Download Now
Home Blog Page 414

Protection of minority and majority shareholders through shareholder agreements under the Companies Act 2013

0

This article is written by Ibapynhun S Mukhim, pursuing Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. The article has been edited by Tanmaya Sharma (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Introduction

A shareholder is a member of the company according to Section 2(55)(iii) of the Companies Act 2013. A shareholder holds Shares of the company and their name is entered as a beneficial owner in the records of a depository. Becoming a shareholder does not mean that it is only to receive advantages, like dividends. However, they also have responsibilities to carry on. Some of the responsibilities of the shareholders include the appointment of directors, changing the Articles of Association, Memorandum of Association, making changes and amendments when it comes to the financial statements of the company. The shareholder is entitled to appoint one person to the Board, and if wishes to remove them, they can take such action.

The purpose of an agreement or a contract is to provide legal safeguards in our transaction, we will feel safer if we get some kind of guarantee that we are being protected. A shareholder agreement is an arrangement that defines the relationship between shareholders and the company. The agreement safeguards the rights and obligations of the majority and minority shareholders, and it ensures all shareholders are treated fairly. When the minorities receive favour and protection, it should not be at the cost of the majority. Therefore, the protection of rights and obligations should be a balance between the both.  

How does one become a shareholder?

There are different methods by which a person can become a shareholder. First, he can purchase shares, second by the allotment of shares, and lastly by subscribing to the memorandum. The same person also ceases to be a shareholder when he transfers his shares, surrenders shares, when he forfeits his Shares, when he dies and when the trustee goes bankrupt.

Who are the minority and majority shareholders?

A majority shareholder is someone that holds more than 50% of shares in the company. As a majority shareholder, a person or operating entity has a significant amount of influence over the company, especially if their shares are voting shares. This presents an opportunity for the majority Shareholder to take part in significant decisions of the company. For example, to make corporate decisions, appointing directors, etc. In this way, they can direct the company in the way they desire since they can do so through voting power.

So a minority holder, on the other hand, is someone who holds less than 50% shares in the company. A minority holder will not enjoy all the privileges enjoyed by a majority holder. Minority shareholders have limited rights to benefit from the operations of a company, including receiving dividends and being able to sell the company’s stock for a profit. The minority holder may not have voting rights and does not have control over the company. 

Let us imagine a simple scenario to portray a majority shareholder. In a parallel universe, there is Mr Stark who owns about 55% of shares in the Galaxy Company. Mr Thor owns 7% share, Mr Star Lord owns 8% share, Miss Black Widow owns 9% of the share, and Mr Roger owns 13% of the share and the rest of the shares is owned by Miss Pott.

In this scenario, we can see that Mr Stark has majority shares as compared to others. He can have a major influence on the company. Whereas the rest own less than 50% share in the company and therefore they are the minority shareholders. Therefore, we can conclude that the Galaxy Company is mainly run by Mr Stark as he might have a significant amount of influence over the company, especially if his shares are voting shares. .

What is a Shareholder Agreement?

Put simply, a Shareholder Agreement is a legally binding contract that defines the relationship between the shareholders and the company. So basically, the rights and the obligations of shareholders are given in the said Shareholder Agreement and are protected by them. The Shareholder Agreement also protects the existing shareholder from situations when the company’s management changes, or/and when the company is sold off to another and the same shareholders remain, their rights are protected. 

After learning that there are two types of shareholders- majority and minority, we found that the minority holder is in a vulnerable position. Letting the majority shareholder dictate the decisions of the company without realizing that their action may not sync with the desire of the minority shareholders can lead to disputes. A Shareholder Agreement can be used as an instrument to protect the minority as well as the majority shareholders alike. 

How does Shareholder Agreement protect the Minority Shareholders?

The presence of the Shareholder Agreement helps the minority Shareholders to influence the function of a company. One can argue that the presence of Article of Association will protect the Minority Shareholders too but since it can be easily amended by the Majority Shareholders, there is no guarantee that they will not be abused. 

The Companies Act 2013(to be known as the Act) has made efforts to safeguard the rights of the minority shareholders. Let us mention in brief these rights that are mentioned in the Act to protect the rights of the Minority Shareholders below:

  1. Section 151 of the Act reserves the right to appoint Minority Shareholders Directors: A Minority Shareholder Director is an independent director, and an individual elected by the Minority Shareholders representing them. He/She will be on the Board of their listed company. He will hold office for a term of three years and cannot be re-appointed. 
  2. Section 241 and 242 of the Act reserve the right to apply to NCLT for oppression and mismanagement: Oppression and mismanagement may come from the Board, promoters, or the management team. Whenever Minority Shareholders face any problems of being oppressed or/and mismanagement they can approach the National Company Law Tribunal for expedient action. 
  3. Section 235 and 236 of the Act reserve the right to reconstruction and amalgamation of companies: There is a fear amongst the Minority Shareholders that during the process of amalgamation or reconstruction of companies, the interest of Minority Shareholders may not be taken into consideration. However, the addition of these provisions has helped to safeguard and assure the Minority Shareholders that they are in safe hands.
  4. Section 108 of the Act mandates certain companies to offer e-voting facilities to shareholders to vote on shareholder meetings: We are familiar with the concept of virtual/online work and online shopping, etc. This section provides a similar notion for Minority Shareholders to attend the meetings and exercise their voting rights without being physically present in meetings. So, even if they cannot be present in meetings, they can still access their voting rights.
  5. Section 188 of the Act talks about accepting mandates from the majority only which talks about related party transactions, mandates companies to undertake such transactions only after receiving approval from the majority of non-interested parties.
  6. Right to file a Class Action Suit: A class action suit is a suit where one person or number of plaintiffs come together and file a suit against another party or person. They will represent the entire interested group. In this case, the Companies Act, 2013 allows a group of Minority Shareholders (can include Majority Shareholders too) combining with the lenders to approach the National Company Law Tribunal. The suit may be against the operations of the company, or the management, or the board. 
  7. Adoption of Fair Mechanism: Shares need to be evaluated accordingly. To avoid unfair valuation, a fair mechanism needs to be adopted. The Act of 2013 provides for an independent Valuation Mechanism to protect the interest of the Minority Shareholders. The Minority Shareholders can approach the NCLT should there be any unfair means.

These provisions attach power to the Minority shareholders and protect them from being abused. The Shareholder Agreement can add all these provisions. If at any point in time, the Majority of Shareholders abuses them, they can use the said Shareholder Agreement so that they can protect themselves. 

How does Shareholder Agreement protect the Majority Shareholder?

In any event, we are well familiar with the concept of majority rules. Whether in a political election or any class of election or agreement. We are also aware that, to some extent, the majority experiences supremacy over the minority. Then why does the majority shareholder need protection in the Shareholder Agreement? After familiarising ourselves with the minority rights and obligations, we are conscious that they are protected not only by the Shareholder Agreements but also the provisions mentioned in the Companies Act, 2013. With this, it becomes difficult for the Majority Shareholder to tell or stop the minority shareholder from doing certain things. There are situations when decisions taken by Majority Shareholders are in the interest of the company, but the Minority Shareholders may not be on board with it. In this case, the majority Shareholders can add a provision that drags the minority shareholders to cooperate with them in the best interest of the company. 

There may also be a situation when the minority shareholders will want to sell their shares, however, the interested party, maybe a party that the Majority Shareholder may not want to get involved with, such a situation like this case, the majority shareholders can stop the minority shareholders from selling their share to the forbidden party. 

The hypothetical situation of minority and majority shareholders protected by Shareholder Agreement

In the given example here we found that Mr. Stark was the majority shareholder, whereas Mr. Star Lord, Miss Black Widow, Miss Potts, Mr. Rogers and Mr. Thor are the minority shareholders. They have done what was required, which is to formulate a Shareholder Agreement. So, both parties’ rights are well protected and secured. The Majority Shareholders will not abuse the Minority Shareholders. 

Mr Star Lord wanted to sell his shares to Mr Thanos, Mr. Stark did not want this transaction to go forward. However, Mr Star Lord is persistent in selling his shares and justified that selling his shares will earn him the money he needs, and on top of that, the market is not doing well. Mr Star Lord sees that selling his Shares is the best corporate decision that he could make at the moment. Mr Thanos is the only person who is willing to buy the said shares from Mr Star Lord. Having a legitimate reason, the other minority shareholders protest that Mr Star Lord can do whatever he wants with his Shares. The Majority of Shareholders have had their hands tied, which leads them to the only resolution, that is, by going to the Shareholder Agreement. In doing so, there will be a clause allowing the Majority Shareholders to stop the Minority Shareholders from selling their shares to their competitors or the interested party they do not want to work with as co-shareholders. 

Conclusion

We can see the importance of the Shareholder Agreement. It protects the rights of both the Majority and Minority Shareholders. If anyone takes a decision that will hamper the interest of the company, such actions can be regulated, and taken care of by going through the Shareholders Agreement. Just like any contract, before entering into one, it is important to have every discussion laid on the table to avoid problems later on. Shareholders Agreement is not a one-sided Agreement but it is an agreement that works in favour of both parties and the Company.

References


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

A case study of the impact of MGNREGA in Sikkim

0

This article is written by Shreya Singh, from Gitarattan International Business School, IPU. In this article, she analyses the Mahatma Gandhi National Rural Employment Guarantee Act of 2005, in the State of Sikkim. 

Introduction

Employment has always been a major concern for countries like India. In the year 2011, 21.9% of Indians were living below the poverty line (defined by the World Bank “extreme poverty” metric of $1.9 per day per head). However, when measured with the UNDP Multidimensional Poverty Index or MPI, India failed miserably with a whopping 55.3% population regarded as MPI poor. The bare necessities of life for any individual has always been roti, kapda aur makan which in English translates as; food, clothing and shelter. Individuals in search of labor sometimes migrate to urban areas, however going by the very fact that 70% of the Republic of Indian population continues to measure in rural areas itself indicates that India is really aforesaid to exist in villages solely. Thus the shortage of selections and opportunities of basic capability to participate effectively in exurban society are a few things not sensible.

The present article entails the impact of MGNREGA in Sikkim. At first, the scheme is discussed at the national level and then its performance in Sikkim is put under consideration.

History

Since 1960, India has continued to brawl to find suitable employment schemes in its vast rural hinterland. Schemes like the Rural Manpower Programme, Crash Scheme for Rural Employment, etc. were enacted to provide work in rural areas. Ultimately, to link up employment generation, infrastructure development and food security in rural areas, the government integrated National Rural Employment Program (NREP) meant for community development and Rural Landless Employment Guarantee Programme (RLEGP) having a focus on landless households, into a new scheme that is Jawahar Rozgar Yojana (JRY) or Sampoorna Grameen Rozgar Yojana.

On 2 October 1993, the Employment Assurance Scheme (EAS) was initiated to employ those who have agricultural hands, to cope with the economic crises of that time caused by exogenous forces.

In January 2001, the Vajpayee government, to protect poor people against a reduction in their purchasing power capacity, introduced FWP (Food for Work Programme) resembling the one that was initiated back in 1977. And soon due to implementation issues it merged with the Mahatma Gandhi NREGA in 2006.

MGNREGA : a brief

The Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA) was notified on September 7, 2005. The mandate of the Act is to provide at least 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work.

It was passed in September 2005, came into force on February 2, 2006 and was renamed from NREGA to MGNREGA in 2009. Ever since it has been one of the far-reaching work guarantee programmes in the world till now. It’s an unprecedented move that is especially people-oriented, demand-driven and has a rights-based structure.

The ‘Right To Work’ which is embodied under Article 41 of the Constitution directs the state to secure to all its citizens their right to work. Under the Employment Guarantee Act (EGA) a person has the right to 100 days of employment in a year, for each family within 5 km of their residence within 15 days from the application on a local development project. It provides a legal guarantee for 100 days of employment in every financial year to the adult member of any rural household. Moreover, every rural household also has the right to get itself registered under MGNREGA.

MGNREGA remains crucial for improving the purchasing power primarily in semi or unskilled work of rural people living below the poverty line in rural India.

It’s an Act augmented to provide for the enhancement of livelihood security of the households in rural areas of the country and has been praised by the government as the most ambitious public work programme in human history. MGNREGA spreads to the whole of a country except to the districts that have a hundred percent urban population.

The Ministry of Rural Development (MRD), Government of India is monitoring the entire implementation in association with the state governments whereby the state government has to incorporate all features of MGNREGA in their respective Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS).

Objectives 

  1. Employment generation and social security in India;
  2. Creation of durable assets such as pawns roads and canals in rural areas;
  3. Reducing rural-urban migration and fostering social equity.

Eligibility 

To be able to claim any benefit under MGNREGA one must:

  1. Be a citizen of India;
  2. Be a job seeker who has completed 18 years of age at the time of application;
  3. Applicants must be a part of a local household (I.e. the application must be made with the local gram panchayat);
  4. Applicants must volunteer for unskilled labour.

Salient visual of MGNREGA

  1. Bottom-up, people-centred, demand-driven, self-selecting and right based employment scheme;
  2. Each state has its own version of the Rural Employment Guarantee Scheme;
  3. One-third of stipulated beneficiaries must be women workforce;
  4. Self targeting and no pick and choose, whoever is in need will get the work within 15 days;
  5. Labour and material in work undertaken must be in the ratio of 60:40 percent and eminence of panchayat in work selection;
  6. Direct payments to bank accounts of beneficiaries, public information, social audit by gram sabha and audit by CAG;
  7. Funding: to be shared between state and Central government;
  8. The RTI Act, 2005 shall be applicable to ensure transparency and accountability.

Is ‘Right to work’ a fundamental right?

The Universal Declaration of Human Rights and International Covenant on Economic, Social and Cultural Rights recognises the right to work in employment of one’s choice and it is the state’s responsibility to safeguard this right.

Article 41 of the Indian Constitution says, “The state shall within the limit of its economic capacity and development, make effective provision for securing the right to work..”

Directive Principles of State Policy (DPSP) being unenforceable in nature insinuate that no person can sue the state for not providing him with a job. But if any person is deprived of their right to livelihood except according to just and fair procedure established by law, they can challenge the deprivation as offending the right to life conferred by Article 21.

Olga Tellis vs Bombay Municipal Corporation 1985

In this case, an interpretation of Article 21 was made by the Hon’ble Supreme Court whereby ‘right to livelihood’ was recognised as a fundamental right inherent in the ‘right to life’ under Article 21.

MGNREGA and the right to work

Under the MGNREGA scheme if a job cardholder is not given any job within 15 days they can claim compensation which is a fraction of the wage rate.

MGNREGA : in Sikkim

The MGNREGA was implemented in Sikkim in February 2006. It’s an initiative of the Central government to manifest the rights of individuals like the right to work and to act as a means to protect and promote livelihood security in rural India. It was introduced in North Sikkim in phase-1 of the implementation scheme nationwide, it was implemented in East and South Sikkim in phase-2 and west district in phase-3. As of 5 October 2021, about 0.88 (in lakhs) job cards have been issued for the financial year 2021-2022. The state received three national awards from the Central Government in 2011 for excellence achieved in the implementation of the scheme. One of the key observations in the field visit was that the earnings through MGNREGA are higher than the earnings through primary occupation for most of the villagers. This has turned out to be one of the most positive outcome schemes.

The uniqueness of MGNREGA in Sikkim

‘Afno Gaun, Afai Banaun’ (let’s build our village ourselves) was a slogan given by the Chief Minister of the state to popularise the scheme and in return asking for large-scale participation by the villagers. A structure has been established by the Sikkim government whereby 100 per cent implementation of the MGNREGA programme to the gram panchayat units had been undertaken. The state had been able to bring all four districts and their respective Gram Panchayat Units (GPUs) under the confines of MGNREGA.

Getting to know about individuals’ backgrounds, about half of rural families have women as their main breadwinners and almost all families have their self-owned lands. 

Unlike other states, Sikkim has a right-based ‘self-selection’ approach relying on the initiative of households’ demand-driven strengths—providing need-led resources to states and regions within states. More than 70 per cent of sites/projects have been in accordance with consultation with the community.

The financial inclusion plan is rolled out in the entire state whereby Sikkim has been able to indulge vigorously in managing payments escorted by the nationalised bank.

The MGNREGA Act requires that priority be given to women so that at least one-third of the beneficiaries are among them. It won’t be wrong if we call it ‘a women-centric scheme’ by looking at the percentage of women participation generated, sometimes exceeding 50%. Unlike other schemes we have had till now, this seems to be remarkably different as it seeks to provide employment at fair and equal wage rates.

Types of works

Para 4(1), Schedule I of Mahatma Gandhi NREGA embraces all the permissible types of works. According to this, MGNREGA works have been amalgamated into agriculture and allied activities. Categorising it we can put it into four distinct areas of study;

Category A : Public Works Relating to NRM (Natural Resources Management)

More recently, NRM has been an important part of MGNREGA in assuring sustainable livelihoods among the poor. 

Land development works in common land, watershed management, micro and minor irrigation works, water conservation and water harvesting are a few basic structures formulated to help households in increasing the level of income by improving the productivity of land and also through diversifying to income sources. Furthermore, it includes afforestation, tree plantation and horticulture providing the right to usufruct to the households (covered under paragraph 5 of Schedule I).

This provision has turned out to be beneficial for improving the livelihoods of people and not just like another employment scheme for transferring payments.

Category B : Assets Development

These types of work are concerned with community and individual asset development. 

Giving moral or intellectual benefit by ameliorating productivity of lands of households (as specified in paragraph 5) via land development and proffer fundamentals for irrigation. It aims at improving livelihoods through horticulture, sericulture, plantation, and other farm activities. Moreover, it takes into consideration various components of the unskilled wage for construction of houses sanctioned under the Awaas Yojana or other State or Central Government schemes. It also augments the promotion of fisheries and livestock.

Category C : Common Infrastructure for NRLM Compliant Self-Help Groups (SHGs)

It’s a flagship of the government aiming to provide self-employment and skilled wage employment opportunities to rural poor.

It promotes agricultural productivity by providing for bio-fertilisers and post-harvest facilities and the establishment of a common workshed for activities of SHGs.

Category D : Rural Infrastructure

From work-related infrastructure to rural sanitation, it can be related to building toilets for individual households, Anganwadi units, etc. with an aim to be defecation free per se. It furthermore extends to provide rural road connectivity, construction of playfields and adopting a research-based set of action for unpredictable potential disasters.

Improvement in result

MGNREGA for so many past years had played a significant role in uplifting the lives of rural individual households and economically empowering all women. Nearly, about 94270 number of individual and 371 joint bank accounts have been opened during 2017-2018 under the scheme. 

