuing the extradition trial of FEOs so as to bring them to
justice before the Indian courts and also help recover the defrauded amounts by
bringing to sale their confiscated properties. <span style="mso-spacerun: yes;"> </span>In June 2019, Modi’s call for a combined
strategy to crack down on fugitive economic offenders found resonance with
leaders of G20 states, which resulted in a joint statement by G-20 leaders
reaffirming their commitment to deny safe haven to such individuals.<span style="mso-spacerun: yes;"> </span>It is under this exemplary political resolve
that the CBI and ED had found resonance to painstakingly initiate and
relentlessly pursue red corner notices and extradition requests and trials in
foreign countries to secure the extradition of the FEOs to face trial in
India.<span style="mso-spacerun: yes;"> </span>It cannot be gainsaid that the
enactment and unflinching enforcement of this piece of legislation, both in
India and abroad, is one of the manifestations of a discerning government,
which should not be lost sight of.<o:p></o:p></span></div>
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<b><span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%;">End Notes:</span></b></div>
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<span style="background: white; font-family: "Bookman Old Style", serif; font-size: 12pt;">(1) Adopted by the UN General Assembly on 31 October
2003 vide resolution no.54/4 which entered into force on 14 December 2005</span><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;"><o:p></o:p></span></b></div>
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<span style="font-family: "Bookman Old Style",serif; font-size: 12.0pt;">(2) Lok Sabha Unstarred Question
No.3198 answered on 14.03.2018 by Shri M.J. Akbar, Minister of State for
External Affairs.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(3) Section 2(f) of the FEO Act, 2018<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(4) Section 20 of the FEO Act, 2018<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(5) Section 4 of the FEO Act, 2018<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(6) Section 12 of the FEO Act, 2018<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(7) Section 12(5) of the FEO Act, 2018<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(8) Section 14 of the FEO Act, 2018<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(9) Section<span style="mso-spacerun: yes;"> </span>18 and 21 respectively
of the FEO Act, 2018<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(10) <i style="mso-bidi-font-style: normal;">Vijay Mallya vs. Government
of India and National Crime Agency</i> [2020] EWHC 924 (Admin)<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;">(11) <i style="mso-bidi-font-style: normal;">Nirav Modi and Anr. vs. State
of Maharashtra and Anr.</i> Bombay High Court order dated </span><span style="color: black; font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">04/12/2019</span><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; mso-ansi-language: EN-US;"><o:p></o:p></span></div>
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M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0tag:blogger.com,1999:blog-1259319595464385843.post-51033203076243115202020-05-27T03:00:00.000-07:002020-05-27T03:00:04.046-07:00MODI 1.0 AND 2.0 REGIME AND THE ECONOMIC AND FISCAL LAW REFORMS: ENUMERATED AND EXPLAINED<div dir="ltr" style="text-align: left;" trbidi="on">
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Modi 1.0 and 2.0 formats of governance had many
Machiavellian moments of glory and triumph.<span style="mso-spacerun: yes;">
</span>Electorally, the BJP party upscaled its tally of 282 Lok Sabha seats in
the 2014 general elections to 303 in the 2019 general elections, again, a
testimony for the deliverance of electoral promises and the growing public
support it continued to garner.<span style="mso-spacerun: yes;"> </span>If the
multi-faceted metamorphosis brought into the state craft and the national
resurgence created by the successive Modi governments can be one dimension of
its trail blazing historic engagement with its citizenry, it is yet another to
take stock of the innumerable and laudable changes it brought about improving
the quality of life.<span style="mso-spacerun: yes;"> </span>The various
positive vibes it evoked in the minds of common man, the perceptible changes in
good governance and eradication of corruption in public life instilled greater
confidence and endeared the Modi governments to the common man.<span style="mso-spacerun: yes;"> </span>There are several facets of the development
agenda vigourously and assiduously pursued by the Modi 1.0 and 2.0 governments
which has positively touched and enhanced almost all sectors and stakeholders
of the nation.<span style="mso-spacerun: yes;"> </span>While there are several
aspects and attributes to speak of and celebrate in the 1.0 and 2.0
governments, it would be beyond the scope of this work to undertake such an
expansive enquiry and appraisal.<o:p></o:p></span></div>
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<br /></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">So, let me assure you that this endeavor is not
intended to be an ode to the political statesmanship of the party leadership
which steers the 1.0 and 2.0 governments.<span style="mso-spacerun: yes;">
</span>There are better political scientists and self-professed commentators
who could do a better job than me in those realms.<span style="mso-spacerun: yes;"> </span>But, there is one no less significant, and at
the same time an undeniable, but the most unsung contribution that the Modi 1.0
and 2.0 governments have made and been making towards structurally crafting
economic reforms, fiscal and economic legislative innovations and relentlessly
pursuing a reformist agenda.<span style="mso-spacerun: yes;"> </span>This work would
chronicle, collate and coalesce the contributions thus far made by the 1.0 and
2.0 government in ushering in bold, robust and timely structural reforms and
the economic legislations.<span style="mso-spacerun: yes;"> </span>It is aimed
to bring under the view-piece the laudable changes brought into the areas,
including, but, not limited to the revamping of the arbitration regime in our
country; the introduction of Goods and Services Tax Act and Insolvency and
Bankruptcy Code; cracking the whip through the Black Money (Undisclosed Foreign
Income & Assets) and Imposition of Tax Act, 2015; the Fugitive Economic
Offenders Act, 2018; infrastructure development; disinvestment; banking reforms
and cleaning the balance-sheets of the banks; Direct Benefit Transfers; Make in
India; PSU bank mergers; FDI liberalization; Covid-19 led reforms etc.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">In order to do justice, an attempt will be made in
these columns in the coming days to unravel some of the facets and factors of
such economic reforms in sufficient detail that Modi 1.0 and 2.0 governments
have bequeathed to us.<span style="mso-spacerun: yes;"> </span>The inaugural
issue will address the relevance and the contribution made towards enacting a
Fugitive Economic Offenders Act and bringing to justice before Indian courts
the economic offenders who have fled the country.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Best regards,<o:p></o:p></span></div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">M.
SIVARAMAN<o:p></o:p></span></b></div>
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<span lang="EN-US" style="font-family: "Bookman Old Style",serif; font-size: 12.0pt; line-height: 150%; mso-ansi-language: EN-US;">Corporate Lawyer, Researcher & Speaker<o:p></o:p></span></div>
<br /></div>
M. SIVARAMANhttp://www.blogger.com/profile/09970471383469763230noreply@blogger.com0