29 Feb 2008

Budget 2008-09, what do we have ...

Well, politics does play a part (and a huge one) as far as the shaping of the economy is concerned. The presentation of the Budget for 2008-09 goes on to tell this in a long way. Eying for the general elections for the Union Government due next year (therefore the last budget before that), the Finance Minister Mr. P. Chidambaram presented a win-win budget, seeking to appease all cross-sections of the economic sectors in an attempt to secure a majority for another five years. This looks just a continuation of the Rail Budget which almost came out in full force to appease the bulk of voters of the country; by offering reduction in prices not only for the lower and economically backwards rungs of the country but also by reducing the fares in the AC-II tier and AC-III tier segments, thus offering an attachment and understanding with the growing middle clas of the country. With this background, let us analyze the budget as presented today by the FM.

(1) The Finance Minister came out in full swing to give the farmers a long due relief (hope there would not be any more suicides now with this proposal made) by proposing (it is still a proposal until approved by the Parliament) to waive the debt owed by the farmers (estimated to be Rs. 60,000 crores) and also by proposing to provide a credit facility to them. In my view this is a immediate response to a long term issue; the full relieving of which would require nothing short of another Green Revolution in the country. While India, no doubt, is moving towards development on the behest of industrial growth, the low turn out from the agricultural segment can be really gruesome for this food hungry and 1.2bn strong populated country. Agricultural independence is a very critical requirement for the growth of any country and with the poor state in which the country's farmers languish is really an issue which needs to be addressed with full might. This proposal by the Finance Minister really (I hope the money will be spent as promised and not diverted elsewhere) comes a long way to support the almost crumbling belief of the farmers in the political ideologists of the country.

(2) As we had predicted in one of our earlier posts, the Finance Minister has indeed come out with the raising of tax slabs, a move which we think is a logical and much needed move towards simplification of the tax system. The hitherto tax exempt limits of Rs. 1,10,000/- and Rs. 1,45,000/- for man and women respectively, have been increased to Rs. 1,50,000/- and Rs. 1,80,000/- respectively. The limits for senior citizens have also been increased from Rs. 1,95,000/- to Rs. 2,25,000/-. More than this increase of limits, what we admire is the reformation of tax slams. Under the new proposal,

  • the income between Rs. 1,50,000/- to Rs. 3,00,000/- would be liable to be taxed at the rate of 10%,
  • anything between Rs. 3,00,000/- and Rs. 5,00,000/- would be taxed at the rate of 20%, and
  • the income above Rs. 5,00,000/- would be taxable at Rs. 30%.

Coupled with the fact that the corporate tax rates remain the same, this continuation of the highest tax rate of 30% is indeed a good sign as it is neither too high to risk the migration of investment from the country nor too low to sustain the requirements of a developing nation.

(3) What has surprised us, however, is the fact that the no change has been made on the corporate front. No new rules have been brought in as regards 'thin-capitalization' or even 'controlled foreign corporations' or even the fact of 'loan relationships', as we had expected the Finance Minister to come out with. But then we can reconcile with the fact that the FM is delivering an all-appeasing budget and therefore does not want the corporate sector to come hard against the existing government in the elections due next year.

(4) In a number of moves, which we think are directed to counter the growing inflation (as the FM has also acknowledged in his speech as being a key consideration in the formation of the budget), the FM has proposed the following;

  • Increasing the rate of tax on short term capital gains from 10% to 15% (which we think are introduced to bring a small thud, if not complete overhaul, in the speculative tendencies going on especially in the corporate and real estate markets).
  • Scrapping the 'Banking Transaction Tax', which has led to wasteful expenditure on the part of the public engaged in banking transactions without any matching benefits. (but only w.e.f. April 1, 2009)
  • In a move to bring to par the Commodity Markets (which has begun to function officially only recently), the FM has introduced a 'Commodity Transaction Tax' which would be at the same rate of Securities Transaction Tax.