Sikkim has traditionally been an egalitarian society when compared to other Indian states yet a large part of beneficiaries seemed to be women. Another heartening fact can be seen whereby women labourers seem to be receiving wages in person and not relying on others as their proxies, shows that women have come out to be mentally strong and that they can also be independent breadwinners for their families. Moreover, it had appreciated and tried to promote women at the discussion in gram sabha and also with rural development department officials.

The wage rate under MGNREGA is fixed at ₹ 207.48 which is not much but has acted as a benediction in a situation of the miserable plight of women. 

It continues to hold the principle of equal treatment by providing the same wages to both classes of people and not discriminating against anyone based on gender. Additionally, MGNREGA has led to individual and society asset development, providing intellectual benefits by bringing productivity out of the land. It has also brought back the solemnity of workers and has increased their bargaining power as beneficiaries. Moreover, one can come and form SHGs and avail various government schemes like Swarnjayanti Gram Swarozgar Yojana, etc.

Major findings

The usefulness and sustainability of MGNREGA in Sikkim as presented in Table 1 shows that in terms of representation of various people in the domain of physical progress, the total Person Days generated for Scheduled Castes has amounted to 4.96% and for Scheduled Tribes 42.07% respectively with women Person days out of total amounting to 51.27%. Contending to program-specific realization, the active job cards issued to migrant labourers and employed workers under the scheme equate to 86.14% with NRM expenditure of 77.42% to promote sustainable livelihoods for the poor via the creation of natural resource assets for both public and individual. For ameliorating the productivity of lands under category B work and construction of common infrastructure with expenditure on agriculture and agriculture allied works adding up to 50.04% and 67.09% respectively. 

                                     Table 1: Physical Progress FY 2021-22

Key Parameter IndicatorsValue
Approved Labour Budget₹ 40,00,000
Person days Generated so far19,46,149
SC person-days % as of total person-days4.96%
ST person-days % as of total person-days42.07%
Women Persondays out of Total(%)51.27%

                              Table 2: Program Specific  FY 2021-22

Key Parameter IndicatorsValue
Total No. of Job Cards issued87,840
Total No. of Workers1,43,116
Total No. of Active Workers97,246
% of NRM Exp.(Public Individual)77.42%
% of CategoryB  Works50.04%

                                 Table 3: Progress Report FY 2020-21

Approved Labour Budget[In Lakhs]Person days generated so far[In Lakhs]% of Total LBAverage days of employment provided per HouseholdAverage Wage rate per day per person(Rs.)Total Households Worked[In Lakhs]Total Individuals Worked[In Lakhs]Total No of HHs completed 100 Days of Wage Employment
4019.6149.0134.97213.70.560.63749

So far as the awareness level of the program is concerned, it is indeed high. Recently, MGNREGA Entitlement Awareness Week was conducted nationally as a part of Azadi Ka Amrit Mahotsav, whereby officials in Sikkim reached out to MGNREGA workers to make them aware of their rights and entitlements under the Act. It is revitalizing to know that though MGNREGA has been a successful milestone in achieving a low migration rate in rural areas earlier, this year’s result has not been as much when compared to previous ones. Moreover, respondents mostly seemed to be marginal farmers with the main source of income coming from the agriculture sector. 

Honouring MGNREGA

Concerning the Impact Assessment of MGNREGA in Sikkim, it was observed that invariably the performance achieved has been a decent juxtaposition to set targets. As per official data maintained by the Department of Rural Development, Ministry of Rural Development, Govt. of India, the target set for providing housing to the rural poor under Pradhan Mantri Gramin Awas Yojana in sikkim was 1,339 forth which 1,188 beneficiaries were registered for whom the foundation were prepared to provide the financial facilities further aiding in administering higher quality for their living. 

Moreover, with the vision to run for rural development via the creation of institutional platforms like SHGs, federated institutions have come to 180 (households mobilized into SHGs) with the number of SHGs promoted to 21. 

With the holistic development( personal, human, economic, social) of Gram Panchayats(GPs) under Sansad Adarsh Gram Yojana (SAGY) instilling values among villages and keeping the soul of rural India alive, the government was able to identify a total of 9 GPs having 391 planned activities under Village Development Plans and uploaded on SAGY portal. MGNREGA was able to honour its commitment to bridging the Rural-Urban divide by recognising urban clusters with 3 Integrated Cluster Plans (ICAP) prepared and approved under the Shyama Prasad Mukherji Rurban Mission.

Impacts of MGNREGA

In Sikkim, an impact of MGNREGA is noticeable, besides emerging as a viable option for the unemployed it has uplifted the quality of life of rural poor there. The vision and mission of the government of Sikkim to strengthen governmental jurisdiction below the level of state and bring about a positive change in rural Sikkim has been nothing short of exemplary. This year women person-days achieved a total of 51.27%, promoting women’s sense of self-worth and their ability to determine their own choices. The income generation and economic self-reliance (of the poor) pioneered through MGNREGA was further augmented towards their children in meeting their basic rights to health, food and education. MGNREGA by supplementing rural people’s income with an assured minimum wage rate of MGNREGA work that is  Rs. 213.71 for the year 2021-22 will help in axing poverty, giving people of Sikkim an improved standard of living.

MGNREGA and Human Development Indicator (HDI)

Not economic growth alone but the capabilities of humans should be considered before assessing the development of a country. HDI is the summary measure in the dimensions of human development. The 2015 report of the United Nations Development Programme has called the National Rural Employment Guarantee Act (MGNREGA) a milestone in human development.

As per the report, “Evaluations have found that job creation accelerated from less than 1 billion working days among 20 million households in the Act’s first year of operation, 2006-07, to 2.5 billion among 50 million households in 2010-11.”

The report further adds that India’s GDP is estimated to increase by 0.02–0.03 per cent, labour income would rise about 700 million rupees and that the welfare of the poorest households would increase up to 8 per cent. People belonging to Scheduled Tribes or Scheduled Castes would also benefit.

It’s arduous to study the aftermath of MGNREGA on HDI. But going by evidence shows the impact on four major ingredients of HDI, Income Generation, Economic self-reliance (of the poor), Women’s empowerment including gender mainstreaming and Quality of life.

No gender discrimination in MGNREGA 

MGNREGA was launched to provide employment to the unemployed and to render them various livelihood security measures. It was not explicitly mentioned for the promotion of any specific class. It has rather encouraged gender equality, the same being not the goal of the Act in any way. 

Unlike minimum wages, under MGNREGA both classes of people are provided with equal wages. The wage rates for workers under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005 are notified and revised annually based on Consumer Price Index-Agricultural Labourers (CPI-AL) by the Central government following the provisions of Section 6(1) of the Mahatma Gandhi NREGA.

For the payment of wages, the methodology of a piece-rate basis is fostered. There is a specified schedule of rates depending on which the work output is defined and further used for the calculation of wages for MGNREGA beneficiaries. 

Conclusion

MGNREGA, a legislation of the kind India has never witnessed before. The drafting of the Bill by the UPA government where the essential clause guaranteed the rural poor with promised employment was a landmark in every way. The implementation of the program was not just drafted for any specific class of people but rather included women, backward castes and tribes as beneficiaries. The act has turned out to be a success in Sikkim and has been hailed lately by the Central government for being able to bring back the dignity of workers and re-established the concept of a welfare state. It has also geared up the social relationship among the folks which is prima facie required for establishing a strong society. Moreover, MGNREGA represents grass-roots democracy where we are talking about public participation and it’s something, not just a mere economic measure but also a social and political empowerment tool. It has fostered inclusive growth ranging from wage security to recharging the rural economy towards a transformative empowerment process of democracy.

The scheme has no doubt often been used as a vote bank by the UPA government for being the creator of the scheme. Equivalent to which the present NDA government came out with numerous programs aiming towards low-income groups such as Jan Dhan Yojana, Atal Pension Yojana, Skill India Program, Garib Kalyan Yojana, Prime Minister Awas Yojana and many other schemes. It’s not like MGNREGA is a complete flop but no initiative has been taken to link it with other schemes which are the same in principle and doing individually good. 

References

  1. https://nrega.nic.in/netnrega/home.aspx
  2. https://sikkim.gov.in/departments/rural-management-development-department/mgnrega-mahatma-gandhi-national-rural-employment-guarantee-act-sikkim
  3. https://vikaspedia.in/agriculture/policies-and-schemes/rural-employment-related-1/mgnrega/works-and-their-execution
  4. https://assamtribune.com/sikkim-ranked-2nd-in-implementation-of-mgnrega
  5. https://rural.nic.in/press-release/minimum-wages-mgnrega
  6. https://ruralmarketing.in/stories/mgnrega-creates-milestone-in-human-development-undp/
  7. https://ruraldiksha.nic.in/RuralDashboard/MGNREGA_NEW.aspx#
  8. https://nrega.nic.in/netnrega/success%20stories/IRMA_Study_Sikkim_2010.pdf 

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

Issues faced by Indian public sector banks after undertaking M&A transaction

0
M&A contracts
Image Source - https://rb.gy/gzbzjk

This article is written by Surya Rose, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho. The article has been edited by Tanmaya Sharma (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Introduction

The consolidation of a few Public Sector Banks was the prime news of 2020. The count of Public Sector Banks plummeted to 12 banks. This is indeed a significant reduction. The aftermath of this consolidation is the matter of discussion in this article, particularly dealing with the issues of such mergers.

India is the sixth-largest economy in the world. The Gross Domestic Product of India in the year 2014 is $1.85 Trillion and in 2018 the rate elevated to $2.7 Trillion. The Gross Domestic Product (GDP) reflects how big the economy is. The Government is striving to make India’s GDP rate $5.33 Trillion by 2024. The mega-merger of Public Sector Banks which we will explain eventually here was a step taken by the Government to achieve the $5.33 Trillion economies. Important issues, as well as merits, are described here for readers’ perusal.

A brief history of mergers of public sector banks in India

The nationalization of the State bank of India in 1955 marked the beginning of the Public Sector Banking System in India. The merging history of public sector banks goes back to 2008 when the State Bank of Saurashtra got merged with the State Bank of India. The State Bank of India which was established in 1955 by the nationalization of the Imperial bank of India is the largest bank today. 2010 witnessed the merger of the State bank of Indore with the State Bank of India. The mega-merger of the subsidiaries of the State Bank of India occurred in 2017. In addition, Vijaya Bank and Dena Bank merged with Bank of Baroda in 2019. Another mega-merger is the latest one that occurred in 2020 which is explained subsequently here.

Merger with the State Bank of India

India witnessed in 2017, the mega-merger of the State Bank of India. The State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad, State Bank of Patiala, State Bank of Bikaner, and Jaipur and Bhartiya Mahila Bank Ltd merged with State Bank of India.

This made SBI one among the top 50 banks in the world. The merger resulted in achieving Economies of Scale. The increase in the branch network with more qualified employees and effective resources combined with the hike in the price of shares of SBI proved the merger as a successful one.

The mega-merger 2019

On August 30, 2019, the mega-merger of the Public Sector Banks was declared by Nirmala Sitharaman, the Union Finance Minister of the Modi Government which came into effect on 1st of April, 2020. It is noteworthy that in the same year i.e. 2019, the Government had merged Vijaya Bank and Dena Bank with Bank of Baroda.

The table below shows the list of amalgamating banks and anchor banks. After the merger, amalgamating banks disappear and anchor banks continue in existence in a larger size than before the merger.

Amalgamating BanksAnchor Banks
United Bank of India, Oriental Bank of CommercePunjab National bank
Syndicate bankCanara Bank
Allahabad BankIndian Bank
Andhra Bank, Corporation BankUnion Bank of India

List of public sector banks post-merger

  1. State Bank of India,
  2. UCO Bank,
  3. Union Bank of India,
  4. Punjab and Sind Bank,
  5. Punjab National Bank,
  6. Indian Overseas Bank,
  7. Indian Bank,
  8. Central Bank of India,
  9. Canara Bank,
  10. Bank of Maharashtra,
  11. Bank of India,
  12. Bank of Baroda.

Issues faced by Indian public sector banks post-merger

Non-performing assets ratio

A problem faced by merging of banks occurs when the Non-Performing Assets ratio is higher in any or all of the merging banks. For instance, the Non-Performing Assets ratio of Bank A is 2% and that of Bank B is 4%. Now, suppose Bank B is merging with Bank A. This of course will enlarge the Non-performing asset ratio of Bank B, and adversely affect its financial health, leading to a problematic situation.

Unemployment of bank employees

Mergers may also cause unemployment of bank employees. Employees may lose their job after the merger due to excess staff or as a part of reducing operating costs.

Managerial efficiency

Forcing a public sector bank to accommodate a weak bank, thereby, absorbing the liabilities, may reduce the managerial efficiency of the strong bank and it can also lead to a reduction in the incentive of the strong bank to perform well. This in turn will affect the overall financial performance of banks.

A merger is not a solution to bring down the number of bad loans. It can worsen the situation sometimes if not properly managed.

Political pressure

Non-performing assets are the major problem of any bank. Treating the cause of it is important rather than giving the burden to a stronger counterpart. Our country has witnessed political interference in what not. So is the case with banks. Many public sector banks are compelled to issue loans under political pressure even by compromising on the various criteria for issuing a loan. This eventually results in a growing number of Non-performing assets. Here, merging can only worsen the situation since merged banks with more lending power now have to issue more loans under political pressure.

The issue faced by customers

Another issue faced is by customers of public sector banks which got merged. The change in Indian Financial System Code (IFSC) blocks many of their funds. Also, old MICR cheques need to be replaced. They have to communicate the same to each of their lenders and that would be time-consuming and problematic. It is also likely that the account number and customer id may also change. Some customers may also face problems in merging their accounts if they have accounts in both transferee and transferor banks in the merger. Now, if they wish to close their accounts, banks may charge closing charges. Sometimes banks have to upgrade their system or technology to accommodate changes after the merger. This is altogether another headache for customers as they may face glitches in online banking and ATM services. Another probable event that may cause hardship to customers is the shut-down of some branches of the amalgamating bank. Customers who rely on such branches and are their home branches find it inappropriate.

Unemployment

The unemployment situation which already is a curse to India will worsen as fresh recruitments may come to a halt at least for some years.

Merits of mergers of public sector banks

The government of India’s determination and endeavour to help the banking sector that was ailing with a high rate of non-performing assets and consequent bad debts damaging its lending capacity paved the way for mega-merger in 2020. 

Let’s discuss the merits of the merger one by one. 

Recapitalization

Coming to the merits of the merger of Public Sector Sanks, the foremost one is recapitalization. This leads to an increase in capital for lending.  Lending is the primary function of any bank. An Enhancement in the lending rate means a rise in deposits. Among the indicators, these are vital in deciding the health of a bank.

New generation banking

Customers can now enjoy more ATMs and the services of next-generation banking. Having to choose from various services provided by new generation banks is indeed appreciable. They can explore their options in investment too. Departure from the traditional banking mechanisms in this technology-driven world is significant. Technical up-gradation on debit/credit cards is another merit. Some merged banks show high Non-performing assets ratio whereas some others show less. For example, the merger of Indian bank and Allahabad bank reflects a low non-performing assets ratio and the merged entity of Union Bank of India with Andhra Bank and Corporation Bank records a high non-performing assets ratio.

Operating cost

Reduction in operating costs is a significant outcome of the merger. This is evident from the merger of the State Bank of India and its subsidiaries. A Decrease in Management cost eventually results in less operation cost.

Shareholders

The impact of the merger on shareholders of Public Sector Banks differs depending on to which bank they get merged with, the non-performing assets ratio, etc.

Global market

The merger of Public Sector Banks results in the enlargement of anchor banks which will eventually aid them to enter the global market. An example of this is the 57th rank of the State Bank of India in the global bank ranking of 2021. The merger also enhances the customer base since the combined entity can now enjoy customers of two or more banks. Getting the benefits of enlargement and enhanced customer base, enable the combined entity to confront competition in the power and capacity of two or more banks. This is indeed better than resisting it in the capacity of a single bank.

Conclusion

Demerits always come with merits. One cannot exist without the other. Making the right decision should always be based on a careful analysis of the two. The Government’s decision on Mega-Merger of Public Sector Banks invited many criticisms. It does have merits and demerits. This article explains both sides of the same coin that is the Mega-merger of 2020. Mergers can result in the economic growth and development of any nation due to their various merits. It also expands a business that is an important goal for any business. Thus tackling the demerits caused by mergers diligently and appropriately helps outweigh them.

References

  1. https://www.legalserviceindia.com/
  2. https://www.livemint.com/
  3. https://www.askbankifsccode.com/blog/list-of-government-banks-india/
  4. https://economictimes.indiatimes.com/
  5. https://www.wishfin.com/banks/mega-merger-of-psu-banks-to-enhance-branch-and-atms/
  6. https://www.oliveboard.in/blog/bank-merger-list/
  7. https://www.economicsdiscussion.net/india/role-of-public-sector-and-private-sector-in-india/19190

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

COVID-19 repercussions on the financial and banking sector : a critical appraisal of the reliefs and measures

0
Image Source: https://rb.gy/3zng77

This article is written by Indrasish Majumdar, LawSikho Intern. The article has been edited by Ruchika Mohapatra (Associate, LawSikho).

Introduction 

Although the rest of the world is combating COVID-19 on all fronts, the pandemic has had a significant impact on the Indian Banking sector. On 25th March 2020, to stop the pandemic from spreading further, India’s government declared a nationwide shutdown. The pandemic has had a huge effect on industry and life in the world’s most populated democracy. Though the severity of the effect on various industries differs, no sector is immune to its effects. 

The fight against COVID-19 is not just about saving the nation and people; it’s also about ensuring that banking networks meet the needs of the general public and the stock industry is open 24 hours and 7 days a week. Needless to say, a country’s financial sector is at its foundation, and its collapse or recession could result in a slew of problems for developing countries like India. The Reserve Bank of India (RBI), consequently, as the central bank of India, implemented a plethora of steps and friezes following the national lockout, which the paper details and deliberates on. The following paper shall discuss the effects of COVID-19 on the banking sector in India and policies enacted by the RBI (Reserve Bank of India) ever since the onset of the pandemic to ensure the functioning of the banks are not affected. The author in the second part of the paper discusses certain measures implemented by four developed countries, renowned across the world for their robust banking mechanism and how they are coping with the pandemic. In doing so, the author suggests India should incorporate some of the policies, to better handle the consequences of COVID-19. The final section of the paper after identifying the loopholes in the policies of the RBI suggests measures it can adopt, in light of the policies enacted by the other countries mentioned in the paper and also in line with the socio-economic stature of India, to better deal with the pandemic and its repercussions. 

