Revisiting Goods and Service Tax (GST) in India

Having successfully carried through the second generation of economic reforms in pursuance of the liberalization agenda, India now looks forward for a broad-based reform in the economic setting of the country. Towards this agenda, the Government of India announced few years back its desire to transform the existing scenario of both direct and indirect taxes.

On the direct tax side, the Ministry of Finance made public its ongoing task of rewriting the Income Tax Act towards simplifying the law that exists and also with a view to broaden the tax base as suggested by the Kelkar Committee (Task Force on Direct Taxes).

On the indirect tax frontier, the then Finance Minister Mr. P. Chidambaram went a step ahead than that suggested by the Kelkar Committee (Task Force on Indirect Taxes) and made clear the intent of the Government to adopt a harmonized system of taxation of commodities by transforming the hitherto operational regime wherein sales tax (or VAT) was charged and levied by the State Governments and tax on services being levied by the Central Government.

Unarguably the desire to streamline the existing indirect tax structure with a harmonized and uniform levy is only in furtherance of the national aspirations of a rational tax structure which not only avoids the cascading effects but also promotes the entrepreneurial initiatives and economic activity on the whole.

Pursuant to our initiate "of providing insights into law's whys and hows", we have worked upon a research paper on 'Goods and Service Tax (GST)' as envisaged for India. We hope it would provide useful insights to the reader as to the proposed changes and the benefits envisaged in this transformation to GST.

Have a look at this paper uploaded at SSRN.

Seeking information from Supreme Court: Interesting legal issues

A recent application under Right to Information Act (RTI) has attracted wide publicity and interest. A number of articles and view points have already been written on the same and in quest for putting the perspectives straight, without being prejudiced by our opinions, for the benefit of the readers we are giving an account of the backgrounds facts which led to the controversy and the present position and some interesting legal debacles which are involved in this hyped matter.

The germane facts to the controversy are that one public-spirited right-to-information activist (we call him so because he has already been involved in exposing the face of number of public authorities through the RTI route) filed an application with the Public Information Officer of the Supreme Court of India requesting certain information. The information sought was three-fold; (i) a copy of the resolution of 7th May 1997 passed by the judges of the Supreme Court wherein they voluntarily undertook to declare their assets on a time basis to the Chief Justice of India, (ii) information whether the judges of the Supreme Court have been filing such information in terms of the 1997 resolution and (iii) information whether the high court judges were filing similar information.

The Officer in-charge gave the copy of the resolution but denied giving any information on (ii) and (iii) and therefore the matter landed up with the Central Information Commission (CIC), the apex body under the RTI Act. It is pertinent to note here that the information which is sought was not the copies of the declarations but only the fact whether as such any declarations have been filed.

The CIC (feeling the importance of the matter) heard the matter with all its members (known as the ‘Full Bench’). Mr. Prashant Bhushan, a senior advocate of Supreme Court appeared from the side of the applicant whereas Mr. Amrendra Saran, Additional Solicitor General of India appeared to defend the officer.

The stand of the officer was sought to be defended by arguing that (i) the declarations are filed with the Chief Justice of India in a fiduciary capacity and therefore they are not amenable to the Court officers, and that (ii) the office of the Chief Justice of India is not within the purview of the RTI Act and therefore such information cannot be given. The CIC brushed aside all the objections and directed the information to be given holding that the officer was duty bound to give the information under the RTI Act. [click here to read the full text of the CIC decision]

Given its implications, the matter was immediately taken to the Delhi High Court wherein the order of the CIC directing disclosure of information was challenged and sought to be set aside. [Writ Petition No. 288 of 2009] Before the High Court a number of points were argued and at preliminary stage it took the view that it would be appropriate to stay the CIC’s decision till the outcome of the petition. [click here to read more on proceedings which took place before the High Court]

Legally speaking, there is some merit in the order of the CIC as the RTI Act itself provides that the Supreme Court of India is covered under the Act and the Chief Justice of India has been made the ‘Competent Authority’ for matters relating to the Supreme Court. In such a situation it is arguable that the office of the Chief Justice is covered within the mandate of the RTI Act. In any case the matter is before the High Court, so it would be prejudging the case. Let us instead await the decision of the High Court.

In any case, it is clear that this controversy is here to stay for a while. Either way the High Court decides, the matter is bound to reach in Supreme Court in appeal: (a) If the High Court approves the stand of the CIC, then the Supreme Court Registrar General would appeal to the Supreme Court, and (b) If the High Court reverses the stand taken by CIC, then the person seeking information would go in appeal. In such case not only the question of whether the information is to be disclosed would be a critical question but the more testing question would be the fate of the proceedings before the Supreme Court.

