Negotiable Instruments: Exhaustive Coverage by Adv Roma Bhagat. Register Now!
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अब जबकि देश उपलब्धियों के दौर से गुज़र रहा है, it is high time de facto is recognized as de jure. After all, civilization and values have not come from God that they cannot be changed, but they have evolved over period of time, and keep changing. There was a time India when boy and girl couldn’t talk in public. Then a time when they could openly meet in colleges, then a time when they could openly move around in the society, and now is the time when public heroes and celebrities are openly engaged in live-in-relationships, and sometimes, even have children. So, even marriages are unnecessary, right in India! Heroes and heroines convert to Islam for second marriage but go on retaining their original Hindu religion right into the Parliament as law makers!
So, values are changing (you may read degenerating as well) fast and laws must keep pace with the changing values in a society if only to save it from turning hypocritical and necessarily criminalizing its people.
No, I am not talking about legalizing bribe, though that also qualifies but perhaps we are not bold enough to shed all our hypocrisies and become completely practical yet. The issue right now is economic development. What goes with it, is freedom from legal terrorism as well. All our laws make a public servant liable to prosecution only if a malafide is established in his intensions and that too, with prior permission from the government. The laws do not even remotely require a public servant to discharge his duties/obligations competently. In fact, merit or competence is simply not an essential ingredient in our public life in India. A public servant with the presumption of “public interest” can do anything, anything at all without any fear of prosecution unless one can prove his ill-intensions. Since intensions are hard to prove, public servants simply are insulated from any accountability whatsoever.
Let us take live examples from our dealing with public servants. In most income tax proceedings, ITO goes on to make additions, ignoring evidence to the contrary, ignoring case laws and many times even clear law, to inflate assessed income and raise a tax demand. More often than not, such the demands get reversed in appeals, though not necessarily in Departmental Appeals heard from higher officials of income tax department, but during appeals before impartial and independent authorities, ie Tribunals or Judiciary. But the ITO is never taken to task asto why he acted stupidly ad caused harassment to people whose interest the entire government is supposed to be guarding. Most of these reversed demands reflect extremely poor level of competence of the ITO concerned but he remains insulated from any punitive action or prosecution from people because competence is not a pre-requisite for his job or not even the job of his superior officials who heard the appeals and yet, decided incompetently. Take the case of recent Vodafone judgment from Bombay High Court. In this case, department had raised demand on deemed interest income on deemed unsecured loans that the Indian subsidiary of Vodafone was deemed to have extended to its foreign holding company by issuing shares at less than “right price”. So, where a company issues shares at less than price considered right by the income tax officer, it is to be deemed to have extended an unsecured loan to the shareholder, and deemed to have derived interest on that, and therefore, a tax liability is deemed to have arisen. This argument is simply an insult to human intelligence, and classic example of tax terrorism at its extreme. During emperor Akbar days, this officer who raised such demand, and all his superiors who directly or indirectly pursued the issue right upto high court, would have been awarded capital punishment for causing harm to public morale but in India, did these officials suffer any punishment? Silly, isn’t it?
Income tax practitioners are far too well aware of millions of cases where Department routinely chooses to be naïve and silly “in revenue interest” with absolute impunity to inconvenience of tax payers or standards of public service, armed with complete protection from any action.
Take the case of sales tax as another example. Hell breaks loose if C form is not furnished to the commercial taxes department. In fact, C form only proves that the purchaser of the goods was not situated within the same state as the seller, and nothing else at all. Thus, it covers the only tax-evasion possibility of the seller actually selling within the state but showing it to be sold outside the state. What could he or his purchaser possibly gain with this misfeasance? Ever since VAT was introduced, all purchases within the state are eligible for input tax rebate of all the VAT paid on such transactions whereas no such input tax rebate is available for purchases made from outside the state. Thus a purchaser is better off buying within the state. As far as the seller is concerned, it makes no difference to him whatsoever, simply because he needs to deposit any tax, whether VAT or CST, with the department.  Then who could possibly gain with mis-declaration of intra-state sales as inter-state sales? Only the government would know.