Change in RBI Policy due to COVID-19 

Steps for organizational and market continuity

Before the lockdown was announced in early March, the pandemic had already begun to affect all commercial institutions, regardless of size or sector. RBI issued a notice on March 16th, 2020, “Operational and Business Continuity Measures” including the actions mentioned below to brace banks for all types of unexpected events. 

(a) Revisiting and taking stock of the “Business Continuity Plan (BCP)” and altering guidelines to ensure the continuity of sensitive interfaces and avoid service disruptions because of absence induced by independent instances of infection and protective actions; 

(b) Adopting actions to communicate critical instructions/strategies to staff members and stakeholders at all stages to encourage better response and involvement, as well as sensitising members of the staff regarding precautionary steps to be adopted during the pandemic, as directed by health officials; and 

(c) Utilising digital banking as frequently as possible for supporting clients. The central bank took these actions before the national lockdown began, allowing the banking sector time to plan with the BCP and other initiatives to enable them to meet any potential difficulties. 

Following the lockdown, RBI enforced full relaxations on March 27, April 17, 2020, and May 22, 2020, through multiple notices to ensure regular business operations in the banking sector were not hampered. The RBI governor’s first speech, delivered on March 27, 2020, involved multiple steps, including a three-month suspension on the bank loan and liquidity injection via the TLTRO system. The address of the Governor of the Reserve Bank of India’s (RBI) dated April 17, 2020 was aimed at implementing additional steps to relax financial tension and preserve sufficient liquidity therein. On May 22, 2020, the third address expanded timelines, revised several policies, and adopted new steps such as a cap on “Community Exposures” under “the Broad Exposures System” and relaxed guidelines for “the Consolidated Sinking Fund of State Governments”. The following five steps have been discussed concerning these relaxations: 

a) Steps to Control Liquidity;

b) Stock Sector Metrics;

c) Regulatory measures; 

d) Guidelines on import and export;

e) Techniques on debt management.

Liquidity management 

These steps were applied to ensure that ample liquidity was accessible to all stakeholders, alleviating COVID-19-related liquidity restrictions since banks often are judged by their capacity to satiate debt and cash requirements without suffering losses. 

Long-Term Repos Activities (TLTROs) 

It was determined originally that the Reserve Bank of India to offset the negative effect of instruments restricting cash flow e.g. commercial paper, corporate bonds would organise an auction to target term repos extending to three years for a cumulative sum of 1,00,000 crore of acceptable sizes. 

The RBI expressed its interest to invest tentatively 50,000 crores of increased liquidity to micro and small “NBFC’s” through banks and “MFI’s” in a press statement dated 17th April 2020. However, for the medium and small-sized “NBFCs” and “MFIs” the announcement was not encouraging, considering they came short by almost half of the total capacity envisaged, as reported by RBI in a press statement on April 23, 2020. The passive response of banks in the TLTRO 2.0’s exhibited their unwillingness to lend during the pandemic coupled with the precondition that they should only be investing in “investment grade” may be the reason behind the apathy. A special liquidity program was introduced by the Finance Minister in light of the lack of risk aversion tendency of banks primarily for the MFI and NBFCs amounting to Rs. 30,000 crores. Additionally, as part of the Rs. 20 crore Relief Package announced on May 13th 2020 another Rs. 45,000 crore liquidity influx via “Partial Credit Guarantee Scheme” was announced for the “NBFCs”. 

The above-stated measures will increase the end borrowers credit availability, ideally at cheaper interest rates. Considering the serious business impact and liquidity tension the NBFCs were suffering from as a consequence of COVID-19, the government’s steps would support the financial market. 

The ratio of Cash Reserves

The total number of assets that the banks must hold in reserve, either in the vaults or the RBI, so that in a situation of emergency they can be furnished to bank customers is termed the “Cash Reserve Ratio”. The RBI reduced the CRR by 100 basis points to 3.0 per cent under the prevailing circumstances in a news release dated March 27, 2020 for one year ending on 26th March 2021 channelising 1.37 lakh crore primary liquidity in the financial sector. Additionally, the regular CRR management threshold has been reduced from 90 per cent to 80 per cent until June 26, 2020. In the present extraordinary circumstances, this would offer support for banks’ monitoring standards and treasury workers. 

Policy Rate Corridor (LAF)

The mechanism deployed by the Reserve Bank of India to allow banks to produce more money by lending money to RBI via “reverse repo contracts” or repurchase agreements (Repos) is known as a “liquidity adjustment facility”. LAF is a mechanism to aid banks in adjusting liquidity imbalances by allowing them in the event of an emergency to borrow money. 

Policy Repo Rate and Reverse Repo Rate

As a consequence of the lockdown, consumption has decreased significantly, resulting in surplus liquidity in the financial sector. To alleviate this challenge, the RBI announced on March 27, 2020, that the current policy rate corridor will be increased from 50 to 65 basis points. The reverse repo rate, which is the price at which the federal bank borrows money from domestic commercial banks, was reduced by 90 basis points from 4.90 per cent to 4.00 per cent under LAF. On April 17th, 2020, a memo has released the RBI decided to limit the interest rate from 4.00 per cent to 3.75 rates on fixed reverse repo rates. 

It was said that banks in the reverse repo market have lent up to 8 lakh crores, resulting in an improvement in machine liquidity. As a result, at a meeting with the governor of RBI, some economists proposed abolishing the reverse repo rate and combining it with the “Standing Deposit Facility”. A remunerated facility, SDF, allows banks to lend as much money at a rate lower than the reverse repo rate with RBI. Additionally, the provision of collateral for liquidity absorption is not required by the same. 

The Monetary Policy Committee (MPC) unanimously decided to lower the policy repo rate to sustain the stimulative monetary posture so long it is essential to revive growth whilst limiting inflation within the range as specified by RBI. Consequently, MPC has agreed to cut the policy repo rate from 4.40 per cent to 4.00 per cent under LAF, as per an executive order on May 22, 2020. Effective from May 22, 2020, the RBI’s Standing Liquidity Framework (collateralized liquidity benefit) for Primary Dealers (PDs) will be implemented at the modified repo rate of “4.00 per cent”. As a result, the LAF’s reverse repo rate was changed to 3.35 per cent. The Reserve Bank of India has agreed to retain its accommodative posture so long as it is needed to sustain financial development and alleviate the repercussions of COVID-19. Instead of moving to the RBI, banks would be required to bring excess funds into profitable economic sectors in the manner of loans and deposits.

Bank Cost and Marginal Standing Service

The “marginal standing facility (MSF)” is a platform that allows banks to borrow from the Reserve Bank of India (RBI) during a crisis when interbank liquidity is depleted, also referred to as “overnight borrowing”. MSF was increased by the RBI from 2% to 3% of SLR (Statutory Liquidity Ratio), which requires banks to retain liquid assets such as gold and currency. This translates to a 100-basis-point rise until 30th June 2020. 

The bank rate (payable for lending funds to commercial banks governed by long term monetary policies) and the MSF rate have been reduced to 4.25 per cent from 4.65 per cent vide notification dated May 22nd, 2020. As a result, banks are likely to be in a stronger position to utilise this facility, allowing them to make funds more accessible to the needs of people. 

All India Financial Institutions Refinancing Facilities (AIFIs) 

The Reserve Bank of India in a notification dated April 17th 2020 issued refinancing facilities worth 50,000 crores to “AIFI’s” of which 25,000 is to be issued to “NABARD”, 15,000 crores to “SIDBI” and 10,000 to “National Housing Fund”. In addition to depending on internal capital, AIFIs collect capital from the market via methods prescribed by the RBI. In a gazette notification dated 22nd May 2020 the central government decided to reissue the 15,000 crores refinance package issued to “SIDBI” for another 90 days at the end of the 90th day. The decision was made to relieve the burden created by COVID-19’s cash flow fluctuations and to fulfil sectoral credit requirements at a period when these entities are having trouble accessing the business. Coupled with TLTRO 2.0 the decision was aimed to meet the liquidity needs of “NBFCs”, “HFCs” and “MFIs”. However, the government in response to the outcome of TLTRO 2.0 enacted a “Special Liquidity Policy” of 30,000 crores and “Selective Guarantee Scheme 2.0” of 45,000 crores for the “NBFCs” for purposes of easing credit flow. 

Regulatory interventions

These steps were put in place to alleviate the strain of debt service caused by COVID-19 disturbances and to maintain the sustainability of profitable companies. 

Payment rescheduling : term loans and capital expenditures services 

The RBI declared a policy on March 27, 2020, enabling all financial institutions, co-operative or commercial, AIFIs, and NBFCs to offer a three-month suspension on all loan amounts and working capital resources on clearance of all pending instalments as of March 1, 2020. In light of the lockdown extensions and ongoing distortion caused by the pandemic, the RBI had agreed to allow financial institutions to prolong the embargo on term loan instalment payments for another three months, from June 1 to August 31, 2020.

As a result, the payment plan and remaining tenor can be adjusted by another three months around the board. During the moratorium period, interest will begin to accumulate on the remaining portion of the bank loan. This initiative would significantly reduce the pressure on different markets, including investors, who would be willing to concentrate on quicker project implementation, as well as others who spend EMIs or use credit cards. 

Working Capital Finance 

In the case of working capital facilities, the RBI has increased the exemption duration for interest repayment by three months, to August 31, 2020, via a letter issued on May 23, 2020. Lenders will also convert accumulated debt on working capital investments into a supported interest credit facility during the deferment term, as well as readjust the ‘drawing capacity’ by – margins until August 31, 2020, and/or reevaluating the working capital duration up to an extended date until March 31, 2021.

The above-stated measure would offer banks a lot more power in terms of making informed choices and handling various markets differently based on how COVID-19 impacts them. It is also worth mentioning that there would be minimal effect on the recipients’ financial records and the funding agencies will not deem this a default for the sake of supervisory advertising and reporting to “credit information providers” (CICs). 

Provisioning 

If banks try to extend the moratorium on any loans other than NPAs, the RBI has ordered that they allow a 10% additional provision, which will be phased in over two quarters, completing in March 2020 and June 2020, respectively.  A concern emerged soon after as to whether provisioning could be allowed for all SMA transactions. RBI’s senior regulation officers explained that provisioning could only be accepted for loans with principal or payments of interest overdue between 61 and 90 days as of March 1, 2020, i.e. SMA-2 accounts, in a discussion with bank CEOs. 

It’s worth noting that as a consequence of this initiative, many private banks have been able to accumulate sufficient collateral fund buffers to the point where, if the pandemic persists, the balance will be able to cover some potential incidents. Not all banks, on the other hand, are bullish about the economy. As a consequence, it remains to be seen what proportion of loans under moratorium ultimately stabilise and whether this would be enough to accommodate the elevated asset quality burden. 

Asset classification and NBFC’s loans to commercial real estate ventures 

RBI had advised NBFCs to conform with Indian Accounting Standards (IndAS) and the recommendations properly authorised by their Boards and ICAI Advisories for disability identification in a memorandum issued April 17, 2020. The notice made no mention of expanding the three-month moratorium term to NBFCs. As a result, during a video call, the RBI governor explained that the regulator has no objections to banks allowing NBFCs to delay repayments until May 31. NBFCs are authorised to prolong the moratorium for another three months until August 31, 2020, according to an RBI notification dated May 23, 2020. 

Export and import aid initiatives

Exporters have faced serious difficulties as a consequence of COVID-19, such as delays/deferral of requests, delays in bill realisation, and so on. 

Relaxation of the realisation and resettlement procedures for export proceeds 

The time limit for analysing and repatriating export profits for shipments made up to and including July 31, 2020, has been extended from nine to fifteen months from the date of export, according to an RBI letter dated April 1, 2020. This measure is supposed to favour exporters by offering them more stability in negotiating potential export agreements with foreign buyers and enabling them to recognize their revenues, especially from COVID-19 affected countries, over a longer period. 

Export credits

For disbursements made before July 31, 2020, the cumulative allowable duration of pre-shipment and post-shipment credit facilities authorized by banks is extended from one year to fifteen months. This measure was declared by the RBI in a notification dated May 23, 2020, and it is envisaged to help exporters with their supply cycles. It would also aid merchants with their working capital issues and alleviate the burden of making urgent payments. 

Prolonging export bill deadlines 

For imports produced on or before July 31, 2020, the RBI has agreed to expand the period for completing external cash transfers against regular imports from six to twelve months

(i.e., except gold/diamonds and other precious jewellery/stones ) into India from the date of shipping. In a COVID-19 situation, this is supposed to provide importers with liquidity assistance, more time to handle their dues, in handling their operational cycles greater stability, enabling companies to concentrate on the crisis rather than their ledgers. 

Measures for debt management 

This initiative aims to alleviate debt sustainability restrictions on state government budgets by allowing states to loan from the CSF a greater portion of their market debts due in the current fiscal year. 

State Governments’ Integrated Sinking Fund (CSF) – Relaxing of Regulations 

The CSF is a trust fund set up by governments to help them pay down their debts. To provide more money to states, the RBI relaxed the rules regulating withdrawals from the CSF in a notification issued May 22, 2020, resulting in the release of an extra 13,300 crore to the states. 

States such as Maharashtra, Gujarat, Odisha, West Bengal that have managed to hold huge amounts in the CSF reserve would gain the most. While this initiative may help to moderate the upward trend in public borrowing costs, lower rates of interest could be detrimental to domestic saving rates, which will suffer from both income and price impacts.

 Figures 1 and 2: percentage share and debt in rupees in the banking sector. 

International measures 

The following section of the paper shall deliberate on the financial and monetary measures adopted by countries for the purpose of stabilising the banking sector amidst the tumultuous COVID-19 situation. The measures mentioned below the author deem would benefit the Indian banking sector, too if adopted and enacted. 

The United States of America 

The government of the United States of America approved the Coronavirus Assistance, Relief, and Economic Stability Act (CARES), an astoundingly broad fiscal stimulus plan designed by the Trump administration (USD 2,200 billion, about 10% of GDP or 50% of the annual National budget). Under scrutiny from the Democrats ( a majority in the house), the bill was expanded to include people with a low income and the unemployed, primarily. Via this scheme, the federal government aimed to provide American families with nearly USD 630 billion, along with subsidised loans for enterprises that may total up to USD 900 billion. Each household in America would receive a check from the Treasury for a maximum of USD 3000, based on a means-tested scheme. During the four months ending July 31, 2020, the government would raise unemployment insurance by USD 600 a week, which differs by state but ranges about USD 300 a week. The Coronavirus Assistance, Relief, and Economic Stability Act (CARES) is a USD 2.2 trillion fiscal relief package. 

Germany 

Finance Minister Olaf Scholz and Economic Minister Peter Altmaier announced an emergency policy named “A Security Umbrella for Workers and Enterprises” on March 13th. On March 23rd, the project was approved by parliament. The policy is buttressed  by four pillars: 

  1. Making the Kurzarbeitergeld (compensation for working fewer hours) more versatile. Relaxing the eligibility criteria, in particular. The expense of the measure may be in the range of EUR 10 billion.
  2. Tax-related market liquidity aid. Options for deferring tax liabilities and reducing accruals would be extended to help companies increase their liquidity. Businesses would be able to defer billions of euros in tax revenues in general. 
  3. A billion-dollar security shield for companies. Liquidity and supply chain issues can affect even the healthiest of businesses. The German government would defend companies by introducing new legislation providing unrestricted liquidity. The KfW state investment bank will support this initiative. A EUR 460 billion pledge system is introduced in the federal budget. 

About EUR 1 billion has also been allocated to the Federal Ministry of Health to tackle the coronavirus, such as for the purchase of disposable devices face masks and protective suits, assistance for the WHO in the battle against the coronavirus, and increased funding for Germany’s major public health centre, the Robert Koch Institute. Besides, EUR145 million has been allocated to the Federal Ministry of Education and Research for the development of vaccine and treatment-related interventions. 

On June 4, the Federal government unveiled a EUR130 billion stimulus package to help the economy rebound from the coronavirus epidemic (around 3.8 per cent of GDP). The initiative includes a vast number of steps totalling 57 marks. Almost half of the package is aimed at easing the crisis’s negative economic and social effects. The initiative also seeks to modernise and promote a green economy by encouraging digitalization, improving accessibility, and reducing greenhouse gas pollution. 

The federal states and jurisdictions play a vital function in reviving the economy. They have, however, been hit with a significant wage loss as a result of reduced tax collections and increased social expenditure. The coalition parties were unable to find a consensus on a debt-reduction package for certain deeply distressed localities. Instead, they chose to reimburse city governments with a significant reduction of the municipal business levy (EUR 5.9 billion). Besides, the government also agreed to assume the expenses of rental benefits for welfare claimants (EUR 4 billion) from communities and agreed to fund urban mass transportation networks (EUR 2.5 billion).

The United Kingdom

The UK Government announced a GBP 12 billion Coronavirus Emergency Plan, with GBP 5 billion set aside for the National Health Service. Both emergency funds are in addition to the GBP 18 billion in additional spending currently included in the budget, bringing the overall figure to GBP 30 billion (1.4 per cent of GDP). 

  • The Financial Conduct Authority (FCA) recommended new steps to limit the economic effects of the Covid-19 pandemic: 1) set out the FCA’s demands for firms to provide a temporary moratorium on consumer loan and credit card payments for up to three months where consumers experience financial distress as a consequence of the Covid-19 pandemic; 2) guarantee that buyers who have been financially affected by Covid-19 who still have an arranged overdraft on their current account would be reimbursed up to GBP 500. 3) encourage businesses to guarantee that all overdraft buyers should not pay more than they did when the latest overdraft reforms were affected, and 4) ensure that consumers who use both of these interim steps do not see their credit rating compromised as a result of this.
  • 16 April: The Coronavirus Business Interruption Loan Scheme (CBILS) was extended to cover major businesses. CBILS, which was introduced on March 26 and has been operating since April 6, has a fund of GBP 330 billion. Initially, CBILS only addressed businesses with fewer than GBP 45 million in annual revenue, giving them interest-free loans for up to a year with government subsidies encompassing up to 80% of the loans (up to GBP 5 m). CBILS was extended to cover Covid 19-affected businesses with a revenue of more than GBP 45 million. These businesses would be eligible to access up to GBP 50 million in government-backed bank loans if they get an “investment grade” status
  • 20 April: the government unveiled a GBP 1.25 billion aid plan for creative businesses; the scheme will continue at least until September 2020.