There is a well settled principle of governance, especially judicial governance, (which legal luminaries would be quick to cite as nemo judex in causa sua) that no one should be a judge in his own case. On this principle, the Supreme Court judges should refrain from deciding the matter as it involves their own interests. However there is an equally compelling burden on the Supreme Court to hear the matter in view of the fact that it has been entrusted by the Constitution the responsibility of being the ultimate repository of the Constitution and the legal system and to lay down the law as it stands.

That Supreme Court entertains the appeal and decides the matter, questions of propriety nonetheless, seems to be a more probable outcome as even in the past the Supreme Court has heard matters involving their interests such as the appointment and transfer of judges etc. In any case, it would be quiet a delight to hear the testing arguments of both the parties when the matter approaches the Supreme Court. So testing times ahead indeed, but an opportunity to learn for the law students as well.

Satyam: A test for Serious Fraud Investigation Office (SFIO)

1. Today, when SATYAM is the buzz-word of corporate talks and a rejuvenating revival of corporate governance being hailed as the need of the hour, the institution which should have been in the lime-light is M.I.A. The need for a specialized, equipped and pro-active investigator incumbent upon unearthing the manipulations and frauds in the Indian corporate markets is not new. The matter was raised right at the time when Harshad Mehta became a house-hold name. The Securities and Exchange Board of India (SEBI) was brought to fore as the market-regulator in 1992 and given wide powers to call for records and take action against erring listed-companies, but the ensuing corporate frauds nonetheless put in clear terms the need for a specialized investigating agency and not just the entrustment of the investigative functions with the market regulatory.

2. The lack of effective enforcement and foresight in corporate regulation became particularly evident in the aftermath of the Ketan Parakh episode which expose the fallacies and misguided temperaments of the existing agencies. The Report on ‘Corporate Audit and Governance’ submitted by the Naresh Chanda Committee [click here for perusing the Report] brought to fore this urgent need and it was on these lines that the Central Government approved the establishment of a new investigative agency, meant to specialize in corporate frauds which was rechristened as the ‘Serious Frauds Investigation Office’. [Click here for the official notification to this effect.]

3. A Charter was unveiled on 21.08.2003 to put on record the official duties, functions and responsibilities of the SFIO. This Charter of 2003 stated that “the responsibilities and functions of the SFIO will include, but not be limited to, the following;

(a) The SFIO is expected to be a multidisciplinary organization consisting of experts in the filed of accountancy, forensic auditing, law, information technology, investigation, company law, capital market and taxation for detecting and prosecuting or recommending for prosecution whitecollar crimes/frauds.

(b) The SFIO will normally take up for investigation only such cases, which are characterized by –
i) complexity and having interdepartmental and multidisciplinary ramifications ;
ii) substantial involvement of public interest to be judged by size, either in terms of monetary misappropriation or in terms of persons affected, and;
iii) the possibility of investigation leading to or contributing towards a clear improvement in systems, laws or procedures.

c) The SFIO shall investigate serious cases of fraud received from Department of company Affairs. SFIO may also take up cases on its own, subject to para (d) below. The SFIO would make investigation under the provisions of the Companies Act, 1956 and would also forward the investigation reports on violations of the provisions of other acts to the concerned agencies, for prosecution / appropriate action.

d) Whether or not an investigation should be taken up by the SFIO would be decided by the Director SFIO, who will be expected to record the reasons in writing.”

This Charter also stated that “SFIO is expected to be set up as a modal office with state of the art facilities” and “it may outsource work to professional agencies, on case to care basis”.

4. From these it appears reasonably clear that all complex matter involving corporate frauds and requiring expertise for investigations would normally be taken up by the SFIO. In this background, let us see the role of SFIO hitherto in the SATYAM fiasco, if fiasco it is.

5. The facts that can be culled out from the downride SATYAM has been facing in the last month are as under;
- Its CEO Mr. Ramalinga Raju is accused to have siphoned off amounts to the tune of thousands of crores of Rupees from the company accounts. [Therefore corporate fraud]
- The balance sheets of the Company have been said to be fudged to the extent that even the auditors have issued a disclaimer that the audited balance sheets may be considered unaudited. [Therefore failure of statutory audit requirements]
- Some of the auditors involved in checking / verifying / auditing its affairs have been arrested and are being examined at their own end towards their involvement (in terms of illegal gratification or otherwise) in the fudging of statutory records [Thus professional negligence and malpractices]
- The employee pay-rolls are said to be inflated and investment lists of the company said to be based on fraudulent and forged documentation [Thus a mass fraud on the investors and overall other stake-holders]

6. Moreover, this fraud is said to have been perpetrated for more than five years and rapidly increasing in dimensions until the bubble burst. In these circumstances, it definitely seems to be a case in which SFIO should be involved and should proceed with its examination. In fact, one look at the SFIO’s website would also tell that the amount of stakes involved in the fraud is the key and foremost criteria for SFIO to come into action. [check question no. 1 at this link]

7. But surmises apart, what has SFIO done till now? News reports [1] [2] show that unlike SEBI, which got permission from the Supreme Court to quiz the accused, SFIO is yet to pursue the denial of its investigating powers before the lower courts. In the matter which involves billions, delay of hours itself (not even days and months) is crucial to obtain information and evidence before they are destroyed by the interested parties. This lethargy, therefore, reflects well upon the diligence and role of SFIO. It seems that the SFIO is yet waiting for the Government to arm it with ammunition in the form of personnel and resources to carry out its role at a point when a lot of water has already flown down the bridge.