(5) The stress has been on education this year, especially primary education. With Article 21A being in the Constitution for quiet some time now, it is high time that the government delivers the promise of free education to all up to the age of 14. Further, the increase in the number of seats in premier institutions of the country, given the fact of heightened reservation in them (the fate of which is still being debate before a Constitutional Bench of the Supreme C
ourt), also has required the Union Government to spend an extra bit on these lines. Not surprisingly, therefore, the Finance Minister has raised the budget allocation on education by upto twenty percent from the last year's allocation, which now currently stands at Rs. 34,400 crores. Adding on these lines, and seeking to rebuild India as a 'Knowledge Society', the FM has also allocated an additional Rs. 600 crores for establishment of 6,000 high quality 'model schools'. A number of other proposals have also been made to strengthen the educational infrastructure. Let us all hope and stand united in this vision of a developed country.

(6) On other lines of development, which he and the UPA government popularly calls as the 'Bharat Nirman' goal, now the budget allocation stands at Rs. 31,280 crores; a whopping figure but no one would mind such expenditure provided the goals established are achieved.

(7) Then in a much appreciable move acting against hawala and money laundering, the FM has made the use of PAN (Permanent Account Number) for all market transactions subject only to a minimum threshold.

(8) In a not so surprising move, the budget allocation for defense has also been increased. Given the heightened tensions in the neighbouring countries and also the consistent internal tensions with the ULFA, the FM thought wise to equip the Defence Ministry with an additional 10 percent budget allocation as compared to last year.

(9) And what we had been expecting on the custom duty front has not come up this year and the peak rates of custom duty have remained the same. However there is relief to specific sectors like power projects, life-saving drugs, etc. and also on 'small and hybrid cars'.

(10) Excise Duty has also been reduced generally from 16% to 14%, a move which FM sees as one directed towards boosting manufacturing segment.

(11) Then as we thought would happen, more services have been brought within the Service Tax net, prominent ones being 'Asset Management Services' (as delivered by Mutual Funds) and services rendered by stock exchanges. Also, the Central Sales Tax has been reduced from 3% to 2%, given the urgency to come up with a 'Goods and Service Tax' (GST) by 2010.

(12) Proposals also have been made to improve the health care industry, Public distribution system, employment under the 'National Rural Employment Guarantee Scheme', etc., all popular moves to entice the vote bank.

And then what might sound amusing, while drinkers have been told to continue (by leaving the tax rate on liquor unchanged), smokers have been sought to be diminished (by increasing the rate of tax on cigarettes and also by imposing similar level of tax on hitherto relieved non-filter cigarettes)

28 Feb 2008

Unraveling Sovereign Wealth Funds

Quiet in prominence of late, I thought why not run a post on this burning topic which is ing a sore concern for bigger and developed nations. Though the element of law involved is not very high (or some may argue, not at all) and it is more concerned with the economic dimensions of geo-political situation of the world, yet we would try to give a lucid account in the way we have been doing for over two months now.
What are Sovereign Wealth Funds?
As one can make out, these funds have something to do with sovereignty and given the fact that only countries are sovereign in this geo-political world (though a political scientist would frown at this statement), so sovereign wealth funds have almost anything and everything to do with the countries of the world. To put it the other way round, they represent the reserves of a country which it decides to invest (just like an individual investor does) in an activity which it finds profitable and returns yielding.

The starting point of these funds come from the fact that instead of having a deficit (which most countries, including the United States, currently face) a country is having experiences a surplus on its external account. This can be on account of positive difference between its exports and imports or for any other reasons (like remittances from abroad, etc.). This surplus on external account implies that it continues to receive foreign exchange (mostly US dollars, being the principal trading currency of the world) such that it accumulates. In another situation dispute a deficit on external account, a country can continue to receive foreign exchange which may flow in the country may be because investing in that country is profitable and higher returns are expected (as in the case of India) or for other reasons (which are primarily to do with the prospects of the investment made).

In such scenarios, the host country flushes with foreign exchange. Now it is the sweet will of the country to sit on the pile of foreign exchange (which
India is doing currently) or to invest these accumulated reserves in profitable investments (which is economically correct as well and most countries are engaged in). Once a country decides such i.e. to invest its reserves, it can do it either in its own territory or buy/invest in securities abroad, or even give loan to other countries in need of it (as China is doing in most parts of African continent). Sovereign Wealth Funds are one such forms through which investment takes place.