The government also increased its coverage to 80 per cent of the payroll salaries of firms affected by the Covid-19 pandemic until the end of June (to a maximum of GBP 2,500). The programme, which was implemented in March, was expected to last three months (starting retrospectively on 1 March) and cost GBP 40 billion. Ten million participants have shown interest in the scheme. 

  • 12 May: The government expanded its CBILS programme to cover salaries for distressed businesses by the end of October, which had previously been restricted to 80 per cent of wages up to a rate of GBP 2,500. The system has, however, been modified, with workers expected to contribute further and staff required to serve at least part-time. 

Switzerland

The Federal Council voted on March 13 to shut all markets, pubs, bars, and amusement and leisure facilities until April 19, except for grocery stores and health clinics. 

  • Checkpoints on borders with Germany, Austria, France, and Italy have been reinstated. On March 20, the Swiss Confederation announced a detailed stimulus plan worth SFr 32 billion to offset the economic effects of the coronavirus :
  • Business liquidity support: the Confederation has developed an SFr 20 billion guarantee scheme for SME loans. The businesses can apply for these loans through their primary branch. They are entitled to receive interest-free loans of up to 10% of their annual revenue, up to a maximum of SFr 20 million.
  • Bankruptcy moratorium
  • Short-term working plan: employees are not eligible to use their unused supplemental hours in their time savings account before being permitted to participate in the programme. Fixed-term contract employees, contracted contractors, apprentices, and self-employed persons will all be covered by the programme.

Furthermore, the waiting time for entry to the scheme has been removed. Administrative processes would be streamlined. 

The way ahead 

Despite the policies enforced by the RBI being only short term, they have proven to be very successful in stabilising the unpredictable situation in the banking sector. As COVID-19 spreads, all creditors and lenders should be aware of the regulatory conditions that have not been eased and take adequate steps to fulfil such responsibilities on time. 

Figure 3: Digitalization for Employees and Customers

During the recession, banks would need to consider both short-term and long-term structural plans. The majority of Indians prefer to use physical banking platforms. Though banks want their customers to use low-contact mediums, they will maintain their touchpoints even when complying with social distancing regulations. This will necessitate the rollout and introduction of advanced technologies, as well as the formulation and deployment of modern standard operating procedures (SOPs) for consumer and internal branch operations. Since revenues are under strain, banks must cut expenses to defend their profit margins. The COVID-19 crisis can be seen as an occasion for radical cost reduction. Banks must distinguish between bad and good costs. Good costs can allow for better operation and expansion, thus bad costs should be eliminated. Banks should prioritise initiatives based on their execution period and concentrate on fast wins whilst continuing to work on initiatives. The Indian banking industry began its digital transformational change a few years back. If the original goal was to compete with tech-savvy, modern-age players, the pandemic could be a watershed moment, forcing banks to embrace upcoming technologies as seen in figure 3. 

It is important to not only deal with the COVID but also to make preparations for post-crisis restoration. Banks should look to grow digitally because both urban and rural India have high smartphone penetration and access to information. The current environment has improved both sellers’ and consumers’ experience with technological use. To allow digital banking for their clients, banks may collaborate with technology companies or develop their digital capabilities. Employees, retailers, and other stakeholders would need to be empowered by similar digital campaigns. Figure 3: Customer and Employee Digital Transformation Banks’ primary cost ratios are likely to be strained in the following months, forcing banks to reconsider their fixed cost strategies. The banking industry continues to offer resources to consumers while optimising its distribution models. The present crisis differs from past crises due to a variety of reasons, including a large number of individuals employed remotely and the problems associated with working rooms, anonymity, and technical infrastructure. 

Figure 4:  the impact of COVID-19 on the banking sector          

Banks must carefully understand both their people’s immediate needs and the various near, short, and medium-term organisational, financial, dangerous, and regulatory enforcement consequences as indicated in Figure 4 and 5. They have the potential to stimulate demand and economic growth while still facilitating a swift return to stability. If banks adapt well to these unforeseen threats, they will not only benefit society but will also boost confidence and the sector’s image in the long term. Revisions of the corporate paradigm as a result of the crisis’s effects and lessons learnt, such as accelerated technology transition, institutional mobility, the future of jobs, and a greater emphasis on data protection. Impact of increased lowering of interest rates, reduced business investment if this becomes a sustained recession. The banking supervisor would be evaluated based on their behaviour in any of the three aspects of crisis management. First, react, heal, and prosper. Second, continue core activities, business progress, and customer service or Banking organisations also accept remote banking transactions. Third, maintain the motivation of employees and engagement when operating remotely, as well as legal and regulatory responsibilities, management responsibilities are met.

Regulators have worked tirelessly to mitigate the effect of the COVID-19 pandemic on all financial services firms and their clients. They have attempted to respond to firm calls for extensions and short-term revisions to standards. Based on the banking and finance strategies adopted by the several countries listed above, it can be inferred that companies and their customers are in survival mode, concentrating on coping with the effects of the pandemic while still attempting to prepare for unpredictable timescales and emerging responses. Given the same, the best advice for the Indian banking sector is to stick to the basic minimum in terms of market operations, to seek continued positive consumer results, and to log what they have achieved and how. 

In recent months, the COVID-19 pandemic has had a major effect on any sector across the world. As economies try to rebound, there is a need for innovative strategic measures and increased planning. To navigate these obstacles being posed, banks must continue to exploit technologies and incorporate resilience through their infrastructure. Banking facilities are included on the list of important services in India. Banking and financial companies were under enormous strain to keep operations running in the wake of the lockdown and health crises. The organisational and technological problems for both consumers and staff revealed a flaw and a  lack of stability of our bank services when confronted with an emergency scenario. In this article, I aimed to show a near look at the effect of pandemic covid-19 on the Indian banking system, as well as briefly address Indian banks’ readiness to adapt to covid-19 and its repercussions on the financial services market. The imminent lessons from the  COVID-19 situation would bring much-needed rigour to the bank’s backend activities. Banking operations such as cash transactions, check to clear, and other typical teller facilities had to be carried out while keeping a reasonable distance of at least a metre. Indian banks (both public and private) that are already digital with some core banking services can concentrate on a full transformation by digitising all of their functions, procedures, and systems.


LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

Regulating election campaigns on social media/online platforms

0
Current issues related to the Election Commission of India

This article has been written by Prabal, pursuing a Certificate Course in Advanced Criminal Litigation & Trial Advocacy from LawSikho. It has been edited by Zigishu Singh (Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).

Introduction

Visualising democracy in the contemporary era has diversified the dimensions in which people influence decision-making, with political stalwarts expanding their agenda to reach out to the maximum. Major democracies around the world have idealised Elections as being intrinsic to the principles of strengthening democracy while adopting new strategies emerging in the dynamic international form. Not only elections are seen as a medium of choosing leadership, but on a wider spectrum, propagate the political beliefs that govern them. It is through the Election Campaign, the exposure is drawn out to various portfolios, through channels of sharing information, traditionally print media or the Broadcast media through Television or Radio. Witnessing the era of globalisation, the world has moved beyond physical boundaries and a bulk flow of information and data transmission, connecting and influencing people across the globe. To facilitate the voluminous flow of information, society is gifted with Social Media, a platform made accessible anywhere that is capable of transmitting ideas, knowledge, and beliefs beyond the limitations of traditional sources. The habits of Instagramming and posting on Facebook, with chains of News through WhatsApp have liberated speech by revolutionising its reach, its access and speed, and opened new doors for the political campaigns to efficiently convey the agenda. To address a wide stream of data, the human brain does have its own constraints, with social media bombarding our senses, interrupting every minute of our day with updates and tweets, thoughts for the day and mindless chatter. Serious threats that avert the key motive of social media campaigns is the fallacy in authentic reporting and political advertising. Neglecting Social Media merely upon its shortcomings will prove fatal to the principled democracy and therefore, the paper aims at evaluating those shortcomings and suggesting comprehensive strategies to facilitate public choices through Social media.

Free and fair elections are one of the basic foundations of democratic societies. The election is a part of the political process in democracy and every political system also employs the election as a symbol of democracy. Election, the formal process of selecting a person for public office or of accepting or rejecting a political proposition by voting, is a way of empowering citizens to choose representatives and adopt important decisions in their interest, according to the principle of political representation. Every democracy requires integrity that must foster social and individual security, to ensure that political equality is honoured. Electoral integrity not only gives a boost to social integration and upholds the rule of law, but regularly scheduled elections with universal and equal suffrage strengthen the political ideals upon which the state rests. Elections offer choices upon which people form their political aspirations and that inversely guides the political beliefs professed by political stalwarts. It is thus, election campaigns that foster such decision making for the governance of the people. A political campaign is an organized effort that seeks to influence decision making progress within a specific group. In democracies, it often refers to the process by which representatives are chosen or referendums are decided.

Role of media

Electoral events are intrinsic to the spirit of a democracy, where the choices of the people have a long-term effect on their way of living and the course upon which the country is governed. It has always been recognised that the media plays a crucial role in that it acts as a platform for the communication and sharing of ideas, a hub of divergent views and ideas, that, in a crucial manner, frame or influence public opinion.

The internet has given people unprecedented access to information about elections and enabled them to express their opinions, interact with candidates and get actively involved in electoral campaigns, to make informed choices in exercising their franchise during elections. This has revolutionised elections, which are key to nurturing and strengthening a democratic culture, by granting access to reliable information and communication platforms via the Internet.

As the world has jointly come together to witness the ever-growing era of globalisation, it has become eminent that the flow of ideas throughout the states has been a crucial medium for the dissemination of information and new notions in the arena of world politics. 

It has also enabled mass mobilisation at times of political turmoil and whenever the ideals are considered to be manhandled, acting as tools of checks and balances. 

As far as Indian mass media is concerned it consists of several different types of communications: Newspapers, television, radio, cinema, magazines. Indian media has been active since the late 18th century while print media started in 1780, radio broadcasting initiated in 1927, and the screening of Auguste and Louis Lumière moving pictures in Bombay initiated during the July of 1895 is among the oldest and largest media of the world. The first newspaper Bengal Gazette was started by James Augustus Hicky in 1780. These were the first tentative steps of journalism in India. Southern India got its first newspaper as The Madras Courier in 1785 by Richard Johnson, a government printer. In 1878, The Hindu was founded and played a vital role in promoting the cause of Indian independence from the colonial yoke. Today this paper enjoys the highest circulation in South India and is among the top five nationally. 

The emergence of Television broadcasting, although started in the late 20th Century, as the Door darshan came into picture. The visual media was revolutionized, with the coming in of brands like Reliance, Tata Sky etc. The private television news channels changed the style of Journalism in India. When the nation adopted the policy of Privatisation, the onset of satellite television pan- India gathered momentum. Further, International satellite television was introduced in India by CNN through its coverage of the Gulf War in 1991. In August 1991, Richard Li launched Star Plus, the first satellite channel that beamed the signal to the Indian subcontinent. 

For televised news, the viewers had to watch Doordarshan and some international news channels like BBC or CNN. In this race to provide more news, more information, Zee Television jumped into the battlefield by launching the news channel Zee News in 1995. The trend of 24 hours news channels which started in 1995, still continues. In any society or democracy, the media needs freedom in its work. Indian media has been free and Independent throughout most of its history, even before the establishment of the Indian empire by the Great Asoka, on the foundation of righteousness, openness, morality and spirituality.  The democracies throughout the world have moved beyond the traditional practices of governance and have been continuously improving and adapting to the new methods. This has been possible through awareness and public activism through the tools of Social Media. Today, the entire world is not only inter-dependent, but also inter-connected by platforms such as YouTube, Instagram, Facebook, Twitter, which not only provide the mediums of entertainment but also account for the awakening that the territorial borders exist only in physical form.

Onset of social media

Social media comprises primarily internet and mobile phone-based tools for sharing and discussing information. It blends technology, telecommunications, and social interaction and provides a platform to communicate through words, pictures, films, and music. Social media are the Applications that are accessible over the line of the Internet, working as a network worldwide, allowing the users to create, edit, share and reach enormous volumes of data, information and ideas. These Apps offer a multi-levelled approach towards the transmission of data; Private networks that are accessible to specific groups of people, usually the known linkages of people; and Public networks, acting as publication and content-creation platforms that gives access to the public worldwide as the modes of sharing information over a range of events and developments.

The trend of online platforms such as WhatsApp emerged as a major breakthrough for communication of information that provide safeguards to the data transmitted enabling end-to-end encryption. The range of potential intermediate platforms is very broad and could include image hosting plat-forms, news aggregators, blogs, photo and video sharing services, social media, wikis, cyber lock-ers, even online games platforms.

The information which users gather through social media helps them form fresh opinions, apart from reinforcing the beliefs they already hold. Furthermore, social media reawakens latent opinions of the users. It triggers them to take actions on their latent or inactive opinions. The potential to influence the collective consciousness of the voters makes social media a key player at the time of elections and between them. 

Inevitably this idealisation of the media is contradictory to the realities of this environment, more complex and frequently highly partisan, if not biased. In fact, the media has always played a dual role in influencing the mass opinion; it acts as a platform on the one hand, through which citizens communicate with each other (via the medium of professional journalism), on the other hand, it enables the citizens to act as social influencers/actors themselves. However, in dispersion of views and information, most of the democracies do not establish a free media, thereby putting certain obligations and restrictions upon the editorials, such as censorship in some cases, which somewhat avert the message that is to be conveyed.

The internet thus, acting as a platform for political parties to present their agenda to the electorate and to mobilise a larger support base for their causes, efficiently reduces the cost of communicating with voters. Such lower costs are only possible on account of social media accessibility than broadcast media, given the availability of free blog and video sharing platforms. Small political parties with limited resources and independent candidates, in particular, benefit from social media to enhance their base and reach to the people.

According to a polling report of Ipsos Mori and King’s College, London in 2015, majority of the public felt that social media platforms are giving a voice to people who would not normally take part in political debate.   However, no view gets through without criticism and no platform is free of complication. While the media does give people a voice of their own in the political arena, the general population yet expressed less trust in social media. In the above stated survey, only an insignificant mass was found to have more trust in political information available on social media platforms than that they read in print media. 

Election campaigning in india

The history of elections in India, in fact, dates to the Act of 1919 there original, however, is rooted in the Act of 1861 itself. Holding elections is necessary to determine the will of the people. The Hon’ble Supreme Court has laid the fundamental principle of an election campaign in a landmark case of People’s Union for Civil Liberties v. Union of India as follows:

“Democracy being the basic feature of our constitutional set-up, there can be no two opinions that a free and fair election would also guarantee the growth of a healthy democracy in the country. For democracy to survive, it is essential that the best available men should be chosen as people’s representatives for proper governance of the country. This can be best achieved through men of high moral and ethical values, who win the elections on a positive vote.”

In the Representation of the People Act, 1951, the word “Election” is defined as follows: “Election means an election to fill a seat or seats in either House of Parliament or in the House or either House of the Legislature of a State … ” Thus, it is evident that the word “Election” connotes an Act choosing

It may be pointed out that the scope of the term ‘Elections’ is wide, which includes the entire process of Election commencing with the issue of a notification and terminating with the declaration of the election of a candidate. The question with regard to the meaning of the word “Election” came up before the Supreme Court in the case of N.P. Ponnuswami v. Returning officer, Namakkal Constituency where the hon’ble court approved the opinion expressed by the learned Judges of the Madras High Court in A.V. Srinivasalu Reddy And Anr. vs S. Kuppuswami Goundar that the term “Election” may be taken to embrace the whole procedure whereby an ‘elected member’ is returned whether or not it is found necessary to take a poll. Further said, the Supreme Court: 

The word election has been used in the Constitution in the wide sense, that is to say to connote the entire procedure to be gone through to elect a candidate to the legislature“. 

This case is regarded as a landmark case in Election Laws. Its ratio has been consistently followed by the same court in several rulings. In the case of Mohinder Singh Gill v. Chief Election Commissioner, Justice Krishna lyer J. , giving the majority decision observed: 

The rainbow of operations covered by the compendious expression election thus commences from the initial notification and culminates in the declaration of the return of a candidate“. 

Therefore, it is evident that the word ‘election’ is used in India in a wide sense i.e. the expression “election” used in the Constitution of India is intended to cover comprehensively all the diverse steps involved in the process of selecting a representative, from the issuing of a notification calling an election up to the declaration of the results. It is difficult to imagine the conduct of an Indian election without very substantial involvement of the country’s vibrant media. Over the last sixty-eight years, India’s media has been a force multiplier in the delivery of free and fair polls each time. The Election Commission of India looks forward to media support for dissemination of important information, for effective enforcement and for creating an aware electorate. At the same time, elections are conducted on the basis of laws, instructions and stipulated procedures and some of these touch upon media and media practices, particularly during election campaigns by political parties and candidates. Election campaigns are the means by which candidates and political parties prepare and present their ideas and positions on issues to the voters in the period preceding election day. The dates of an official election campaign period, usually a period of a month or several months leading up to election day, are often legally defined.

Technological Politicisation

To state the obvious, India has undergone a big change over the past three decades, and it is quite eminent to study the transformation into the campaign arena. Today, we see an India which is more politically conscious, young, urban, middle class, on the move, more skilled, more connected and exposed to technology. There is an upswing in the number of people coming out to vote, a rise in the number of political parties all of which point to a rising trend of politicisation.

According to Com. Score report India has bypassed Japan to become the world’s third-largest Internet user after China and the United States. Political parties are becoming tech-savvy and realizing that social media is the only way to reach out to this young youth. No doubt, the emergence of social media gives voices to voiceless and fractured common people, which is negligible in the conventional and stereotype media. It also emerges as an important source of news for the people. 

One of the key factors in the promotion of Social media is the Youth of the country, which comprise the majority of the population composition. As in the era of technological advancements, Social Media has taken over other platforms of information and ideas, making the political parties switch from traditional to more advanced approaches to influence the people. It is generally believed that social media and the internet have the capacity to strengthen democracy by providing a new arena for online deliberation on politics. It is argued that as people get online and gain access to communication technologies it gives them opportunities for discussion and thus increases conversations and discussions around political issues. 

The rise of social media platforms in the country has been accompanied by a steady decline of traditional media over the years. Newspaper readership and TV news viewership seem to have declined. In 2014, 29 percent of voters had said that they read newspapers daily. In 2019, this figure declined to 18 percent. Similarly, the proportion of those watching TV news daily has declined from 46 percent in 2014 to 35 percent now. It seems that as voters have moved to newer mediums of getting information including social media, this has clearly impacted their consumption of news through traditional media sources.