8. On a philosophic note, it is important to remind ourselves that the existence of a democratic society is based on one fundamental principle; Rule of Law. This axiomatic principle has been incumbent upon the functioning of all the three wings, viz. the legislature, executive and judiciary and the manner in which governmental action is undertaken. Of this one important facet is that ‘justice must not only be done but must also seem to be done’. The stakeholders, not only of Satyam bus also of this country, can they not expect the supposedly primer and specialized agency to take lead in this issue and settle the controversy to rest?

9. In this scenario one can only hope (and hope and hope) that the wrong-doors would be meted with justice and faith in the system (which may perhaps be too high to think) be restored to a level where one would be deterred of the consequences (and not just think twice) of impugning such a fraud with the citizens of the country on a whole. And more importantly, this delivery of justice be timely and actually compensatory (if not economically, at least morally) to the persons who have been effected by this fraud and not just a battle worn for the sake of academic discussion and statistical purposes.

10. Perhaps the Supreme Court was right to observe that ‘even God cannot save this country’.

New Year: ensuing changes in legal scenario

The current year is about to end, and so is the voluntary moratorium period this blog has proposed. The law, meanwhile, has taken its own course and its just not much water which has flown during this period but also new dimensions have built up the ramifications of which would have to be borne by the future generations. Let us take these one after the another;

(i) Taking cue from a constitutional bench decision of the Supreme Court in M/s Ratan Melting v. CCE, Bolpur pronounced last month, the Revenue authorities (seemingly) have been granted allowance to issue circulars for themselves and argue on the face of it that they are not supposed to follow them. In this decision which is repugant to the hitherto settled law i.e. the Department is bound by the Circulars issued by them but the assessees are not required to follow them to the extent they are prejudicial to them, has has been dwindled by this decision. In terms of the law declared by this Constititional Bench, it is open to the Department to issue a circular (based upon their understanding) and later on claim that they themselves are not bound by the interpretation they have assigned. Surprising, repelling, ... yet the law of the land and thus has to be abided by.

(ii) The long stand rule of fees collected by the States requiring to be jusitied in the sense that they were required to show the matching effort on their part towards the utilization of the said fees for the purpose for which they were collected may well be under review and subjected to change in the upcoming year itself. A seven judge constitution bench of the Supreme Court in the landmark Atyabari case and its later reaffirmation by a five judge bench in Assam Tea Company case led to the formulation of the "compensatory test" principle where the government was required to show that how the fees collected were required by them to the public in terms of it being translated into infrastructure for public use etc. It was on these lines that another five judge bench of the Court in another landmark decision of Jindal Stainless declared the Entry tax levied by the Haryana Government to be ultra vires the Constitution and thus invalid as the State Government was unable to show that the fees collected by them was put to use to built up any infrastruture as meant to be the purpose behind the collected of entry tax. However, in an appraisal of other Entry tax legislations of other States, it has been argued by the former Attorney General of India, Mr. Sorabjee that the decision in Jindal Stainless requires reconsideration which in turn implies the reconsideration of the compenstatory test principle itself. The Bench of two judges after hearing this matter for over three weeks has reserved itse decision but if the things proceed as argued by Mr. Sorabjee, the compensatory test is all test to be reviewed and examined of its utility in the present day scenario. Let us keep our fingers crossed and await the outcome for any deviation from the compensatory test principle might confer unbridled powers with the State Governments to levy fees without requiring to justify the same.

(iii) In the wake of recent Mumbai attackes the Central Government has proposed a bill to create a National Investigating Agency. The idea is worthwhile and long due but the effectiveness of such an agency is yet to be tested. The Maharashtra government is seemingly all set to establish an internal State level police force on the lines of National Security Guards. In the wake of such diverse agencies, how would future instances of terror etc. (lets pray there aren't any) be handled and what coordinating postures would be assumed by these agencies is a vital question requiring answers. At our end, we can only hope that these and other issues are sorted out at a pilot basis itself and do not end up being exposed in real crisis situations.

(iv) Now that the judges are already having refesher courses (if one could say that) in the terms of their invovlement with the National Judicial Academy, a similar refresher system is being carved out for lawyers, atleast as far as Rajasthan is concerned. A press release reports that a dedicated acamedic institute would be set up to update the lawyers with the changes in the legal system and bring them to terms with the contemporary issues. (click here to for the full press release)

With this short update, let us set into motion our task for the upcoming year, which we hope to carry out without any interuptions like the current year.