Now, given the fact that the SWFs are generally based in countries rich with foreign exchange, it would not be surprising to find that most sovereign wealth funds come from oil-exporting countries.
Abu Dhabi's ADIA (Abu Dhabi Investment Authority) is at present the biggest sovereign fund. China's CIC (China Investment Corporation) is also in the top ten of SWFs only because of the fact that till now China has been investing in US bonds and has come out towards investing in other forms of assets as of recently. Singapore's GIC (Government of Singapore Investment Corporation) also yields a heavy name when it comes to SWFs.
Why this furore over SWFs?

Well the cause of concern over SWFs has arisen on account of the recent sub-prime mortgage crisis. Banks and financial institutions, quiet negligently I would say, have been swayed into lending money based on securities as assets which were not credible for the amounts of loans offered. Given the sudden collapse of this segment and bursting of property bubble, most banks and financial institutions across the world are finding themselves short of liquidity. Being required to write-off huge sums of money on account of bad debts from these sour turned mortgage loans, these institutions seek infusion of capital for continuing to work normally and it is here that SWFs have come into picture. Most development countries (from which the major banks and financial institutions come) are themselves facing deficits (the United States being the most particular illustration of sorts to this regard with the position of European Union though being comfortable, but still not much better), it is almost impossible for these financial institutions to get finances from their countries. Plus the amounts of money they require are so huge that it is hard for them to find investors who firstly are willing to overlook their falling credibility and reputation in markets and secondly but more importantly are willing to lend them such huge figures.

So SWFs have come out as the lenders of last resort for these financial institutions (though the Northern Rock debacle in UK shows that Central Banks still hinge on their description as the lender of last resort) . Flushed with US dollars to lend, these SWFs have made most of the importune moment when the major financial institutions of the world are in need of money. Just to list a few major players with the SWFs investing in them and the amounts, to show how far deep these SWFs have acquired a position in the markets, one may note the following;
  • UBS Group (Swiss giant) - $9.75bn - by GIC (Singapore) - 9% equity holding
  • Citi Group (largest US Bank) - $7.5bn - by ADIA (Abu Dhabi) - 4.9% equity holding
  • Och-Ziff Capital Management Group (a US based Hedge Fund) - $1.1bn - Dubai Investment Company - 9.9% equity holiding
  • London Stock Exchange - (unknown) - Qatar Investment Authority - 20% holding
  • Carlyle Group (world's largest private equity firm) - $1.35bn - Mubadala Development Co. (Abu Dhabi) - 7.5% holding
  • Barclays (a UK banking giant) - $3bn - China Development Bank - 3.1% stake
  • Morgan Stanley (a US Banking giant) - $5bn - China Investment Corp. - 9.9% stake
  • Merill Lynch (another US Banking giant) - $4.4bn - GIC (Singapore) - (unknown)
It is therefore clear that these SWFs have penetrated deep into the major financial institutions which have an impact on the international affairs in a major way. The bigger the stake in these institutions, the more will be the power these SWFs will yield on the boards of these institutions and the more impact they will carry on the decision making process of these institutions. It has already been noticed that the majority of the large SWFs come from Asia and the Gulf, covering countries which do not give much thought or importance to transparency in governance and management, as the developed nations argue. For example, Wall Street Journal informs about the Abu Dhabi's ADIA publishing none of the information about its activities (purchases and otherwise) (as verifiable from its simple page website http://www.adia.ae/) and thus acts as a major barrier to estimate its interests and role play in other institutions.

It is therefore clear that with these Gulf and Asian countries getting a bulk share and consequently speaking and influencing power in these financial giants, the repercussions will definitely be seen in the developed world where these financial giants carry huge lobbying powers. Almost all major countries are worried about this power occupation by these SWFs and consequently their host countries, which will play a vital role in shaping of geo-political relations. And the reactions are for all to see.