Also, the Political parties through social media get information regarding voters’ likes and dislikes; and manipulate them accordingly, especially the Swing Voters, whose views will be changed through tailoring information. In this scenario, the political parties and politicians want to use Social Media for communication and campaigning purposes as much as possible to influence voters, which saves their time, resources and more importantly it gives a larger audience for interaction.

2014 Elections: Socialising Political Agenda 

We can witness some of the significant instances of Social Media in the political sphere, by overviewing the elections of 2014 and 2019.  In 2014, professional advertising skilfully transformed Modi from a regional, right-wing, riot-orchestrating politician to a strong, development-driven nationalist leader who could connect with youth, where Social media played an important role by popularising Modi’s image as a strong and development focussed leader in Gujarat who could replicate the “Gujarat model of Development” in the rest of the country. It was instrumental in disseminating the political message far and wide, reaching out especially to younger voters, by flooding social media messages to advocate his propaganda. Although India’s social media population was only about 110 million in 2014, a pre-election report by the Internet and Mobile Association of India (IAMAI) portended that social media could influence the outcome of the general elections in as many as 160 out of the 543 constituencies, making social media ‘‘the newest vote bank with the power to shape Indian Politics”.

However, when we focus on the election of 2019, we could witness the deteriorating image of Social Media and the repercussions it caused, leading to disharmony in the political mindset of the public. It is a time when unemployment is at a record high, economic growth is faltering, and there have been shocking caste/ communal atrocities. Focussing on the use of social media, it became a platform where vicious campaigns were carried out to vilify the victims of these atrocities and killings. Social media sites have been used by vicious and abusive trolls to create a culture of intolerance and abuse, where the aspirations of one group were sacrificed while the others’ normalised. The ruling party campaign has stood out, as mentioned earlier, for invoking jingoistic nationalism and whipping up passions, and making divisive public remarks. 

The emergence of various social media platforms has certainly made it easier for politicians to connect with the people, but is talk of its impact on politics and elections exaggerated? Such a scenario emphasizes the need to understand the drawbacks Social Media has when it is tampered with for personal political aspirations, and how such misuse is toxic to the political views of the people.

Loopholes in social media campaign

Social media did play an important role in carrying forward the political slogans, proposed schemes of the parties, however, amidst the awakening and advocacy for the use of social media, we seem to have exaggerated the actual impact of this medium. Although, social media does seem to have made an impact as the people who were using it were found to be by and large far more opinionated than the ones who were not exposed to any of these platforms, and further, it did manage to spread its reach to a larger proportion of the voters compared to 2014, but in the last one year, the growth seems to have stagnated. Political advertising and, especially, the exercise of media campaigns during the pre-election period are among the issues that, regardless of their important role in informing or influencing the electorate, have escaped precise, unambiguous and legally binding stipulations. 

During the last few years, we have witnessed a significant increase in ‘fake news’, consisting of deliberate misinformation spread via online social media. This phenomenon is even more common at the time of elections, wherein, the political parties and leaders, in order to have an edge over their opponents, spread, or instigate their supporters to spread, a lot of misinformation to mislead the voters. The easy targets could be the ones who don’t understand social media platforms as much because of their lesser participation than others, i.e. the ones who use social media less frequently. The very nature of online advertising also requires further investigation. Compared to television, social media companies have far greater control over what specific audiences see. Platforms have made some efforts to allow third parties to assess who is paying to advertise on them. Yet these tools can be rudimentary. Tech companies should make sure metrics such as the audience segments that have been targeted are clear and publicly available.

As set out earlier in this paper, the main impacts of social media that are felt to be potentially problematic in elections are:-

  • Virality – the speed of communications; Several cyber-crimes, defamation, invasion of privacy, and many more can be easily committed through social media and once such objectionable content is uploaded, it becomes viral and consequently, very difficult to contain.
  • Filter bubbles – closing off voters from contrasting opinions
  • The incentive to be offensive or extreme (click behaviours)
  • Micro-targeting of voters bypassing spending controls
  • False relevancies (Google and Twitter bombs)
  • Hidden or uncertain identities
  • Misinformation and disinformation exploiting these channels.
  • Social media usage varies by region- The usage of social media does not seem to be evenly spread out across the country at the moment. An analysis of usage of various social media platforms by regions reveals that the eastern part of the country seems to be lagging behind the rest of the country at present. Not only this, but three-fourths of voters in this region found to have no exposure to social media at all as per social media exposure index.
  • Passive Recipients of News- A majority of the population claimed that they never share any political material online. It has been evident that social media users seem to be relatively more comfortable in just being passive recipients of political news on social media sites rather than actively sharing news that is political in nature.  A much larger mass is said to have read political news on social media daily or sometimes, than those who claimed to use social media for expressing their political views or sharing political news. 
  • Existence of Upper-Class dominance- The social media space has always been upper-caste dominated and continues to be so. Upper castes are nearly twice as likely to have high or moderate exposure to social media as Dalits and tribals. This has been a consequence of the technological gap faced in the countries worldwide, since those who are educated, rely upon the trends of technological innovations, yet the uneducated or technologically weaker sections remain extrinsic to such privileges.  Some of the communities having access to technology have reported higher usage of social media than the other communities, however, lower than the upper castes. At the other extreme, for those who don’t have access to social media at all, the gap is even wider among communities. This problem of deficit accessibility poses a serious threat to Indian politics, as yet, a large mass of population exists in the circle of the uneducated. 
  • Paid News in the Parliament – In recent months, instances have occurred where individual candidates, as well as political parties, have given out monetary consideration to publishing houses to give out articles of their promotions, disguised as “News”.  This has been commonly referred to as the ‘Paid News Syndrome’. It is distorting parliamentary democracy in multiple ways, such as distortion of media being more objective and thus hampering political choices of the people by providing undue advantage to those candidates/political parties who are able to afford these packages, over those who remain out of reach of such medium. This unethical arrangement manipulates democracy, by negating the disadvantaged, thereby breaching the provisions of the Constitution of India. Paid advertising also increases the “dumbing down” of political debate. Local candidates who do not enjoy much popularity and influence are keen on self-promotion, rather than the agenda focussed upon, since social media doesn’t promote a descriptive debate, rather a hazy attempt. Paid political advertising in the broadcast media has traditionally been prohibited in many countries, whilst it has been accepted in others. 
  • The issue of defamation- Politics is an arena that is usually associated with unethical memoranda, usually leading to foreseeable instances of one political group condescending the other, in the run for vote banks. Especially, where the focus is laid on key constituencies such as the NCT of Delhi, those in Uttar Pradesh, the picture is clear to show rivalry among different groups, often ending up defaming the other to convince the mass into supporting them. While Social media goes unregulated, in concerns with the people’s fundamentally guaranteed freedom of speech & expression, keeping a stringent check upon the same offers a wide criticism rather than focus on the dignity of the defamed.  Instances of sarcasm over social media may get the picture of a ‘Meme’, but it surely violates one’s liberty when they are publicly targeted to blemish their agenda over those who resort to such measures. Previously, broadcasting regulations such as advertising restrictions and impartiality obligations were not essential measures as the platform of Social Media in itself is the conundrum. Disintermediation of political campaigning undermines traditional filters based on journalism values of truth, fact-checking and separation of opinion from fact.
  • New actors in the electoral process: Intermediaries adopt powerful new gatekeeper positions that enable them to influence the outcome of electoral processes. Search engines, seen as trustworthy by a majority, have the potential to influence the electorate’s attention and voting preferences. Epstein and Robertson (2015) have highlighted the “search engine manipulation effect”, showing that a biased search engine result ranking can shift undecided voters towards one candidate. This could lead to new forms of corruption and manipulation that are not captured by existing rules that focus mainly on broadcasting and cross-jurisdiction boundaries. 
  •  Truth and misleading statements: Disintermediation of political campaigning undermines traditional filters based on journalism values of truth, fact-checking and separation of opinion from fact. One of the key drawbacks of social media is the authenticity of facts and claims, as the global audience is trapped in the Fastrack channels of information transmission that it seems quite lethargic to pace up with the non-stop sharing of ideas and beliefs. To some extent, rumours and abject statements have caused instances of social upheaval among the mass audience and post-investigation, most of these have no authentic sources and are merely the results of negligent and unaware media that go un-regulated. 
  • Transparency: Social Media has its own paradox. The fact that such platforms are accessible to anyone across the globe, makes them prone to misleading prophecies. Since it is easy for anyone to be on Social Media with just an active Internet, it leads to the creation of fake extremist accounts that directly or in some way pose a threat to sentiments of religious/political groups and such outrages are channelled by political activists to enhance their own political propaganda.  


We can undoubtedly observe individuals and groups, who frequently change their names to get more followers in order to spread fake news, hate speeches etc, with malafide motives to exploit and manhandle the social and political thoughts. As already mentioned with the increasing internet penetration and Smartphones, the users of Social Media are increasing. However, the key threat is the failure to differentiate between fake news/content and authentic ones.

Regulation: human rights concern

Human Rights,have attained their stature owing much to the United Nations Declaration on Human Rights (UDHR), to which many states of the world are signatory. They have constantly raised the issues pertaining to human rights on the philosophy that such rights are ensured to every person, that must not be neglected at any cost, on being the born humans of the natural law. 

In consonance with Human Rights, as well as the Constitutional law in India, Freedom of Expression is fundamental, and political speech is the most protected form of speech, guaranteed to every citizen of India, as well as to every person in the world when we talk about it with a global reference. Freedom of Speech and expression is broadly understood as the notion that every person has the natural right to freely express themselves through any media and frontier without outside interference, such as censorship, and without fear of reprisal, such as threats and persecutions. Similarly, Article 19 (1) (a) of the Constitution of India also confers on the citizens of India the right “to freedom of speech and expression”, also includes the right to propagate or publish the views of other people. 

From a human rights perspective, seeking to regulate the content found on online platforms carries serious human rights risks. Despite having framed certain policies to regulate the media coverage over false descriptions and avoid the use of malpractices, there is however, a meagre accommodation of those principles into the domestic laws. The states having enjoyed their sovereignty, pertain to the public concerned and form such laws of their will.  While some states cooperate with the media to censor it, others are strong advocates of the fundamental rights of freedom of expression and conceive it as a violation. The risk would be to create a censorship model that would limit freedom of expression during elections. In fact, human rights principles recognise that speech is precious and limitations on speech particularly during electoral events would constitute a clear human rights violation. 

Statutory regulation

Misguided social media usage has had a serious and damaging impact on innocent audiences; undermines democratic practices; affects markets, industry and health; is a tax fraud; a question of ethics. Various bodies administering the processes of Elections have recommended a need for self-regulation as an eyewash, and advocate to establish statutory bodies to check upon media contents in both print and electronic media, with powers to take strong actions.  Elections have been the usual instrument by which modern representative democracy has functioned since the 17th century.

Our discussion is restricted to part XV of the Constitution of India which deals with Articles 324 to 329. These articles are the requirements related to elections that are cherished in the Constitution. With the inclusion of such provision in the Constitution of India, regulation of election has been strengthened by the establishment of such bodies. Article 324 is not only restricted to the appointment of the members who shall constitute the commission but also talks about conduct, supervision and control of free, fair elections and peaceful elections with regards to the Lok Sabha, Rajya Sabha, president and the vice-president.

The Election Commission (EC) of India is the only entity that has been given the authority to supervise, direct and control elections. In R.M. Seshadri v. G. Vasantha Pai, it has been held that:

“……………The policy of election law seems to be that for the establishment of purity of elections, investigation into all allegations of malpractices including corrupt practises at elections should be thoroughly investigated…………”

To conduct free and fair elections is the main goal of the Election Commission of India. But malpractices spurt mostly during the time of an election, making it burdensome and at this time the role of the election commission is very important to curb this menace. Article 19(2) provides for a number of grounds for imposing reasonable restrictions on the freedom of speech and expression. These are the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence. 

First of all, the election commission has decided to go by the definition of the Press Council of India as any news or analysis appearing in any media for a price in cash or kind as consideration. The practice of paid news has to be seen as an attempt to circumvent the provisions of Sections 77 and 123 (6) of R.P. Act 1951 which prescribes accounting and ceiling of election expenses and makes exceeding such prescribed limits a corrupt practice in elections. The Commission, having taken strong cognisance of such matters, has issued guidelines for chief election offices in every state to stay conscious of misleading use of social media as a way to negatively influence the public.

The election commission has proposed amendments in the Representation of People Act, 1951, to provide therein that publishing and abetting the publishing of ‘paid news’ for furthering the prospect of the election of any candidate or for prejudicially affecting the prospect of the election of any candidate be made an electoral offence under chapter-III of Part-VII of Representation of People Act,1951 with a punishment of a minimum of two years imprisonment. A series of guidelines were incorporated further in 2008, to constitute a Media Certification and Monitoring Committee (MCMC) in each district during the election period to take up the additional task of keeping a check on the cases of electoral fraud at the time of campaigns. The Election Commission of India through its different initiatives have taken serious note of cases during elections.  In the statutes that govern the Elections in the Indian subcontinent, certain formalities have also been laid out that are intrinsic to the registration of candidates who participate in the elections as representatives of the people. ECI issued Instructions with respect to the use of Social Media in Election campaigning on 25th Oct 2013

i.  Information to be given by candidates about their social media accounts.

Candidates are required to file affidavits in Form-26 at the time of filing of nominations. Para 3 of this Form requires that the email ID of the candidate if any, and authentic social media accounts of candidates.

This information should be furnished in the said Para 3 as follows: – 

“My contact telephone no.(s) is/are…………………., my email ID (if any) is …………., and my social media accounts (if any) are…………………………..”

ii. Pre-certification of Political advertisements on social media

Every registered National or State political party; and every contesting candidate, proposing to issue advertisements on television channels or Social Media, will have to apply to the ECI, or the designated officer for pre-certification of all political advertisements on electronic media before the publication. It should be ensured that no political advertisements are released to any internet-based media/ websites, including social media websites, by political parties/ candidates without pre-certification from competent authorities. 

iii. Expenditure on campaigning through the internet including social media websites

According to Section 77, subsection (1), of the RP Act, 1951, every candidate is required to keep a separate and correct account of all expenditure in connection with the election incurred or authorized by him. The Hon’ble Supreme Court of India had directed in Common Cause Vs. Union of India in 2005 that political parties should also submit a statement of expenditure of elections to the ECI and such statements are required to be submitted. This, among other things, shall include payments made to internet companies and websites for carrying advertisements and also campaign-related to operational expenditure on making of creative development of content, operational expenditure on salaries and wages paid to the team of workers employed by such candidates and political parties to maintain their social media accounts etc.

iv. Application of MCC to content on the internet including social media

The Model Code of Conduct remains in place during the elections in respect of political parties and candidates; it is clarified that the provisions of MCC shall apply to the content being posted on the internet, including social media websites, by candidates and political parties. The Commission instructed the CEOs of all States/UTs to be interactive and accessible with the stakeholders through activating their official accounts on social media platforms like Facebook, Twitter, etc.

Considering the regulatory need for social media content and in the interest of transparency and a level playing field in the elections, ECI has updated its guidelines and instructions in its Handbook for Media for conducting free & fair elections. The Commission in furtherance has duly authorized CEOs of states, as well as Officers to establish a complaint redressal mechanism, relating to the Social media misuse, and have been granted powers to take expedited actions wherever necessary, to curb the campaign fraud and social disruptions. 

Imposition of restrictions severely upon the Representatives of a Democracy would marr the key objective of the principles of representative democracy. To avoid the contingencies and create a balance, NBSA has issued guidelines to ensure that broadcast of news and current affairs programmes and all other content on news channels are being objective, accurate and duly verified:

  1. It is obligatory for the News channels to give out necessary legitimate information about electoral events, political parties/candidates as per rules and regulations laid down under The Representation of the People Act 1951 and by the Election Commission of India. 
  2. In cases of political affiliation to a particular political party or a candidate, the Channels must publicise such information. Moreover, biases must be restricted while reporting to avoid single-facet news that might cause social harm to the other political groups.
  3. News broadcasters shall endeavour to ratify before publishing any piece of vague information, and must avoid rumours without a firm belief as to the true facts. Any candidate/political party that becomes a victim of defamation by such news channel on account of a rumour, should be afforded prompt correction, and where appropriate granted an opportunity of reply.

Furthermore, ECI proposed recommendations for Amendment to Section 126 of the RP Act 1951.

The Committee submitted its report on 10th January 2019 and proposed to the Ministry of Law & Justice, some amendments to this Section. 

“126. Prohibition of public meetings during a period of forty-eight hours ending with an hour fixed for conclusion of poll. – (1) No person shall- 

(b) publish, publicise or disseminate any election matter by means of print or electronic media; or through intermediaries or through any other means; 

Explanation. – For the purposes of this Section, –

(a) “disseminate” includes publication in any “print media” or broadcast or display on any electronic media. 

(b) “election matter” means any matter intended or calculated to influence or affect the result of an election…’ 

(c) “electronic media” includes internet, radio and television, including Internet Protocol Television, satellite, terrestrial or cable channels, or internet/digital versions of Print Media, mobile and such other media either owned by the Government or private person or by both; 

(e) “print media” includes any newspaper, magazine or periodical, poster, placard, handbill or any other document;”.

Global outlook towards regulation

Some countries take the view that there is no special need for regulation during elections assuming that the plurality of media is itself a sufficient guarantee that there is an adequate platform for public debate. They highlight the utmost importance of guarding the freedom of Press and opinion, and consider the claims for regulation a threat to the liberty and ideal democracies. Social media has the power to reach the masses and distribute information, with everyone creating awareness, scrutinizing the powerful and exposing mismanagement and corruption.  Contrary to those, the flexible democracies and states take the view that some kind of regulation impacting the media, or self-regulation is necessary to hold the media accountable for the misleading pieces of information, owing much to their dependence upon those political groups which provide them monetary assistance. In some cases, regulations are imbibed voluntarily within the Press by listing out the framework and channels of study. However, in order to ensure a healthy media is established upon trustworthy ethics, it requires a regulator, such as the Government to keep checks upon its activity.
According to the Venice Commission, Guidelines on Political Party Regulation (2010) money in elections is regulated in order to ensure campaigns are: 

► Fair: to prevent improper influence (and ensure the independence of parties) on political decisions through financial donations;

► Clean: to ensure all political parties have an opportunity to compete in line with the principle of equal opportunity; and 

► Clear: to provide for transparency in the expenditure of political parties.