Exploring the nuances of Cyber Law

I – Why and what of cyber law?

Cyber law, or the law dealing with cyber-space, popularly called ‘internet’ or ‘net’, is the buzz word today in law school curriculums and across the generation of old lawyers across the world. Why? Because this is more to do with technology rather than law alone. Imagine a law providing definition of ‘meta tag’, something which any computing geek can tell you. Then the law defining an ISP. Sounds hilarious and then absurd. Why should the law attempt to define these terms when they are well known and understood in the same manner across the globe? Why purpose would be served even if the law were to define the same? The slow and steady moving law can never compete with the level of technology existing at any point of time and the speed with which it grows. So what is the point of making a law, which by the time is come to govern, it is already outdated. These and other oddities of cyber law make it an interesting subject indeed.

Well, it seems there is a purpose. The purpose is ‘regulation’, something which the law exists for. The purpose is to identify the course of events, as they take place on the cyber space, and then provide a mechanism to determine rules affixing responsibilities and liabilities on the participating actors in the transactions. Take for example a simple and every day case of a cyber-café. A goes in Xena Computings and used the café for an hour. In this time, he views Z government’s site and tries to interfere with the site-coding. He is unable to change the things and so he leaves. Now should the government whose site has been fiddled with do something? Let us say that Xena Computings is situated in Z country only but A is of Y country. Can anything be done?

Well here comes the role of cyber law. It firstly defines unacceptable code of conduct on the cyber-space (something like cyber offences) and then prescribes a mechanism or procedure to deal with the situations in which this prescribed code of conduct is breached. So in this case, unless the law of Z provides against or prohibits interference with governmental websites, Z’s government will not be able to do anything, even if A had been successful in hacking the site or otherwise. Now once this is made a cyber offence, what next? The law of Z must provide a mechanism whereby Z government could affix the liability on A or Xena Computings, as the case may be, and allow the law to take its course.

So the law needs to define technical terms like hacking, cracking, ISP, subscriber, etc. and then only any action can be taken. So the premises (or the what) or cyber of law is based upon technology or for comprehensible terms, the cyber space where the why, as we have already noted, is the regulation of cyber space. Thus cyber law comes to occupy a place as a distinct and specialised branch of law.

II – The fundamentals of Cyber law

Cyber law or cyber-space law, as the name suggests, deals with cyber space. So the core of the matter is a technology driven segment while the external paraphernalia i.e. the law itself, is static and starts with where the technological elements end. To simply, technology brings a concept, say the simple concept of ‘linking’ web-pages and website etc., and then the law follows to deal with it. Like in this case, whether linking can lead to any legal liability. For example, there may copyright violation or trade mark violations in deep-linking etc.

Therefore the fundamentals of cyber law start from where the fundamentals of cyber-space end. Cyber-space defines the area or rather the spectrum where the cyber law would operate and therefore, for example, jurisdictional issues in cyber law are a concomitant of jurisdictional issues of cyber-space. To illustrate, no country has a right over cyber-space for technically cyber-space does not fall within the jurisdiction of any particular country. There may be a case that a server hosting a website may be located within the territorial confines of a particular country but the point is that once is has hosted the site, it has fallen into public domain, an artificial spectrum (which cyber space really is) and therefore no country has jurisdiction over it.

Conversely, however, cyber space is not Eiffel Tower that you can see it only by going to Paris. From any where in the world you can have access to cyber space (provided of course you have a phone line and a modem and yes, a computer). Therefore, speaking from this reverse angle, any and all countries have jurisdiction over the activities committed in the cyber-space, so long as the starting or the ending point was in their country. Thus, if Mr. G-space (operating from New York) copies a copy-right-protected video from the site of Ms. YTB (hosted from Sydney), and then publishes a morphed version of the video on his site (hosted in Brussels), the only countries which (legally speaking) would have the jurisdiction to deal with the matter would be of those three cities and none else, unless an over-enthusiastic court decides to poke its nose into the matter, not being situated within these three countries.

So this way cyber law is intrinsically connected with the manner in which cyber-space operates but for the qualification that this is only as regards the facts of the matter. The situation remains just like an ordinary law for questions of law. This is to say, that in our above example, while cyber space rules would only be illustrative in the decision as to which court has jurisdiction, the actually liability in any case would be defined by reference to the principles of intellectual property law alone.

To conclude, therefore, while cyber law is invariably and irrefutably related to cyber-space, its fundamentally actually being to operate from where the fundamentals of cyber-space lead them to. To paraphrase, they have a converging point but do not overlap. They being and end with the same objectives, but operate on different areas, one purely technological and concept based, the other purely convenience and policy based and operating on a conceptual framework provided by the other.