EU calls for a code of conduct for these SWFs
and while the US Federal Reserve Chief has his own views on this, the United State Congress has come out in full force in a need to govern this increase power-grabbing tactics of the SWFs. The US Congress has already established a sovereign wealth fund task force where its close ally the
United Kingdom is ruing itself for a missed opportunity where it could itself have become a SWF. On the other hand, learning for the Asian initiative, France has sought to adopt an SWF model to regain a place in the world politics. There are concerns all around that this world's largest SWF (ADIA) would take on the Wall Street itself. So all this is happening, and happening fast. Going unnoticed for long now in international scenario, the IMF finds this as the right opportunity to grab a share of lime-light by call for action on this swift rise of SWFs but only to fall on deaf-ears I am sure.

What we have already heard it a vigorous attempt on the part of the developed nations (especially US) to talk behind the scenes to impel these SWFs to adopt transparent practices (in order words practices which will assure them that these SWFs are not trying to seek political advantage of their economic well-being). The concerns loom large in Washington and European capitals that these funds may be gaining outsized political influence and there though there is no available outcome of these talks at present, we anticipate one soon for this rapid control-seizure by the SWFs is surely giving sleepless nights to the developed countries.

As for the law part, what I personally believe, problems like these would not have arisen had there been a strong international investment law. While the 1984 GATT Panel case of Canada-Foreign Investment Review Act (or simply the 'FIRA case') promised much on bringing investment laws within the sphere of GATT (now WTO) ambit, the 1995 Agreement on Trade Related Investment Measures failed to take cues from the case and bring to the world a worthwhile international consensus on investment law. [For a comprehensive account of the position on international investment law, I can recommend this paper of mine posted on SSRN] Now that we do not have a law on that, we surely can expect some rapid measures being brought in force to deal with the current problem, which will further distort a principle-based regime in international flow of funds and investments. Nonetheless that we cannot help the past but only influence our future through the present, lets hope that a positive consensus develops on this account or else the already economically motivated geo-politics scenario would get itself ready to face another clash of civilizations.

Further re
Wikipedia on Sovereign Wealth Funds
Financial Times warning over SWFs
European Union pondering over regulating SWFs
Times Online coverage of major SWFs of the world
United States worrying over the growing influence of SWFs
A fact driven concern over Europe and SWFs
BBC discussion on the size and implications of SWFs
8. IMF coverage on SWF
Post dated additions:
1. Bank of England's policy position on SWF
2. Bruce Winfield Bean's article Attack of the Sovereign Wealth Funds: Defending the Republic from the Threat of Sovereign Wealth Funds? on SSRN.

Goa Govt. to invoke 111 year old Act: so whats the news?

This news-item comes really as a shock to me; shock because this can be news at all. To give you the background anyways, rediff reports that the Goa Government is planning to invoke a 111 old law to denotify the SEZs already notified by the Central Government under the Special Zones Act, 2005.

So why a shocker? Shocking because any law student can tell you that this 111 year old Act, namely the 'General Clauses Act, 1897' is one of the most frequently invoked legislation and the mother of last resorts for interpretation of statutes (enactments of Act i.e.). This archaic, yet breathing and relieving provision has been the lifeline for many of us who have been unable to find a satisfactory answer to how laws should be interpreted and comes to rescue for us all the time. Any one acquainted with law as a formal subject would have surely heard of this legislation and must also have referred to this really small piece of legislation atleast once in life time.

Brought into vogue in 1897 (to consolidate the principles under the 1868 and 1887 Acts with the same name) this Act is the mother of statutory interpretation rules in
India. Similar to the Interpretation Act, 1978 of the UK, the Act of 1897 lays down the rules of how and in what manner statues have to be interpreted (so much so that Justice G.P. Singh has written an entire treatise on it, which has been a best-seller in legal circles in India and one of the most referred book by the Supreme Court in recent times). This Act of 1897 carries a number of definitions under Section 3 which most of us (in legal profession or otherwise) employ but for which the exact and formal definition lies only in this 1897 Act. The most prominent of these include terms such as 'affidavit', 'document', 'enactment', 'good faith', 'government securities', 'immovable property', 'local authority', 'movable property', 'offence', 'person', 'registered' (in respect of a document), 'will', etc. While most of us commonly employ these terms, we do not know that their genesis, in the context of legal expression in India, lies in the General Clauses Act, 1897, which rediff very ignorantly defines as a '111 year old law'.