The overarching objective of campaign regulation is to protect the integrity of elections, ensure they are free and fair, and not captured by a narrow range of interests.

The United Kingdom at present, has no legislative prohibitions or control over the practice of Social Media for the conduct of electoral processes. The conduct of the media is controlled by the internal guidelines prepared by the media houses. The British Broadcasting Corporation (BBC) drafted their own internal guidelines which help the media corporations to maintain impartiality and fairness in the elections and also does not influence the views of the voters, which is also maintained in Section 6 of Ofcom Broadcasting Code which provides for detailed regulations regarding impartiality by the media houses during elections and referendum periods.

The Representation of Peoples Act, 2002 includes Section 66A in the original 1983 Act. The Section provides for prohibition on publication of polls and states that no person shall report any forecast as to the result of the elections or views of the voters after they cast their respective votes before the polling closes and this section applies to both parliamentary and local elections. Furthermore, the publication of exit polls is also prohibited during voting for European Parliamentary elections. As observed in Finland, The Council for Mass Media is a self-regulating independent body, which developed guidelines for journalists with the aim of supporting the responsible use of freedom of speech. The Council promotes good journalistic practice and considers complaints on breaches of professional ethics, including during the election campaign. It enjoys the investigative role when violations pertaining to the freedom of media are brought to its attention. The Council’s decisions are then published on its website, including the complete decision if the complaint is upheld. Such verdicts tend to be very influential, and media journalists largely act within the legal and ethical norms.

This variation of approaches complicates any attempt to produce comprehensive recommendations on the regulation of media and social media during elections as specific cultural and local factors will need to be borne in mind. Some of the most developed democracies and exemplary open societies (Sweden, Norway or France, for example) have different levels of restrictions of political advertising, including even the total ban of it, while some other countries (Denmark, for example) do not allow advertisements with political messages to be broadcast during the election campaigns, where a total ban is considered necessary to protect voters from inappropriate influencing. Regulatory frameworks with provisions on equal treatment of political parties by the media exist in many countries. Nevertheless, in practice, there are generally shortcomings and some frameworks are insufficient. The basic frameworks in western countries include the principle of fair, balanced and impartial treatment of political parties by the broadcast media. 

Despite the existence of legislation incorporating such a principle, it is nevertheless also recognised that the internal rules of broadcasters and professional codes of conduct, that is, all types of self-regulatory practices, will be the factors that largely determine how the election is actually covered. Twitter said it would ban most political ads, excluding those aiming to increase voter registration. Twitter’s chief executive Jack Dorsey argued that political ads offer a larger megaphone to those with deeper pockets than their opponents and that they have helped spread harmful content. By contrast, Facebook exempted political ads from its usual fact-checking procedures, sparking outrage among its critics. Allowing politicians and parties to make statements without scrutiny makes Facebook’s anti-disinformation efforts look hollow.

Conclusion

In light of such dimensions of media, the need to regulate the availability and accessibility to the data over social media has gathered momentum. Election regulation is usually interpreted as the act of restriction to the political candidates/parties in pursuance of their electoral strategies, however, since it is an accepted fact that campaigning is an integral process of elections; care must be taken in such furtherance. Social media platforms, nonetheless, often offer systematic ways of campaigning as well as providing low-cost opportunities, thus the focus must remain upon the creation of a well-equipped stimulus to provide for a smoother presentation over social media, rather than curbing the extent of using these platforms. Restrictions on content are justified by the impact of broadcast media, which produces an information scarcity that needs to be rationed.

Election campaigns should be publicly funded while expressing concern about the phenomenon of paid news. Historically, the usage of offline media revolved around the hassle about the expansion of content- availability and transmission of data to a larger mass of people, with key objectives of generating voluminous data with accessibility to the larger section. With the shifts in the generation, the onset of the Online platform, the Social Media, has turned the tables. The regulation of data and information, at present, pertains to the difficulties in handling huge amounts of data, to regulate the content sharing with no effective tool to freeze the immense knowledge bases. Availability of accurate, objective and complete information to enable citizens to exercise their franchise, based upon a well-informed choice, is the basic requirement of free and fair elections.

Hence, the importance of the State regulating social media also cannot be denied. As long as the interests of people are considered and adopted, there can be no objection to government regulation however draconian measures such as censoring i.e. encroaching upon the civil rights of the people viz. freedom of speech and expression etc. must be strongly avoided. Evidently, both ECI and Social Media platforms are taking actions in curbing fake news, hate speeches, but we should remember that it is easier said than done, because of the sheer volume of information that is generated and so quickly it spreads, and bad past experiences in Social Media platforms.  A single initiative or measure cannot improve the situation; thus, a combination of efforts is required, which can be initiated by adopting measures such as self-regulation by the media itself. If such regulations fail, recourse must be taken from the guidelines proposed by professional bodies such as academics, independent researchers, civil society groups and regulatory agencies like the Press Council of India, the Information Commission, the Election Commission of India and the Telecom Regulatory Authority of India (TRAI). In this scenario, the need has arisen to fast-track the checks upon journalism in the mainstream media in our society. If it is left unchecked then it can undermine democratic processes in our country which is the largest in the world in terms of the electorate.

Government agencies lack sufficient machinery and often use a ham-handed approach to enforce while mandating Internet shutdowns, which proves to invoke the principles of the Constitution. We need to recognise the desire is not to impose an ‘authoritarian internet shutdown’, rather an acknowledgement to protect and safeguard democratic integrity. Given the widespread view that restrictions on content outside of the parameters of international rights principles are unacceptable in a democratic society, I recommend that election regulations should be focused on achieving outcomes by setting goals for intermediaries about what they are expected to do and how they should do it procedurally. The regulator should not seek to determine what is and is not said on social media platforms – in fact, they should protect the freedom of speech of citizens and political actors during an election event. But they should set out clearly the democratic and speech outcomes necessary to ensure a free and fair election central to which is the right to free expression.

The relevance of social media being a democratic yet politically influential platform owes much to the participation of the Public. Therefore, the social media platforms of prominent political personalities must involve active input/ participation from the mass to initiate harmonious negotiations and confidence-building. It is the hallmark of every democracy to be all-inclusive and at the same time, for the needs and political aspirations of people, and such principles must be kept at the forefront while administering the processes of governance.

Download Now

Understanding the Union Executive of India through case laws

0

This article has been written by Oishika Banerji of Amity Law School Kolkata. This article provides a detailed discussion on the Union Executive under the Indian Constitution, using case laws. 

Introduction

Articles 52 to 78 of the Indian Constitution cover the provisions for the Union Executive of India. These provisions have been incorporated in line with the British Parliamentary System, with the only difference between India and England being that the head of the State is a monarch in the former, while it is the President at the union level and the Governor at the provincial level in the latter. The principal executive functionaries of the Union of India includes;

  1. The President of India;
  2. The Vice-President;
  3. The Council of Ministers; and
  4. The Attorney General of India.

Article 73 of the Constitution of India makes room for the executive power of the Union which includes;

  1. Parliamentary law-making;
  2. Rights, authority, a jurisdiction that can be exercised by the Indian government under an agreement, or a treaty. 

It is always preferable to understand the provisions covering the Union Executive using case laws, and therefore, the same has been adopted by this article. 

Understanding the Union Executive of India through case laws

The case laws that have been discussed hereunder are very important as they discuss the relevance of the articles of the Indian Constitution and the underlying purpose of the same. Although these cases are not presenting an exhaustive list of judgments delivered by the Indian courts in concern with the Union Executive, they are significant in themselves. 

S.S. Inamdar v. A.S. Andanappa (1971)

Article 58(2) of the Indian Constitution, which provides one of the eligibility criteria for an individual to hold the designation of the Indian President, states that a person must not be holding any office of profit under the Union or state government to qualify to the position of the President of India. The Supreme Court of India while deciding the case of S.S. Inamdar v. A.S. Andanappa (1971) explained the meaning of the term “office of profit”, which has not been defined anywhere in the Constitution of India or the General Clauses Act. The Apex Court stated that the term signifies an office that would be capable of yielding either pecuniary gain or any kind of material benefit in form of profit. 

N.B. Khare v. Election Commission (1957)

The case of N.B. Khare v. Election Commission (1957) knocked the doors of the Supreme Court of India concerning the time of the election of the Indian President as has been provided under Article 62(1) of the Constitution of India. The article mandates that the election of the President must be held before the term of the former President expires. In the present case, when the term of the then President of India, Dr. Rajendra Prasad was about to expire, and new election dates were fixed, a petition under Article 71(1) by Dr. Narayan Bhasker Khare contended that general elections that were to take place in parts of Punjab and Himachal Pradesh have stayed and therefore the prospective candidates who might have been elected were to be deprived of their right to vote in the Presidential election, was moved to the Apex Court. Rejecting the said petition on technical grounds, the top court held that any application under Article 71(1) of the Indian Constitution could be entertained by the Court only after the election had taken place. 

It was after the decision made in this case, the Constitution (11th Amendment) Act, 1961 was passed, amending Article 71 by inserting a new clause (4) which provided that the President or Vice-President’s election were not to be called for the question based on the existence of vacancies for whatever reasons existing among the electoral college members electing the President. 

In re-Presidential Election (1974)

The question before the Supreme Court of India in the case of In re Presidential Election (1974) was whether, to fill the vacancy that had resulted due to expiry of the term of President’s office, the election must be completed before the expiration of such term or not, taking into account that the Legislative Assembly of the state of Gujarat was dissolved in the present case. While delivering the judgment in the present case, Chief Justice Das had taken reference from the previous case of N.B. Khare v. Election Commission (1957) held that after the amendment of Article 71 of the Constitution, the election was not to be questioned because of vacancies that were created as a result of the dissolution of the Assembly or Assemblies. 

Kehar Singh v. Union of India (1989)

The issue before the Apex Court of India in the case of Kehar Singh v. Union of India (1989) was whether the President of India can scrutinize evidence or not. In the present case, the petitioner who was convicted for the murder of Mrs. Indira Gandhi presented a petition before the President through his son, who claimed that his father was innocent thereby demanding a personal hearing for him. The President had replied that he could not visit the merits of the case that was already decided by the highest court and therefore rejected the petition under Article 72 of the Indian Constitution. The petitioner’s son had then filed a special leave petition and a writ petition under Article 32 before the Apex Court. The Supreme Court in this present case had observed that it is open to the President of India to scrutinize the evidence on record in a criminal case under Article 72 and therefore come up with a conclusion in the same which would be different from that of the Court. By doing the same, the President would not be modifying, superseding, or amending the judicial record. 

The Court further observed that Article 72 of the Constitution vests constitutional powers on the President which did not fall within the ambit of judicial review on merit, nor could be bound by the guidelines of the Court. Thus a court will not be able to inquire into the President’s action under Article 72 concerning why a mercy petition was rejected by the President. 

Epuru Sudhakar v. Government of A.P. (2006)

The Supreme Court of India laid down the grounds for challenging judicial review of the President or the Governor’s order under Article 72 or Article 161 of the Constitution respectively, in the case of Epuru Sudhakar v. Government of A.P. (2006). In this case, the wife of the convict had made a representation before the Governor for granting pardon to her husband who was implicated in a false case. The Governor had granted remission of the unexpired sentence which made the sons of the deceased convict file a writ petition before the Apex Court on the ground that the remissions were based on irrelevant grounds without taking a note of relevant materials present for consideration. The grounds that were decided by the Court to serve the basis of a challenge have been presented hereunder; 

  1. The order has been delivered without application of mind and reasonable consciousness;
  2. The order is mala fide by nature;
  3. The order has been passed on irrelevant grounds;
  4. While passing the order, the relevant materials were kept out of consideration;
  5. The order is arbitrary in nature. 

State of Rajasthan v. Union of India (1977)

The Supreme Court of India while deciding the case of State of Rajasthan v. Union of India (1977) provided two necessary grounds that could be only invoked while challenging the President’s satisfaction under Article 356 of the Indian Constitution. The grounds are provided hereunder;

  1. If the President’s satisfaction have violated certain constitution provisions;
  2. The President’s satisfaction is mala fide and wholly based on extraneous grounds. 

S.R. Chaudhary v. State of Punjab (2001)

In the case of S.R. Chaudhary v. State of Punjab (2001), the Supreme Court of India observed that without being a Legislature’s member, an individual cannot be appointed in a minister’s post for more than a period of six months during the same Legislative Assembly being in session. This condition will be applicable during the minister’s appointment in the Prime Minister’s office at the Union. 

State of Karnataka v. Union of India (1978)

The Supreme Court of India while deciding the case of State of Karnataka v. Union of India (1978) explained the meaning of the principle of collective responsibility. The Apex Court observed that the principle of collective responsibility has a political origin as it signifies that all the members of the Council of Ministers should be collectively responsible towards the Legislature for any decision that has been taken by them. It is the mechanism using which the Council of Ministers discharges their political responsibilities. The necessity of the principle of collective responsibility can only be felt when the Indian Parliamentary system is functioning. Thus, all the ministers must stand together while deciding on a particular subject matter. 

S.P. Gupta v. President Of India And Ors. (1982)

A bench comprising Justice A Gupta, D Desai, E Venkataramiah, P Bhagawati, R Pathak, S M Ali, and V Tulzapurkar of the Supreme Court of India decided on the binding nature of the advice given by the Council of Ministers, in the case of S.P. Gupta v. President Of India And Ors. (1982). The question, in this case, was not as to what was the advice that was provided on the appointment of judges but whether there was a factum of effective consultation between the relevant constitutional authorities who were involved. The top court held that “the life of a Judge does not really call for great acts of self-sacrifice, but it does insist upon small acts of self-denial almost every day”. The Court held that while the counsel provided by the Council of Ministers to the President would be protected from legal scrutiny, the correspondence between the Law Minister, the Chief Justice of Delhi, and the Chief Justice of India was not protected, simply because it was mentioned in the exhortation.

R.C. Cooper v. Union of India (1970)

The issue that came up before the Supreme Court of India in the case of R.C. Cooper v. Union of India (1970) was whether the President’s satisfaction for granting an ordinance be a subject matter of challenge in a court of law or not. Justice Shah who spoke for the majority in this case observed that the clause concerning the satisfaction of the President is to be considered as a composite one as the satisfaction relates to both exercise of circumstances and the need for taking an instant action on the provided circumstances. Such determination by the President of India has not been declared final. The Court went ahead to state that an ordinance is promulgated in the name of the President of the nation and on the reliance his or her satisfaction is a constitutional explanation. 

After the decision made in this case, it was the Constitution (Thirty-eighth Amendment) Act, 1975 that had inserted clause (4) in both Articles 123 and 213 of the Indian Constitution that provided the President’s satisfaction to be final and conclusive by nature and was not to be questioned by any court on any ground. As this clause granted excessive power to the nominal head of the country, the same was omitted by the Constitution (forty-fourth Amendment) Act, 1978

Conclusion 

The Union and the State Executive are considered as one of the significant organs of the Indian government. The executive is responsible for executing the laws made by the Indian Parliament thereby ensuring effective implementation of law and order in the Indian State. Therefore, one cannot ignore the role played by the Indian executive in the functioning of the government of democratic India. 

References 

  1. https://nios.ac.in/media/documents/srsec317newE/317EL10.pdf
  2. https://www.toppr.com/guides/general-knowledge/indian-constitution-fundamental-concepts/the-union-executive-and-legislature/
  3. https://www.brainyias.com/union-executive/
  4. https://data-flair.training/blogs/union-executives-of-india/

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

Latest cheque bounce cases in India

0
Image Source- https://bit.ly/3e0i8E5

This article is written by Gursimran Kaur Bakshi. The article is meant to explain the recent cases on dishonouring of cheques and its related aspects.  

Introduction

The Negotiable Instrument Act, 1881 (N.I. Act) is the legislation concerning the dishonour of cheques. As per the Act, the meaning of cheque for the purpose of the Act has been defined under Section 6 as a bill of exchange drawn on a specified banker and payable on demand. 

According to Section 138, dishonouring of cheques is punishable with imprisonment which may extend to two years in case of endorsement of insufficient funds. In recent cases, it has been frequently observed that the cases relating to the dishonour of cheques remain pending for a long time. A delay in the completion of trials for offences under Section 138 has decreased the sanctity of the legislation. Given below are certain cases that deal with different aspects of dishonour of checks.

Important provisions on dishonour of cheques under the Negotiable Instruments Act 

  • Dishonour of cheques is a punishable offence under Section 138 for a period of one year or a fine. The imprisonment may extend to two years. 
  • The procedure for taking cognizance of an offence under Section 138 is present in Section 142. Whereas, Section 147 makes the offences under the Act compoundable. 
  • Section 139 sets the presumption in favour of the drawee that the cheque received by him is for the discharge of any debt or liability of the drawer. This discharge of debt can be in whole or in parts. 
  • Section 143 deals with the trial of cases under Section 138 which is summary proceedings notwithstanding anything contained in the Criminal Procedure Code, 1973 (CrPC). Section 143 was added by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002. Section 143(3) specifically mentions that efforts must be taken to complete the trial proceedings within six months from the date of filing the complaint by the drawee. 
  • Section 140 states that the drawer cannot take this defence of not knowing that the cheque may be dishonoured on presentation. 

Judgments on dishonour of cheques in India 

On condition precedent that should be fulfilled before an offence under Section 138 is made out

MSR Leathers v. S. Palaniappan and Anrs (2012) is an important judgment laying down the condition of precedents that should be followed before an offence under Section 138 is made out. According to the case, the first condition is that a cheque must be presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. However, the validity of the cheque was reduced to three months as per the 2011 Reserve Bank of India’s notification

As per the second condition, the payee or the holder must make a demand for the payment of the said amount by giving a notice in writing. It should be presented to the drawer of the cheque within thirty days of the receipt of the information by them from the bank regarding the return of the cheque as unpaid. 

The last condition is that the drawee of such cheque should have failed to make payment of the said amount of money to the payee or the holders, as the case may be, in the due course of the cheque within fifteen days of the receipt of the said notice. 

On why cases are pending under the N.I Act

In Re: Expeditious trial of cases under Section 138 of the N.I. Act 1881 (2020) is the latest landmark case of the N.I Act. The Supreme Court through this case took a suo moto cognizance over the pending cases of the N.I Act. The Court recognised that a lot of cases on dishonouring of cheques have been pending for the last 20 years at different levels. The Court ordered that certain steps should be taken to expedite the process of trial.