III – Legal framework of Cyber law

Cyber law is a very intricate subject to have a legal framework upon, not because of the fact that there is too much of technology involved but also due to the fact that cyber law does not fit under any specific branch of law and rather permeates into various and almost all different branches of all. For example, we have law of contracts, law of crimes, etc. as separate branches of law. However cyber law does not fit in any of these as it involves almost all branches of law to some extent or the other like electronic contracts, cyber offences etc., which are quiet capable of fitting themselves in other branches of law but then as a matter of practical perspective, are better dealt separately as a specific branch of law involving technology, i.e. cyber law.

So we have a legal framework for this branch of law which is intricate and varied. We have a law which deals with cyber offences as a part and parcel of criminal law or rather as a separate penal code in itself. We have a law which deals with electronic transactions of commercial sense or put simply, electronic contracts, which may either be incorporated in the contract law or be kept separate as a distinct subject. Then we have separate legal codes for those areas which do not strictly fall within the ambit of the generally invoked branches of law. Therefore we have law relating to liability of the ISP, liability of the e-auctions host, etc.

But why do we need to discuss this under the legal framework of cyber law. Because, the legal framework of cyber law does not exist as one. It instead exists as a varied and assorted group of separate legal codes which are united only through the underlying theme of technology. So while technically speaking the Information Technology Act, 2000 is the sole framework of cyber law in India, it is not so legally. Legally a portion of Indian Evidence Act, 1872 (when even the T.V. was not born, forget the World Wide Web) which deals with electronic evidence, a portion of tort law (dealing with cyber torts), etc. form the actual legal framework of cyber law in India. And this is not a case with India alone. It is the same across the world.

In fact it is not worthwhile to have an exhaustive code dealing with the legal aspects of cyber transactions. The reason is simple. Law cannot expect to match the pace of technology nor its participants. It should remain content with playing the second-fiddle, unless it wants to dwell into an unknown area where not principles but the need of the markets determines the next generation’s phase and outlook. Therefore law-makers across the world are content framing legislations on the areas which are quiet settled as far as cyber-transactions are concerned and once this is done, patch-up the existing legal codes with these developments. So we have an addendum to the existing legal codes for cyber transactions.

IV – Regulation of cyber-space

When ever the term regulations comes up, there always is a sense of an external entity watch the movements of ‘the regulated’ and always ready to pound up and play its part of imposing sanctions in order to bring the deviant behaviour in line with the standard notions of the regulated regime, in line with the principles of fair-play and mutual co-existence. Initially when the World Wide Web gripped nations and there were participants across the borders, there was a fear amongst the legal scholars as to how this new arena would be regulated. No single nation could work out a way to deal with the transactions even if they took place within their territorial regime as a multitude of mitigating or aggregating factors remained outside their boundaries.

Thus a need was felt for an international consensus on the issue. But then even that one was not forthcoming. Why? Because not all countries were involved in the ‘cyber-menace’ (as it was understood at that point of time from a regulatory perspective) nor were all technologically sound and willing to support an international consensus on the issue. So the idea of an international agreement/treaty or organization was done off. The world was amateur enough not to able to support one. So independent nations took the lead and started pressing the players in the cyber arena to come out with proposals such that the online traffic could be regulated.

This is how the various regulatory agencies were born, like ICANN for web domains, etc. But then these were private entities, made quasi-governmental by the manner and nature of functions they performed. This particular entity, ICANN was so engrossed in the regulation of web domains that it even came out with a dispute settlement mechanism and thus pioneered the idea of online-dispute-resolution, which was quickly adopted by e-bay and other online platforms providing for interaction of web-participants on a commercial scale. So the regulatory agencies of cyber space can be enumerated as; government; international agencies involved in regular interactions with the cyber-space; web-hosts, and you yourself (as you have agreed to regulate your conduct in the manner as prescribed by the host though whom you operate).

But then again, the question remains, what is the link amidst these various participants which allows the cyber space to work as a regulated regime. The answer to this intriguing question is equally intriguing. It seems the cyber-space is working out to balance itself. The participants conduct themselves in order and when there is a zealous actor crossing the limits, there is always a higher and stronger participant to kick the transgressor from the offending limits, may be by legal sanctions or simply by suspending the access. So we have regulators who are also regulated and then this probably seems never to end, just like a vicious circle with just the government may be at the top of affairs.

The above erratic description may not be sensed out to be regulation in true sense but then regulation it is; just that this is a different ball-game. This is obviously because the arena is complex and it is not in the interests of anyone to have it heavy guarded and face the risk that the entire structure may crumble under the weight of itself.

Concept of negative voting

The general elections are almost round the corner, and this is the apt time to discuss the topic of negative voting. Negative voting is an option of exercising one’s franchise to none of the contesting candidate. This exercising of negative voting, could be construed as an expression of discontent with the candidates or as against the political parties at large.