One friend asked me once asto why it is easy to do business in Singapore, my silly answer was, because they don’t have C form in Singapore!
States in India are competing in erecting more and more barriers to entry of goods from other states, and most require a way-bill (called form no.49 in MP) to accompany the goods when entering a state. If it is missing, it instantaneously proves to the government that purchaser has been caught red handed, trying to evade tax! Heavy penalties ensue for such lapse and few states like Haryana or UP are extra-ordinarily be harsh on such cases because their law-abiding norms are quite high indeed! In contrast, India has been signing Free Trade Agreements (FTAs) with other countries to allow free movement of goods through its international border. Effectively, it is easier for the goods to enter India from Nepal or Sri Lanka, than for them to enter MP from Gujarat or Haryana. In fact, it is high time India gets an FTA among all the states before it moves internationally. Surprisingly, no-one has demanded that as yet, and even the new government despite its myriad of “उपलब्धियां“  has not set out to attempt it.
VAT is supposed to be a tax on sale of goods while service tax is supposed to be a tax on rendering of service. It would seem natural to assume that sale of goods and providing of services are two completely different things and hence, both the taxes cannot be imposed on a single transaction. But our babus are genius when it comes to imposing taxes. They did the impossible and we have both VAT and Service Tax on pretty simple transactions such as restaurant bills or even sale of property.
Transit sale is another simple concept recognized in Central Sales Tax law where a purchaser can sell goods while on transit, without attracting additional tax. This he does by simple transfer of documents (lorry receipt etc). Common sense would demand that C form would be required to be issued by the ultimate purchaser, and some additional declaration, called EI/II in CST law, should be issued by the first purchaser to confirm that he sold the goods after dispatch from seller and before receipt in his own godown. The seller should be happy with such declaration (EI/II) from his purchaser, and C form from the ultimate purchaser. But our babus being genius to extreme, have required that the first purchaser will issue C from to his seller who in turn, will issue from E-I to him. Then, the first purchaser will issue form E-II to his purchaser who will issue yet another C form to him. Thus, for a single transaction, two C forms, E-I and E-II will need to be issued. Terrific creation of job opportunities and superb application of Keynesian theory of employment in India which has even survived the reforms of last 24 years!
Let us look at simple criminal law as well. I was surprised to learn that there is no law in this country that requires a person to tell truth. On the contrary, there is a tacit freedom to tell lies and produce false evidences everywhere, right into the court as well. The only safeguard against this perjury or false evidence is a section in Indian Penal Code (Sec 193) which purports to punish production of false evidence in court. But I have never found this section being invoked in practical life, not even in most glaring cases in the Supreme Court where the then Attorney General told court that he never saw the draft CBI report on coal-scandal and next day, CBI produced an affidavit stating that the then law minister sitting with the Attorney General saw the draft report and the Attorney General even made suggestions for changes to be incorporated in the draft report. Nothing could have been more or glaring, right into the Supreme Court, but was this section invoked? No, The Court simply ignored the instance, just like the entire judicial system is accustomed to ignore any lies made in the courts or any false evidences produced in courts. Consequently, the weaker party in almost every litigation comes to court with bunch of lies and half-truths which at least delay the justice, even if do not succeed in getting court order in their favour. This is a major reason for pathetic pendency in our courts which do not seem to have read about “one stitch in time saves nine”.
So much so that endless delays in litigation encourage more and more litigants to come to court, and keep one party engaged indefinitely. If our courts start delivering judgment in days like Singapore, more than half the litigants will lose interest in litigation instantly, and work-load will simply be half! Legislation or Executive never thought it necessary to apply their mind to this issue despite India ranking absolutely at the bottom of the world on the criterion of contract enforceability, that reflects on our legal system, in ease-of-doing business index, so much in fashion nowadays!