An Amicus Curiae or friend of the Court was appointed to prepare a report on the reasons pertaining to the delay in the summary trials under Section 138. On the basis of the preliminary report, it was found that out of the total number of criminal cases pending till the end of 2019 which was 2.31 crores, 35.16 lakh belongs to cases under Section 138. 

The reasons for the delay are namely:

  • A delay in serving the summons.
  • Conversion of summary trials to summon trials without recording cogent reasons.
  • Inconsistency in deciding whether the issuance of process under Section 202 of the CrPC requires preliminary inquiry on the part of the Magistrate.
  • Offences committed as part of the same transaction are not jointly tried under Section 220 CrPC.

It was ordered that the Magistrate should conduct an inquiry on the receipt of complaints under Section 138. It will allow the Magistrate to arrive at sufficient grounds to proceed against the accused person if that person resides beyond the territorial jurisdiction of the Court. 

The evidence of the witnesses on behalf of the complainant shall be permitted to be taken on the affidavit for the purpose of the conduct of inquiry under Section 202 of the CrPC. However, the Magistrate can restrict the inquiry to the examination of documents only in suitable cases. 

There must be practice directions issued by the High Courts to the Magistrate to record reasons for converting summary trials to summon trials for the purpose of Section 138. 

The practice directions must also be issued to treat the service of summons in one complaint to be a part of all complaints forming a part of the same transaction under Section 138. 

For the sake of avoiding multiplicity of the proceedings, amendments must be made to the present Act to join different proceedings arising out of the same transaction into one that has taken place within the period of 12 months. The Court has also proposed the establishment of temporary Courts to expedite the trials under the N.I Act. 

On offences under Section 138 to be person-specific 

This is an important case on the point of understanding the law as laid down in Section 138 was dealt with in N Harihara Krishnan v.J. Thomas (2017). A cheque to pay for the sum of thirty-nine lakhs was dishonoured on the ground that the account on which the cheque was withdrawn has been closed. A notice for the same was sent to the respondent to pay the amount within 15 days from the receipt of the notice. However, neither the payment was made nor any response to the notice was communicated. 

The issue in this case which also became a concern of the appeal was that the cheque was withdrawn against the person and not the company on whose behalf a person has signed the cheque. The person liable should be the company and not the individual who was represented in the capacity of the Director. 

The Court clarified that the offences under Section 138 are offender specific and not offence specific and that is why it is not enough that the cognizance of the offence has taken place. The Magistrate will have to find out who the real offenders are. That is why the name of the Director was required as a factual necessity for the prosecution to initiate a trial but that does not mean that it was not clear that the cheque was drawn in the name of the company. This reasoning was reiterated in Balasubba Naidu v. Gnnprakasam (2020).

On when the intention of the drawer to not pay is clear 

In Ravi Dixit v. State of UP & Anr (2020) the Allahabad High Court observed that the drawee does not have to wait for a period of fifteen days to initiate a prosecution under Section 138 if the intention of the drawer to not pay is clear. Section 138(c) stipulates that the drawer should be given a minimum period of fifteen days to make the payment which is bona fide in nature to avoid unnecessary hardship to him if he wants to make a payment. 

In this case, the intention of the drawer was clear based on the reply to the notice for payment. The Court held that the proviso to Section 138 is there to delay the prosecution of offence but that does not mean that the same cannot be initiated when the intention of the drawer to not honour the liability is clear. 

On maintainability of security cheque 

In Cc No. 9832/2016 M/S East-West Fire v. M/S Vasu Infosec (2021), the Court observed that the term ‘security cheque’ is not statutorily defined in the N.I. Act. The Court cannot get away with the liability incurred under Section 138 by taking the defence that the dishonoured cheque was a security cheque. The same is maintainable for incurring liability under Section 138. The reasoning of the Court was based on the judgment of Suresh Chandra Goyal v. Amit Singhal (2015). The term security cheque refers to honouring debts that may be due and confirmed in future. 

On interim compensation under Section 143-A

Section 143A was added through the 2018 amendment and it allows the Court to grant compensation during the pendency of the proceedings under Section 138. Under the Section, the drawer of the cheque will have to pay interim compensation if he has not pleaded guilty to the accusations made against him under Section 138. The compensation under Section 143A shall not exceed 20% of the given amount of the cheque. 

On the value of compensation 

In M/s. Kalamani Tex vs. P. Balasubramanian (2021) where the issue was related to the presumption of liability under Section 139, the Court also emphasised the need to have a consistent approach in granting compensation by the accused to the drawer of the cheque. Since the Act deals with both criminal liability and civil liability, the compensation awarded for an offence under Section 138 should be twice the amount of the cheque along with the simple interest of 9% per annum. This uniform method of compensation was held in R. Vijayan vs Baby & Anr (2012).

On the retrospective effect of Section 148 on Section 138 

In Surinder Singh Deswal@ Col.S.S Deswal v. Virender Gandhi (2020), the Supreme Court observed that Section 148 of the N.I Act can be retrospectively applied to the criminal proceedings in Section 138 of the N.I Act for the offences that were filed prior to the 2018 amendment Act. The N.I (Amendment) Act, 2018, was introduced to enact provisions for interim compensation. 

In this regard, Section 148 was introduced to empower the Appellate Court to direct the accused person to deposit a minimum of 20% of the fine or compensation awarded by the trial court in cases where the same has been challenged at the appellate stage. This amount would be in addition to the interim compensation allowed under Section 143A. The issue before the Court, in this case, is whether the same is applicable for the proceedings that are already initiated before the amendment. 

The Court interpreted the amendment purposely and observed that the same will be applicable to proceedings that were initiated before the amendment. The retrospective effect of Section 148 was also observed by the Chhattisgarh High Court.  

The Court also observed that the amendments to Section 148 were made because it was found out that the filing of appeals and obtaining stay order on the dishonour of cheque proceedings is easy and that is what frustrates the objective of the N.I. Act. 

On compensation and sentence under Section 138 

In a Supreme Court case of Kumaran v. State of Kerala (2017), it was held that dishonour of cheques does not only result in imprisonment but also compulsory fine. Hence, the accused person will have to pay a fine mandatorily. 

On the presumption of debt 

In ANNS Rajshekhar v. Augustus Jeba Ananth (2019), the Supreme Court observed that the presumption under Section 139 of the N.I. Act is rebuttable on the existence of a legally enforceable debt for the purpose of Section 138. To rebut the presumption, the test of proportionality will be applicable. 

On a similar note, in RohitBhai Jivanlal Patel v. State of Gujarat (2019), it was held that once the presumption of legally enforceable debt is drawn, the complainant need not prove the source of debt. 

On why the issuance of a blank cheque with signatures attracts Section 139

In M/s. Kalamani Tex vs. P. Balasubramanian (2021), the Court stated that a blank cheque bearing the signature attracts the presumption that the same has been drawn in favour of the holder/drawer to discharge the liability for the purpose of prosecution under Section 138. 

The Court referred to the case of Bir Singh v. Mukesh Kumar (2019) wherein it was observed that if the accused person under Section 138 has handed over the cheque to the holder which is voluntarily signed by him to discharge some payment, then the presumption under Section 139 would be applicable. Unless the accused has any other evidence to prove the contrary. Further, the presumption under Section 139 is a presumption based on law and not based on facts. The same position has also been reiterated by the Supreme Court in Triyambak S. Hedge v. Sripad (2021).

On the burden of proof 

Further, in cases concerning Section 138, a mere denial on the part of the accused of debt or liability is not enough to discharge the burden of proof. This was held in Kishan Rao v. Shankargouda (2018).

On financial capacity 

In Basalingappa vs. Mudibasappa(2019), it was held that when a summary trial takes place and evidence from both sides are led, the complainant must explain his financial capacity.

On the subject matter of litigation under Section 138  

The claim for fee-based on the percentage of the decretal amount is not a subject matter of litigation under Section 138 of the N.I. Act. This was held in B. Sunitha v. State of Telengana (2017).

Other updates on the N.I. Act related to the dishonour of cheques

On 8th June 2020, the Department of Financial Services, Ministry of Finance proposed to decriminalise certain minor economic offences including Section 138 of the N.I. Act. It is true that the decision to criminalise or decriminalise an offence is a matter of legislative policy, however, to decriminalise an offence at a time when there is a huge pendency of cases will only create more complexity. 

The legislative intent at the time of criminalising the dishonour of cheques was to increase the efficacy of banking operations and to maintain the sanctity of cheques as a financial instrument as explained in Makwana Mangaldas Tulsidas v The State Of Gujarat (2020). The reasoning of the government to decriminalise Section 138 is based on the ground that it is blocking investments in the country and thereby hurting economic growth. However, the government failed to consider the fact that decriminalisation of the dishonour of cheques means the return of the debtor’s paradise. This is going to disbalance the rights of both parties in a business transaction. 

Cheques are widely used for formal financial instruments in business transactions and the fact that a party depends on them for consideration cannot be ignored. Since it is a criminal offence, that works as a security for the party to avail consideration if the other party fails to pay in the due course of the business. At this moment when business transactions involve a huge amount of monetary considerations, it cannot be expected to make the other party entirely unstable without any guarantee. This concern can also be substantiated from the fact that one of the factors giving rise to the high pendency is that there is a delay on the side of the accused person while appearing before the court. 

Further, there is another concern why the same should not be decriminalised. Decriminalising the provision would mean that the livelihood of a certain class of advocates will be at stake. Strong objections have been raised by the Delhi Bar Council and Maharashtra Bar Council since a lot of lawyers practice in this field of law. A better approach to this would be to analyse the recommendations made by the committee in the In Re Expeditious case. 

Conclusion 

The cases pending under Section 138 are humongous because of the various reasons that have contributed to the complexity of the proceedings. The law on the same is frequently getting more refined. However, reducing the number of cases is a bigger challenge before the Courts currently. The move to decriminalise the offence may not prove effective at this moment since the cases pending for many years cannot be dropped midway. It would mean the return of the debtor’s paradise which will only create more burden to the economy since this would disbalance the equilibrium of the protection for the debtor and the creditor. A better approach would be to make amendments to the present Act at the same time encourage pre-litigation settlements to lighten the burden of the Courts. 

References 


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

A comparison between civil law countries and common law countries

0
Image source - https://bit.ly/3CI9vLq

This article is written by Vivek Maurya from ICFAI Law University, Dehradun. In this article, the author has compared civil law countries with common law countries.

Introduction

The legal systems of countries all over the world are divided into two categories: common law systems and civil law systems. There are around 150 nations with predominantly civil law systems, compared to approximately 80 countries with common law systems.

The basic distinction between the two systems is that in common law countries, case law in the form of published court opinions is of primary significance. Whereas, in civil law countries, codified legislation prevails but these distinctions are not as obvious as they appear. In reality, many countries combine elements of common and civil law systems.

The historical origins of common and civil law systems

The English Crown, which used to issue written commands called “writs” when justice needed to be done, was the basis of the common law system. Since, writs were not adequate to cover all situations, equity courts were eventually formed to hear complaints and develop suitable remedies based on equitable principles derived from numerous sources of authority (such as Roman law and “natural” law). It became feasible for courts to seek up precedential views and use them in current cases as the judgments, which were being gathered and published. It was in this way that common law was born.

In some European countries, civil law may be traced back to a system of rules created by the Roman Emperor Justinian around 600 C.E. Authoritative legal codes based on these laws evolved throughout many centuries in different nations, resulting in comparable legal systems with their unique sets of laws.

Civil law system

There is usually a written Constitution based on specific codes (e.g., civil code, codes covering corporate law, administrative law, tax law, and constitutional law) enshrining basic rights and duties; administrative law, on the other hand, is usually less codified, and administrative court judges behave more like common law judges.

Legislative enactments are the ones that are regarded as universally binding. In civil, criminal, and commercial courts, there is a limited opportunity for judge-made legislation but judges in practice prefer to follow earlier judicial judgments. Constitutional and administrative courts have the power to invalidate laws and regulations, and their rulings are binding on all.

There are generally distinct constitutional, administrative, and civil court systems that pronounce on the compatibility of legislation and administrative acts and they also interpret the underlying codes.

Less freedom of contract, numerous conditions are implied by law in a contract and parties are unable to negotiate out of some obligations.

Countries following the civil law system

Civil law countries are generally former French, Dutch, German, Spanish, or Portuguese colonies or protectorates, covering much of Central and South America. The majority of Central and Eastern European and East Asian nations adopt a civil law system as well – 

China

Civil law plays a vital role in the People’s Republic of China’s (“PRC”) legal system. Civil law is a fundamental law that governs the property and personal relationships of equal subjects and serves as the foundation for many types of special enactments and economic regulations in the economic sectors.

Japan

Japan’s legal system is characterized as a civil law system based on codified law. The legislative heart of the system is formed by the Constitution and the five primary Codes: civil, civil procedure, criminal, criminal procedure, and commercial.

Germany

Germany’s federal Constitution is known as the Basic Law, which is drafted and codified. The federal states also have their own written and codified Constitutions. Although, they are of secondary importance in practice because federal law supersedes state law.

France

France has a civil legal system, which implies that legislation is contained in numerous codes and takes precedence over case law. In civil law systems, the concept of stare decisis does not apply since each case is determined on an individual basis based on how it relates to the codified law and how the judge decides to interpret that legislation. As a result, two instances on the same issue may have quite different conclusions.

Common law system

The laws that govern a case are founded on both legal precedents established by judges and statutory laws established by legislators. In an adversarial system, the judge acts as a neutral referee between competing parties in a dispute. The facts may be determined by a jury but the law will be applied by a judge.

Prosecutors and defense counsel play an active role, while victims serve as witnesses and may have rights to information and limited involvement as victims. However, victims are not a party in criminal prosecutions.

Countries following the common law system

Countries that use the common law system are usually former British colonies or protectorates – 

The United States

The American legal system is a “common law” system that largely depends on court precedent in formal adjudications. Even when a statute is in question, judicial judgments in previous court cases are highly important to the court’s resolution of the subject before it.

England

The common law legal system in England is based on the subject matter heard in previous cases, as well as the law made by judges. It began during King Henry II’s reign (1154-89) when numerous local customary rules were replaced by new national laws that applied to everyone and therefore were “common to all.”

India

The Indian judicial system is founded on the common law system, which was acquired from the British colonial heritage and is based on documented court precedents. The Supreme Court of India, High Courts, and subordinate courts at the district, municipal, and village levels make up India’s court system.

Canada

Canada is a bijural country in which common and civil law coexist except for the province of Québec, the common law tradition applies across Canada in all aspects of public law (e.g., criminal law, administrative law). In Québec, civil law governs all aspects of private law, including family and child law.

Comparing civil law countries and common law countries

Many individuals don’t pay much consideration to the distinction between civil law and common law until they encounter a legal problem. Both forms of legislation are used in various nations across the world depending on the nature of the event. Here are some of the main distinctions between the two systems – 

  1. Approach of the legal process

The two legal systems, common law and civil law are the result of fundamentally different approaches to the legal process. The basic concepts and norms of civil law are written in codes and legislation which are applied by the courts. As a result, codes and legislation predominate with case law serving as a secondary source of law. On the other hand, in the common law system, the law has been primarily formed through court decisions with little regard for a conceptual structure.

  1. Role of a legislator

Civil law is founded on the idea of separation of powers, which states that the job of the legislature is to legislate, while the role of the courts is to implement the law. In common law, on the other hand, the courts are tasked with establishing the law.

  1. Lawyer’s approach to a case

Civil law is founded on codes that include logically linked concepts and regulations, beginning with fundamental principles and progressing to particular laws. A civil lawyer often begins with a legal standard found in legislation and deduces conclusions about the particular situation. A lawyer in common law, on the other hand, begins with the actual case and compares it to the same or comparable legal concerns that have been dealt with by courts in previously decided cases and the binding legal rule is derived by induction from these relevant precedents. As a result of this basic difference between the two systems, attorneys in civil law nations are seen to be more intellectual, whilst lawyers in common law countries are thought to be more practical.

  1. The binding force of precedents

In the civil law system, the courts’ main task is to decide specific cases by applying and interpreting legal norms. In the common law system, the courts are supposed not only to decide disputes between specific parties but also to provide guidance on how similar disputes should be resolved in the future. A court’s interpretation of legislation in a specific case is binding on lower courts, thus under common law, court decisions continue to serve as the foundation for interpreting legislation.

  1. Binding effect of a contract

A contract has no binding effect in common law unless it is backed by consideration. The theory of consideration states that a contract must be backed by something of value, such as a party’s commitment to delivering goods or services or a promise to pay for goods or services. A contract, on the other hand, cannot exist under civil law without a valid cause (causa). The reason why a party enters into a contract and agrees to execute contractual duties is referred to as the cause. Cause differs from consideration in that the reason for which a party binds himself does not have to be to gain something in return.

A party may, for example, engage in a gratuitous contract that binds him to execute a duty for the benefit of the other party without receiving any compensation because only a person who has given consideration may enforce a contract. One of the primary practical ramifications of the distinction between consideration and cause is that common law does not accept contracts in the interest of a third-party beneficiary.

Role of lawyers and judges in each system

In civil law countries, judges are often referred to as ‘investigators’. They usually lead to actions by bringing charges, verifying facts by examining witnesses and applying solutions found in legal codes. Lawyers continue to advocate their clients’ interests in civil procedures, although their position is less essential. However, like in common law regimes, their duties typically involve counseling clients on legal matters and writing legal petitions for submission with the court.

However, when compared to a common law system, the importance of oral debate, in-court presentations, and active lawyering in court is lessened. Non-litigation legal activities, such as will writing and contract drafting, may also be delegated to quasi-legal professionals who assist corporations and private persons but do not have a post-university legal degree or are not licensed to operate before courts.

In a common-law nation, attorneys make presentations to the judge (and occasionally the jury) and question witnesses. The procedures are subsequently “refereed” by the judge, who has slightly more discretion than in a civil law system to construct an acceptable remedy at the end of the case. In some situations, attorneys appear in court to persuade people on issues of law and fact and they play an active part in judicial procedures. In addition, unlike in certain civil law jurisdictions, it is illegal for anyone other than a fully licensed lawyer to produce legal papers of any sort for another person or entity in common law countries such as the United States.

Lawyers, regardless of where they operate, always have an important role to play in formal conflict settlement. However, the exact duties that they are allocated tend to differ quite a little. Outside of the courtroom, duties that would normally be handled by attorneys in one nation may be handled by qualified laymen in another.