The need for such a provision could be argued based on the socio-political ground that people are discontented with the performance of the political parties and the leaders, and hence negative voting as a tool of expressing this dissent. Many recent elections have seen drastic fall in the polling ratio, which is being attributed to the loss of faith in the political parties. Lot of people has just stopped exercising their right to vote. When less than 50% of the voters select a government, what legitimacy of ‘people’s will’ does that win carry? Will negative voting help as an alternative to this problem, is the moot question? As such what does negative voting help? It helps to bring those who do not want to select any of the candidates to the electoral booths, and express their dissent. But even then, above mentioned condition of a candidate getting elected by very low margin of votes, as compared to the total number of votes being polled may continue, but the polling percentage has high chances of going up and thus could reflect the actual will of people. Though this would actually reflect good governance, this in no way is going to invalidate candidature of any of the contestants, but just that this helps to bring out the best of democracy. It is at last the choice of the people, and to prove the fallacy of depicting common man as a fool, who has no other option other than choosing between two people on the basis of who is less bad than the other.

Now, the legality of this issue, as the position stands now is that a voter has the option to refuse to vote after he has been identified and necessary entries made in the Register of Electors and the marked copy of the electoral roll (this is in the case of Electronic Voting Machines). In the case of conventional ballot paper and ballot boxes, which was in use before, a voter could drop the ballot paper without marking his vote against any of the candidate. This is as per the Rule 49-O of the Conduct of Elections Rules, 1961, which reads a follows:

49-O. Elector deciding not to vote.-If an elector, after his electoral roll number has been duly entered in the register of voters in Form-17A and has put his signature or thumb impression thereon as required under sub-rule (1) of rule 49L, decided not to record his vote, a remark to this effect shall be made against the said entry in Form 17A by the presiding officer and the signature or thumb impression of the elector shall be obtained against such remark.

But this throws up the issue of compromising with the secrecy. Secret ballot is one of the characteristic of a democratic poll. Here the polling officials and the polling agents in the polling station have the knowledge of the choice of the voter.

So for an effective negative voting, it is important that it should have secrecy. Election Commission of India (ECI), in its electoral reforms, has recommended as follows:

The Commission recommends that the law should be amended to specifically provide for negative / neutral voting. For this purpose, Rules 22 and 49B of the Conduct of Election Rules, 1961 may be suitably amended adding a proviso that in the ballot paper and the particulars on the ballot unit, in the column relating to names of candidates, after the entry relating to the last candidate, there shall be a column “None of the above”, to enable a voter to reject all the candidates, if he chooses so. Such a proposal was earlier made by the Commission in 2001 (vide letter dated 10.12.2001).

There is a petition filed by the PUCL in 2005 ,before the Supreme Court seeking a right for the voter to cast a negative vote through the method recommended by ECI. But even though the petition is admitted, I presume the final decision is yet to come, as I cannot locate the judgment or any news item related to it in the preliminary search. As a sign of matured democracy, it is high time that such significant improvements in the electoral regime are incorporated.

Further reading: Electoral reforms proposed by Election Commission of India

Handling Undervalued exchange rates and Sovereign Wealth Funds under WTO: A failed solution already?

It is very recently that we picked up this paper which has been posted on SSRN for sometime now but then that we have and feeling strongly on the issue, we thought it was wise to have an exclusive post on the topic. Today we are discussing in the backdrop of a Working Paper published under aegis of Peterson Institute for International Economics and developed by two economists, entitled 'Currency Undervaluation and Sovereign Wealth Funds: A new role for the World Trade Organization', available at SSRN. Though the paper is economics based, yet has enormous significance in legal arena for it deals proposes for a legal regime for two key issues facing the policy makers across the globe currently; 'Undervalued Exchange Rates' and 'Sovereign Wealth Funds'. The way we proposed to deal with the issues is first to give a basic insight into what the paper talks about and then come up with our understanding of the issues and how they are better not regulated the way the paper proposes.

What the paper proposes?

The paper is based upon two premises; (i) that currencies are artificially undervalued by countries to lag it creates to a fair international trading regime , and (ii) the accumulation of wealth as an outcome of these undervalued exchange rates and also otherwise by such countries and their consequent establishment of Sovereign Wealth Funds. Regarding the first part, the paper cites the examples of most notably China and few more countries (like UAE, Kuwait, Saudi Arabia, Vietnam, Bahrain, all oil-exporting countries) and bases its proposal to deal with the situation under the WTO for the reason that the proper valuation of these exchange rates would provide a significant boost to international trade. Regarding the second part,

To sum up (as the paper itself suggests), the paper is comprised of three parts (i) why and hows of WTO involvement, in collaboration with IMF, in dealing with undervalued exchange rates, (ii) the whys and hows of WTO involvement in regulating SWFs, and (iii) how the placing of the issues on the trade negotiating agenda could help galvanize the Doha Round.