Administration of bail in criminal law is similarly interesting as well. The moment a person is accused of rape, bail is simply denied to him indefinitely “in view of the gravity of the offence”. This is explicit assumption of offence of the accused, exactly contrary to widely held legal principle that an accused is deemed to be innocent until proven guilty or similarly publicized dictum of supreme court when it said, “bail and not jail”. There is an extreme degree of discretion to courts in administration of bail in India and courts adopt most casual or couldn’t-care-less approach to these cases when they list more than 100 to 150 cases for hearing in a day, and don’t want to spend more than a minute or two to understand the case, apply its mind, listen to the parties concerned and then, make decision. Discretion leads to corruption. Regardless of whether money is passed on to the judges or not, lawyers make a killing handling bail matters, and after that, charge a fraction of that for actual trial which goes on for much longer. The open secret is, fear is encashed, not just by police, but lawyers and judges as well. None of the three organs of our democracy, Judiciary, Legislation or Executive, ever applied their mind to reduce this discretion. Was it really so difficult to lay down in black and white that bail shall necessarily be granted UNLESS the accused (i) is likely to temper with evidence, (ii) run away and not be present to receive sentence if granted upon completion of trial, or (iii) is likely to repeat the crime, if released on bail. If answer to these three conditions is NO, there is absolutely no reason why bail must not be granted. Or else, if gravity of the charge is so important that bail should not be granted, simply amend the law to provide that no bail shall be granted where charges are filed under certain specific sections. Either way, clarity can be improved and corruption minimized but it calls for competence and merit. Where to find it in our policy makers.
Frequently, we come across news about lashing out by superior judiciary against lower court judgments, sometimes as explicitly as mentioning that the lower judiciary has not even applied elementary knowledge of law to the subject case. Elsewhere, in view of corruption reports against a high court judge, he was requested to resign but he refused to oblige. Consequently, he was transferred to another high court in far off place, within India, as if corrupt judges would be welcome in those places. The message from this transfer was also that far-off north-eastern states were not equals in India. In another case, a judge was travelling in train with unconfirmed ticket. When the TTE asked him to de-board the train because his ticket was not confirmed, he sat down on the railway platform to initiate “contempt-of-court” proceedings against the TTE who had to apologize to the judge to escape such conviction on site. Great examples of India running with rule of law indeed. No wonder, India ranks 66 out of 99 countries on over-all score, and a pathetic 90 on civil justice, 95 on order and security, and 81 on regulatory enforcement. So much for the world’s largest democracy indeed. But is anyone listening? Just kidding.
In fact, India is always obsessed about protecting the rights of most under-privileged that it has jettisoned merit in favour of reverse discrimination completely. Government control on people is so strong at every level that even charges of corruption need permission from the government to commence any prosecution, and since that is almost never likely to come, unless the unfortunate accused has fallen out of favour of the then higher ups, the best our system can do and does is to transfer him to another place. If the government assumes that such transfer will be an adequate punishment for him to prevent any reoccurrence of the crime, it is downright stupid, because that was to happen, India would have been free from corruption long before start of the liberalization days.
Take the case of Dabhol power company, probably the only foreign invested (Enron) power company in India. Maharashtra state electricity board had invested some Rs 800+ cr in its equity, and Indian banks had lent over Rs 6000 cr to it. It had a power purchase agreement with MSEB. As surety for payment for the power supplied to MSEB, it was furnished with bank guarantee, guarantee of the state government of Maharashtra, and finally, the guarantee of the government of India. What more could one investor ask? Yet, he could fail to get paid in India as Dabhol later realized. When MSEB did not want to pay some Rs 400+ cr for the power supplied to it, its oversmart babu, heading the MSEB, decided to play smart. He indicated to Dabhol that MSEB did not intend to draw power for next few days. This resulted in plant shutdown. Suddenly, at 3 o’clock in night, he sent a telex demanding some 700+ MW power immediately from Dabhol which they failed to supply within a few hours. Consequently, the babu held Dabhol liable for misrepresentation in their power-purchase agreement stating that the plant was incapable of reaching capacity in stated time. It is like a car claiming to reach the speed of 100 kph in 10 seconds, and it fails to reach that capacity when the buyer sitting with the seller in his office room, suddenly asks him to prove this capacity and says, your time starts now! The babu repeated such instances three times, and armed with these three instances, slapped a penalty of over Rs 400cr on Dabhol, and asked them to adjust their outstanding bill against this penalty! Great piece of intelligence, isn’t it?