Conclusion 

The distinctions between civil law and common law systems are based on argumentation techniques and approaches rather than the content of legal standards. Both civil law and common law seek the same objective using distinct methods, and identical conclusions are frequently achieved through alternative reasoning. The fact that common law and civil law arrive at the same or similar answers while using different methods is not unexpected, given that the subject matter of legal regulation and the underlying values in all legal systems are more or less the same.

References

  1. https://ppp.worldbank.org/public-private-partnership/legislation-regulation/framework-assessment/legal-systems/common-vs-civil-law
  2. https://www.sciencedirect.com/topics/social-sciences/civil-law-system
  3. https://www.britannica.com/topic/common-law

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

Basic qualities and skills that an IP lawyer should definitely have 

0
Image Source - https://rb.gy/gue195

This article has been written by Oishika Banerji of Amity Law School, Kolkata. This article discusses basic qualities and skills that an IP lawyer should definitely have. 

Introduction 

Intellectual property is a developing branch of law and therefore has a lot of envelopes that are to be unfolded. Along with significant development, this branch of law comes with a plethora of challenges that are to be addressed so as to eliminate the hindrances existing in the pathway of its growth. The job of an IP lawyer is immense and layered when it comes to tackling these challenges and therefore an IP lawyer should be skilled and acknowledged with certain basic qualities that can help them excel in this new field of law. This article provides a list of primary qualities and skills that an IP lawyer should be possessing. 

Basic qualities and skills that an IP lawyer should definitely have

Much of the work done by IP lawyers is nothing like the dramatic courtroom confrontations shown in movies and television. Instead, they spend their time at offices and other locations, reviewing or producing essential documents, conducting interviews, and doing thorough analyses of often extremely technical material. Anyone interested in a legal career (IP law or otherwise) should seek educational, extracurricular, and life experiences that will help them develop key attributes such as strong analytical thinking, problem-solving, critical reading, writing and editing, oral communication, listening, and research skills, according to the American Bar Association. Public service, justice promotion, relationship development, and teamwork are some of the other talents and experiences that are encouraged

Basic qualities

Intellectual curiosity 

  1. It is vital for younger colleagues who are interested in IP to demonstrate intellectual curiosity. Not only about the constantly changing state of the law, but also about the economic and geopolitical variables influencing their clients’ relationships in today’s global economy. 
  2. IP associates should be interested in how products are created and marketed today, regardless of the industry in which their client operates. Learning about a client’s business is essential to practice for any lawyer, but IP lawyers have a more complete brief.
  3. They must also learn about their client’s competitors and become knowledgeable with supply networks, indemnity agreements, and the retailer or supplier relationship. Even though a young lawyer must learn technical lawyering abilities to succeed,  enthusiasm in understanding these topics is required.

Dealing with client’s expectations around ownership of the intellectual property at issue

  1. IP associates must deal with their clients’ expectations regarding ownership of the intellectual property at issue, which is possibly the most difficult obstacle provided by a career in IP law. 
  2. Because both sides in any intellectual property dispute will definitely believe that the other side is incorrect on the ownership issue. Either the accused infringer will contest whether the IP is lawfully owned by anyone, or they will argue that the IP owner is mistaken about what they own. 
  3. The IP owner, on the other hand, will feel strongly that their property rights are being violated, even if they enter a fight with the mistaken idea that they own more than they do. 
  4. As a result, IP lawyers must have the emotional intelligence and emotional energy to match their clients’ strong views about ownership, while never failing to educate the client about the strengths and limitations of their position in light of the legal procedure they are involved in. That is, in many ways, the great problem of IP practice, and it is not one for the faint of heart.

Learning the limits of intellectual prowess

  1. You can have both a law degree and a fancy technical (and even graduate-level) degree in science. Working with premier scientists and inventors in a number of fields, who are by nature performing cutting-edge work, is part of the thrill and challenge of a career in IP law. 
  2. Being exposed to developments in science and the arts is thrilling, but the intelligent IP lawyer also recognizes the significance of preserving intellectual humility. Because one of the fundamental talents that distinguish average IP lawyers from their world-class counterparts is the latter’s ability to act as a conduit for sophisticated technical material in the context of a compelling legal argument. To do so effectively, you’ll need the humility to listen to others’ greater expertise.
  3. Furthermore, even if one is a true wizard at assimilating technical information, there is always the issue of damages in IP cases, a subject that can befuddle even the most brilliant minds, and which almost always necessitates the use of an economic expert for the benefit of the factfinder and adjudicator. Nothing is more humbling than attempting to develop or defend a coherent damages theory in even the simplest IP case. 

Required skills

An IP lawyer must be equipped with skills such as logical reasoning, innovative thinking, drafting skills, management abilities, etc to be able to succeed in their professional career.

When it comes to trademark registration, dealing with objections and oppositions is a necessary part of the process

There are a lot more objections and oppositions in registering a trademark since pre-registration input from lawyers is at an all-time low for a big number of trademark applications. At the moment, the job is rising faster than lawyers and legal companies can keep up. Therefore, charges and margins are extremely large. As of 2020, being very proficient with the trademark register, particularly for the purpose of resolving objections and resistance, implies a sure shot ticket to a well-paying career, and this is unlikely to alter in the next half-decade as the speed of registration continues to grow.

Prevent competitors from duplicating client’s software

Copying by competitors is one of the most serious issues that startups and creative software developers confront. The software can be patented in some cases, although this is not always a possibility. The software, however, is copyright protected. Lawyers devise tactics to stifle competitors that attempt to release cloned software. It may not always be able to prevent the client’s competitors from launching software with the same logic and functionality as the client, but competitors are frequently intimidated or injunctions are obtained to delay launch through strategic litigation.

Dealing with copyright societies

IP lawyers are responsible for responding to notices from copyright societies, making correct arrangements with applicable copyright societies, and dealing with copyright societies’ litigation. In India, copyright societies operate in a hazy environment, with a lack of legal clarity and conflicting claims. Through negotiation and legal strategy, lawyers play a key role in obtaining maximum royalties for performances as well as decreasing royalty payments to a minimum.

Conducting IP due diligence

This is a sub-discipline of due diligence. IP due diligence services are required by a large number of valuable enterprises that are offered for sale, have attempted to go public, or are searching for large-scale financing. The buyer, investor, or financier is usually the recipient of the services. Due diligence on intellectual property is usually done by law firms.

Handling pre-grant and post-grant opposition when applying for a patent

This is a really useful talent. Few lawyers have the necessary knowledge and abilities for this profession, yet it is well compensated and in high demand. If you have these talents, you can start your own practice or join any good law company. You must be an expert draftsman and have a thorough understanding of the scientific and legal ideas at hand in order to communicate them to tribunal members and judges in a straightforward manner.

Calculating damages for IP infringement

Calculating damages in IP infringement lawsuits is one of the most difficult tasks. If someone infringes on someone’s intellectual property, the former is normally entitled to all of the latter’s profits, as well as any commercial losses experienced as a result of the infringement. Lawyers who can use financial models to forecast or quantify damages and then prove them in court are always in demand.

Block the import or export of infringing items

These are extremely lucrative projects. Assume you hold a patent in India for dual-sim phones. Then you find out that a competitor is importing dual-sim phones without paying you for a license. How are you going to prevent this from happening again? By the way, this is based on a true story from a few years ago. The argument is that there are a lot of fresh patents out there that could be infringed upon by Chinese exporters or other pirates. Businesses pay top dollar for this service since preventing piracy and infringement by seizing consignments before they reach the market is a top priority legal task.

Registering non-traditional trademarks

Traditional word or image marks aren’t always the most valuable trademarks. A good illustration is the sound of Harley Davidson motorcycles or the texture of a Sandesh. Such trademark registrations are an uncommon feat, and if you have expertise and experience in this area, it could be the deciding factor in your resume. In this competitive world, non-traditional trademarks have seen a rise although it comes with a plethora of challenges that are to be eliminated by the legal counsel only. 

Drafting a technology transfer agreement

Technology transfer agreements are extremely specialized papers that can be hundreds of pages long and contain a great deal of technical information. To draft these agreements, a lawyer must be comfortable with technology and processes. However, depending on the size and complexity of the agreement, the market rate for these contracts might range from INR 60,000 to a few lakhs.

Create a patent application framework 

While only a licensed patent agent can file a patent application, lawyers have devised creative means to get around this. They are able to have the application filed as a self-filed application by the inventor. Irrespective of whether or not you qualify as a patent attorney, if you know how to create patent claims and strategy to guarantee that the application gets through, or if you can obtain provisional patents for an applicant, these abilities are rare and in high demand. If you want to work as an IP lawyer, you definitely need to develop these abilities.

Preparing documentation that helps to protect trade secrets

In the view of IP lawyers, trade secrets are an underutilized tool. It can be used to safeguard confidential business information from being leaked by employees to competitors or the general public, resulting in losses or shame. Coca-formula Cola’s is a well-known example of a trade secret.

Drafting franchising deal

The number of franchise agreements is increasing. Mcdonald’s, Kidzee, Apple Genius Stores, and Cafe Coffee Day are just a few examples. These franchise agreements are frequently complicated, and the paperwork must be meticulous. If you work for the franchisor, you can easily charge in the lakhs for preparing and advising on franchise contracts. It could be less if you’re advising a franchisee, but it’s still significant.

Prior art search, patent landscaping, and advising inventors

What kinds of inventions can be protected by a patent? What is the inventive step that qualifies your patent application? In order to target the correct inventions, a high-quality prior art search and patent landscaping are required to comprehend what patents have already been granted and what material is currently in the public domain. This task should be done as early as possible, even before the research begins.

Conclusion 

As we come to the end of this article, it is significant to mention that the profession of an IP lawyer is all about learning a new skill, having innovative thinking, and answering the challenges or the threats possessed by a creator. Therefore, whenever one becomes an IP lawyer, one needs to brush up on their skills and qualities to deliver complete potential and quality work. 

References 

  1. https://www.nesl.edu/blog/detail/everything-you-need-to-know-about-becoming-an-intellectual-property-(ip)-lawyer
  2. https://www.collegedekho.com/careers/intellectual-property-lawyer
  3. https://www.icsi.edu/media/website/IntellectualPropertyRightLaws&Practice.pdf
  4. https://www.luc.edu/law/academics/centersinstitutesandprograms/intellectualpropertylawprogram/myths-from-reality/

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

Analysis of the regulatory framework of the internet of things in UAE

0
Data framework

This article has been written by V Nivetha, pursuing a Diploma in International Data Protection and Privacy Laws from LawSikho. It has been edited by Zigishu Singh (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho). 

Introduction

A new Internet of Things (IoT) regulatory framework for the UAE has been released by the Telecommunications Regulatory Authority (TRA). The IoT Regulatory Policy and Procedures (Policy & Procedures) establish an obligatory registration process for all IoT Service Providers with the TRA. The Internet of Things (IoT) is a global information society infrastructure that connects (physical and virtual) things utilising existing and evolving interoperable information and communication technologies (as defined in the IoT Policy) (as stated below). The UAE’s Telecommunications Regulatory Authority (TRA) has officially released a new Internet of Things regulatory policy (the IoT Policy) and procedures, with the goal of successfully regulating IoT “to evolve in a coordinated, coherent, safe, and secure manner” over the next year.

The following are the stated aims in further detail:

  • Delivering a safe IoT service that meets all reasonable needs, supports continued innovation, efficiently manages finite resources, protects the rights and interests of IoT users, and provides clarity for IoT market development
  • The IoT Policy clearly allows the TRA to iterate on and/or replace current regulations, directives, and/or guidelines as and when it sees fit, particularly with relation to roaming IoT devices, in recognition of the ever-evolving nature of the Application world. 
  • Apart from the TRA, ministries and regulators for specific industries may develop their own additional IoT-specific guidelines in coordination and consultation with the IoT Advisory Committee (which was established for IoT-related matters within the UAE and has representatives from various identified ministries, regulators, public sector entities, and experts and is chaired by the TRA) and/or the IoT Advisory Committee (which was established for IoT-related matters within the UAE and has representatives from various identified ministries, regulators and public.

Who does it apply to?

The IoT Policy applies to all parties involved in IoT in the UAE, including telecommunications providers, IoT Service Providers, and IoT Services (both as described below) consumers (individuals, businesses, and government). An IoT Service Provider is defined as a person who provides functions or facilities to consumers in the UAE that are IoT-related services/solutions (excluding connection)). Systems integrators, telecom equipment makers, and machine-to-machine connectivity providers are just a few examples of IoT service providers. If an IoT service provider does not currently have a presence in the UAE (either onshore or in one of the free zones), it must either establish one or rely on an official representative who is locally present and responsible for all communications with the TRA and UAE law enforcement agencies under the IoT policy.

What does it say?

  • Registration: Prior to delivering any IoT Services, all IoT Service Providers must register with the TRA under the IoT Policy. There are additional registration requirements for IoT Service Providers providing Mission Critical IoT Services, such as maintaining subscriber information (subscriber’s name, address, and ID, the device’s model and registration number, and any other information that the TRA may stipulate from time to time), as well as adhering to heightened security measures. The IoT policy defines a critical IoT service as one that, if it fails, “may have a negative impact on the health of individual(s), public convenience/safety, and/or national security.”
  • Data protection: In addition to the above-mentioned new registration requirements, the IoT Policy also includes new compliance requirements centred on data protection. The applicable clauses include words that are derived from the General Data Protection Regulation (GDPR), such as:
  • Data collected through IoT services shall only be used for specified and lawful purposes.
  • Data minimisation: IoT service providers can only acquire the data that is required to meet the processing goals.
  • Data cannot be kept when it is no longer needed for the purpose(s) for which it was processed due to a storage limitation.
  • Storage requirements are based on the type of data collected, which is then classed based on the level of harm that would be inflicted if the data was exposed without authorisation. (1) Open; (2) Confidential; (3) Sensitive; and (4) Secret are the four classifications.

The rule relating to data localisation (storage requirements) is the most notable of these laws; this is a trend that we have seen spreading across the Middle East in recent years. While “Open” data may be stored in the UAE or elsewhere, “Confidential,” “Sensitive,” or “Secret” data relating to individuals and businesses (unless certain adequacy requirements are met) and “Secret” data relating to the government (unless certain adequacy requirements are met) must be stored in the UAE (without exception). It should be noted that the TRA considers personal material to be “Secret” data, and it must be stored as such.

  • Encryption standards: IoT service providers should use an encryption standard that complies with the UAE authorities’ criteria. If the IoT service provider requires a higher encryption standard, TRA clearance is necessary and will be considered on a case-by-case basis.
  • SIMs: In the context of IoT services, both physical SIMs and embedded/eSIMs are permitted. However, prior approval from TRA is required for the use of “Soft SIMs,” which are defined in the IoT policy as “a collection of software applications and data that performs all of the functionality of a SIM card but does not reside in any kind of secure storage in the memory and processor of the communications device.”
  • Type approval: All Radio and Telecommunications Terminal Equipment (RTTE) capable of collecting data and/or providing IoT Services must comply not only with the existing type approval regulations, but also with the new type approval regulations, but also the following additional IoT policy requirements: Describe the features and functionalities of the gadget that collects data and sensory inputs such cameras, position identifiers, and microphones reflect the effect on the device’s functionality or use in the event of a loss of connection, the device should be able to be restored to its previous settings, and ‘Security by Design’ should be an incorporated feature to prevent unauthorised use.
  • M2M (machine-to-machine): The TRA has established a numbering scheme for M2M services. Licensees should be able to distinguish between assigned numbers for Mission Critical IoT Services. When a clear distinction between numbers is impossible to make, the TRA may assist Licensees by assigning numbered block(s) within the M2M numbering range.

Sanctions

The TRA may temporarily or permanently suspend a business’s ability to provide IoT services if it violates the IoT policy. A violation of the IoT policy will also be a violation of the Telecommunications Law (Federal Law by Decree No 3 of 2003), which carries fines and/or prison sentences. Providing services without a licence; not having up-to-date subscriber information in relation to Mission-Critical IoT Services; non-adherence to defined consent requirements for data processing; non-adherence to data storage requirements; provision or activation of soft SIMS without TRA approval; and non-provision of OTA/remote provisioning services where mandatory are all examples of possible breaches.

Actions

IoT service providers should evaluate their existing activities and make sure they are compliant with the current IoT policy. IoT service providers should, in particular, assess the categories of data they retain through the lens of the IoT policy (open, confidential, sensitive, and secret) and verify that each category of data is handled in compliance with the IoT Policy’s requirements (i.e. within or outside of the UAE).

All IoT players should be aware that similar regulations are expected to emerge in other Middle Eastern jurisdictions, and the amount of regulation is set to rise in the run-up to a smarter, more connected region.

Breach of IoT policy

Penalties (penal and fiscal) for non-compliance with the IoT Policy and/or the UAE’s Telecommunications regulations are defined in the UAE Telecommunications Law and may include temporary or permanent service suspension, according to the IoT Policy. Some examples of violations include: providing services without a licence; failing to have up-to-date subscriber information for Mission Critical IoT Services; failing to adhere to defined consent requirements for Data Processing; failing to adhere to data storage requirements; providing or activating Soft SIMS without TRA approval; and failing to provide OTA/remote provisioning services where required. Violations/breaches of the IoT Policy will only be prosecuted after it is implemented.

Effectiveness

While the IoT policy was supposed to be implemented within a year of its release, by March 22, 2019, the TRA has given no further indication about the issuance of IoT regulations/procedures or the actual operationalisation of this policy. It’s unclear whether the IoT policy, once implemented, will allow existing IoT services to register with the TRA during the transition period.

Conclusion

In light of the current IoT Policy, and until it takes effect, it may be prudent for IoT service providers to review their current operating procedures and protocols to see if they comply with the IoT policy, such as focusing on identifying data categories (open, confidential, sensitive, secret), identifying specific data storage limitations, and considering stipulations for the storage of the various categories (within and outside of the UAE).

The UAE isn’t the only GCC country dealing with the Internet of Things. The Kingdom of Saudi Arabia’s IoT legislation was covered in An Overview of Telecom Licensing in Saudi Arabia, published in Law Update in March 2019, while Oman recently had a public consultation on IoT and M2M.

References


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now
logo
FREE & ONLINE 3-Day Bootcamp (LIVE only) on

How Can Experienced Professionals Become Independent Directors

calender
28th, 29th Mar, 2026, 2 - 5pm (IST) &
30th Mar, 2026, 7 - 10pm (IST).
Bootcamp starting in
Days
HRS
MIN
SEC
Abhyuday AgarwalCOO & CO-Founder, LawSikho

Register now

Abhyuday AgarwalCOO & CO-Founder, LawSikho