Our views on the proposals

It was not long back that we wrote over the direction in which the Sovereign Wealth Funds are moving and the tensions that their economic might poses to geo-political relations and also generally about the failure of the WTO to come up from the contentious issue of market access (both agricultural and non-agricultural), agricultural subsidies, services and IPR in these two parts (Part - I and Part - II). In general, we have highlighted in all of these posts over how the proposals to regulate the movement of these new instruments of trade policy (basically having a foundation in developing countries) are stimulated by the enhanced fears which these strengthening of developing countries' economies pose to the self-crumbing developed economies, most notably the United States.

For example, China's accumulation of US Dollars as its foreign exchange reserve is so massive (and continues to add significantly every day) that the mere visualization of China doing away with it would send shivers to not just the United States but the consequent fall in dollar would ensue a global economic dooms day. For so long as China keeps these funds to itself, it is fine to all. But then the United States and the international economic community as such have to find to ensure that this continues to be so and they do not get up one fine morning to find the USD collapsing in wake of China's removal of dollar from its reserve. Plus, not just the direct exodus of dollar from China, the indirect investment of China in strategic locations is the major concern. And that China is not into philanthropy, its infusion of $5bn into Morgan Stanley (which saves a liquidity crisis at this US giant) is not just seen as an act of charity but instead the gaining of lobbying power (which MS carries with it) within the United States, and thus requiring an countering act on the part of the US to mitigate any buying of political power through such economic instruments. [For more such examples, have a look at our earlier post on Sovereign Wealth Funds] Now to deal with the proposals, let us handle each issue one by one.

Undervalued exchange rates: not a new phenomenon but an ever-green subject for economic analysis and political bickering, no doubt has tremendous implications for international trade but we have out own doubts on its management under an international institution like the WTO. This is for a number of reasons as we enumerate here;

(i) Now that the impossible trinity is already a fact taken for granted and that countries grapple with the dimensions of international capital flows (installing and managing in between their own ways for promoting/inviting capital investments within their own country), a manipulated exchange rate offers a very viable and effective medium for the host countries (especially the developing countries and emerging market economies) to boost and regulate the ways capital investments flow in their country.

(ii) The flexibility and added trade advantage an undervalued exchange rate offers is not hidden from anyone. China's notorious undervaluation of its currency (Renminbi) by fixed pegging it to USD [8.2765 Renminbi Yuan to USD as wikipedia informs] and the huge trade advantage it provided to its exports (by making them cheaper artificially) is a reminder of the fact that countries with export oriented economies can strive nicely in such pegged regimes by constantly undervaluing their exchange rates.

(iii) And then emerging nations have not forgotten the last decade's South East Asian crisis, which led to a downfall of many a south east Asian nations, for which the changing exchange rate was a major trigger. Most developing countries would like to vouchsafe against such avoidable exposure to market failures and herd-run.

Now why all are three objections are directed towards a developing country paradigm is for a reason. The reason is the proposed involvement of WTO to regulate the problem (though a problem only for the developed nations which lose out comparative advantage on account of an undervalued currency of another exporting country) is itself full of controversy, given the already hot-waters WTO is in being alleged with lacking the concerns for developing countries. Instead of rewriting what we have already written [for a fuller account, read out our two posts (Part - I) and (Part - II) pointing to the bones of contention and also this critic of WTO's report on six decades of multilaterlism] but suffice would be to point the fact that after the first concrete realization and demand by developing countries for a fair (and not just free) trading regime in Doha in 2001 (though the matter was first brought to light in Seattle in 1999), the WTO has already missed a number of deadlines and has been postponing the matter (as a matter of fact it has been postponed indefinitely now with no deadlines to come out with solution) with the last six years bringing out not even a harmonious discussion ground lest to talk of a solution.

In fact the formation of the G-110 alliance of the developing countries at the last Ministerial in Hong Kong in 2005 (the fact that no date for the next Ministerial Conference has been announced, which technically should have taken place in 2007, is an issue requiring an exclusive post altogether) is in itself indicative of the fact how closely the developing countries view and keep the issue of a fair trading regime which would not compromise their development objectives but would instead promote it and so long they find the WTO's working not in consonance with their inner goals, it seems that the tussle will continue and deadlocks remain.

In this scenario, the apt choice for the developing countries would be to ensure their internal economic stability by regulating their exchange rates at the national level rather than limit their ability at the expanse of an international institution (which no matter how sound economically, would no doubt bring in the political element, a proposition which even the WTO cannot deny) and thus face the risk of economic defacing just to ensure that world trade goes smoothly.

For these reasons, we are of the view that politically and on cost-benefit analysis, the option of subjecting the exchange rate regimes to be judged by an international institution like the WTO is a non-starter proposal given the lack of political consensus. This however does not even include the paradigm of strict reluctance on the part of the developing countries to subject themselves to a more stringent rule based regime under the WTO (as the undercurrents would bring out), considering which the proposal does not even merit scrutiny.