Dabhol cried foul. It reached state government for honouring its guarantee which it refused until the issue of penalty was sorted out. It reached the government of India which also refused to interfere until the penalty issued was sorted out. Then it tried to enforce bank guarantee but the bank quickly informed MSEB so that they could get a court’s stay until penalty issue was sorted out. Thus, all Indians collided, and for what, Rs 400+ cr outstanding bill. And what did they finally achieve? A write off of MSEB’s Rs 800+ cr equity in Dabhol, a deep hair-cut for Indian banks, and massive concessions from government to the plant for making it viable, after nationalization, and finally, complete exit of all foreign investment in power sector. Hefty returns for our fundamental right to stupidity! Were any of this babu or state government or the government of India or the bank official who all achieved this feat collectively, made accountable for this massive loss of face for India before the world? Silly expectation, isn’t it?
Our policies are interesting to gauge the level of intelligence of this country indeed. Take the case of foreign investment policy in civil aviation sector. For a long time, our policy allowed foreign investment in civil aviation only if the foreign investor was not an airline. It amounts to saying that a foreigner was allowed to play cricket in India as long as he was not a cricketer. Great policy indeed.
Consider little more controversial policies like caps on foreign direct investment (FDI). I have never understood the rationale behind such caps on FDI. For example, under the now liberalized policy, 49% FDI is allowed in defence manufacturing provided management control rests with Indians. Now why would foreign companies which have been exporting all the defence supplies to India through its 100% ownership abroad, want to dilute their holding to 49%, share technology and management with Indians when they can jolly well go on to supply from their 100% owned companies overseas? Likewise, when India can import from 100% foreign owned company, why can’t it buy from an Indian company, with 100% shareholding with foreigners?
Is it really so difficult for our rulers to understand that purchases from 100% foreign owned Indian company are far better than importing? Then, do Indians have surplus capital which the foreigners must be forced to take from us in their Indian companies through forced dilution of equity? Why can’t foreigners be allowed to bring all that they want from abroad, and allow Indian entrepreneurs to tap the domestic investors for their venture, such that total investment in the economy is much more? Isn’t that a foreign investor only takes away royalty and dividends, net of Indian taxes, while affording all the benefits of domestic value addition to India, upgrading local skills, technology, employment, exports and what not, in the process? If we still have to fight the ghost of East India Company, in the stupid dreams of our policy makers, don’t we still have the option of nationalizing a company anytime situation warrants (just like recent nationalization of Dabhol power company, though that the government forced it upon itself by making a complete mess of the project and its policy of foreign investment in much starved, power sector)?
I can go on indefinitely to site instances and examples of such plain stupidity in our public life in India which is justified only on one ground, we have a fundamental right to stupidity. That such right is de facto afforded to the public servants is already a given, because they are all protected against any action no matter how stupid their actions or decisions could be. But such right is not afforded to private people who are made to suffer for even simple mistakes, like the famous Campa Cola building residents who purchased flats from builder, for their stupidity not to have thoroughly investigated all legalities of the building and the builder, keeping with the “buyer beware” principle. In my entrepreneurship, I have suffered and have been suffering immensely from my silly mistakes like availing sales tax exemption instead of sales tax deferment or choosing India and not Bangladesh for setting up a factory, purchasing land through registry believing government advertisements in newspaper that registry conveys valid title, not knowing that they could always deride the fact of registry saying that one could register sale deed for even Taj Mahal, and so on. I need my fundamental right to stupidity as well , especially अब जबकि देश उपलब्धियों के दौर से गुज़र रहा है |

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Category Constitutional Law, Other Articles by - Anil Kr Garg