In this background let us compare the proposals. In a run down to the working paper in question, the authors argue "that (1) exchange rates have serious trade consequences and unlike trade interventions, which are being phased out all over the world, episodes of undervaluation are likely to recur; (2) the Fund, the natural forum for regulating exchange rates, has abdicated its responsibility and is unlikely—for political reasons and its own traditions—to be able to remedy this; (3) the WTO could possibly fill this gap by creating new rules on exchange rates to parallel those on export subsidies and import taxes; and (4) these rules—as many others on trade—could become the subject of disputes in the WTO, with the Fund providing inputs on technical matters as it has in relation to trade restrictions for BOP reasons."

To deal with each of these propositions; (1) even though exchange rate have a serious trade consequence, that does not imply that the same should be brought into WTO for WTO is not THE regime to regulate international trade. The Preamble to the Marrakesh Agreement establishing the WTO is catagorical to the effect that per se trade regulation comes later and it is the sustainable development and promotion of developmental goals of the developing countries that takes precedence. In such a scenario, a national management of exchange rates being a better device towards such goals, it is better that WTO keeps out of it; (2) the fact that the IMF has failed to regulate the issue (even though it is its strict mandate to ensure against artificial manipulation of exchange rates) does not imply that another institution should take over. The core principle on which WTO works is essentially different from the IMF and also the two perform contrastingly different roles in international paradigm. Neither is the WTO platform suited to it task nor is the WTO (being a legal and not economic regime) capable of ensuring that the tasks identified for ensuring fair valuation of exchange rates can be meted out at its venue; (3) the WTO can possibly fill the gaps for many other international institutions as well. The comparatively better performance and more relevance of the WTO compared to the UN in today's world does not imply that the WTO should take over UN as well. So the argument that WTO performs better the IMF is really a fallicious and non-starter; (4) the little handling of Balance of Payment (BOP) that the WTO has undertaken has been contentious and argued as unfair and ineffective. There has really been no improvement and work on the 1979 adopted Understanding on BOP effects on trade and with this experience, it is better that WTO does not go deeper in this potential minefield of disputes.

Sovereign Wealth Funds: The emerging new saga of national investments in international framework, a hot topic for economists, lawyers and most importantly the politicians to argue over. While IMF is already mulling over the possibility of bringing out a Model Code of Conduct or sorts to ensure transparency and non-political investing through these SWFs, nonetheless the issue remains to be contentions for the description in the first part above. [for more read our earlier post on SWFs].

Before we give out our own reasons as to why we think dealing SWFs under a WTO type regime is a non-starter, let us analyze why the paper argues in favour of such an approach. In sum the paper culls out two reasons for WTO to be the home for a multilateral agreement entailing a regulatory regime for SWFs; "Firstly, the WTO already, albeit somewhat opaquely, covers investments by SWFs in its services agreement—the General Agreement on Trade in Services (GATS). A second argument in favor of WTO regulation is its dispute settlement mechanism (as in the context of exchange rates). Consider a situation where a WTO member felt that a foreign SWF was behaving inconsistently with its obligations. Instead of taking unilateral action based on its own judgment—actions that can provoke retaliatory protection and spiral into a trade or investment war—the member would now have recourse to the WTO dispute settlement mechanism. The well-established mechanism would offer institutionalized consultation and, when necessary, impartial assessment of conformity with mutually agreed conditions."

The first argument does not hold scrutiny for the fact that GATS calls forth for a non-protectionist regime, requiring the grant of market access and non-discriminatory treatment, to say the least. Dispute such rules, it is being argued that the market-access offered by the developed countries to the service providers of developing countries is cluttered with indirect and perceived obstacles and thus whatever is provided is not sufficient. In this scenario, imposition of prior-check rules and retaliatory checks on inbound investments only for the fact that they arise from nations (being SWFs) and not independent parties, would not only incite more tension between the North and South but also cast doubts on the objectivity of the entire trading system as such.

The second argument is also non-workable given the legal system that WTO's Dispute Settlement Understanding provides. Even if the proposed rules find a place in WTO, at the most their coverage would be limited to transparency and mode of entry. It couldn't go further than that for doing so would imply searching for the motivations behind the investments made by these SWFs, a subjective task and not capable of judicial determination. In any case, it would be unwise for the developed countries to argue for a move towards bringing in multilateral rules for regulating SWFs for that would imply inability to act on their own volition, delays in retaliatory action (given the standard time frame required to be followed before a judicial determination can take place) and also given the inroads this would make in the ability of the nations to handle such affairs politically.

The paper discusses other perspectives as well (such as SWF investor protection etc.) as arguments for a multilateral trading regime on SWFs but then these are only incidental and if the main purpose is not sufficed, we doubt that countries would choose to exercise their political might for a half-efficient solution. After all the scenarios are better dealt with under an economic framework but then when it turns to geo-economics, it brings in geo-politics as well and the ten years of working of the WTO have proved just the same.