These specific sections of the Act are devoted to other rules of interpretation. For example most of us know that a bill becomes a law and comes into force when it is signed by the President. Our Civics books have told us that. Asked to guess where from this rule comes, most of us would say from the Constitution (which was adopted in 1949). But then they are wrong for the source of this rule is much older and Section 5 tells us originally central enactments came into force when the Governor General signed on them and it has been amended to change the name to the President. Thus this enactment is the source of this rule with which most of us are aware of but ignorant to its source.

Similarly, entailing the various legal concepts, Section 9 sets the rule regarding the commencement and termination of the time for the operation of the statute. Section 7 deals with situations in which there is revival of repealed statutes; Section 10 pertains to computation of time (for purposes other than that under the Limitation Act, 1963), Section 11 deals with (and I agree, quiet funny, nonetheless relevant) the calculation of distance. It states, "In the measurement of any distance, for the purposes of any Central Act or Regulation made after the commencement of this Act, that distance shall, unless a different intention appears, be measured in a straight line on a horizontal plane."

Then an important (for lawyers though) is Section 13 which deals with gender and number. It states "in all Central Acts and Regulations, unless there is anything repugnant in the subject or context, (1) words importing the masculine gender shall be taken to include females; and (2) words in the singular shall include the plural, and vice versa." I myself was not aware that the often cited rules originated from this 1897 Act for law during law school. But that since I realized this source, I am a fan of this 1897 Act.

There are many other important rules but of those I will discuss just one more; Section 6. This Section 6 is a rule of interpretation, which has an entire area of jurisprudence built upon it. It deals with the 'repeal of statutes' and the effects of such repeal. Very relevant in case of statutes dealing with criminal offence and the effect of repeal of such statutes (the most prominent cases in this area have been with respect to TADA (Terrorist And Disruptive Activities (Prevention) Act) and MISA (Maintenance of Internal Security Act). There have even been cases involving huge financial stakes (the one I have personally been a part of dealt with the repealed Sick Industrial Companies Act (or SICA)) which have called no less than the Supreme Court to interpret the provision of this 1897 Act. Though the interpretation on that regard is fairly settled (by a five judge constitutional bench of the Supreme Court) nonetheless a number of cases play reliance on this Section 6 and thus the principles embedded gain prominence.

As for the news why rediff cites this, is Section 21 of the Act which simply states that the power to issue notification also includes the power to revoke it. This implies the law makers as long back as more than 100 years conceived a situation wherein there would be enactments which would only give the power to notify and fail to mention anything about power to revoke, something which has exactly happened in the 2005 SEZ Act. This Act only vests the power of notifying a 'Special Economic Zone' on the Central Government. There is no mention about revoking a notification constituting an SEZ (perhaps the Government thought they would not need to de-notify one). But now that the Goa Government finds establishment of SEZs in Goa as contrary to their political agenda they seek to delimit and revoke these SEZs which have been notified to be established in Goa. To this the Secretary to Government of India responsible for notification of SEZs has the simple answer that there is simply no procedure for revoking a notification establishing and SEZ and so nothing can be done for those already brought into existence under the 2005 Act.

I am sure, it could only have been a legal brain to divert the attention of the Goa Government to bring to the notice of the Central Government this Section 21 of the General Clauses Act, 1897 whereby the power to issue notification being conferred upon the Central Government for formation of SEZs also implies that it also carries with it the power to de-notify them. Quiet simple though, but takes a legal provision to do so. And that is what Section 21 exactly does.

So there is nothing funny about that rediff, just get your facts right.

27 Feb 2008

Why Intellectual Property? (Expert's Corner)

As we had promised, we finally start with our expert articles. [click here for more on that] The first article on this is by Mr. Rahul Dutta, founder of 'Intellectual Property Lab'. [For further information on this regard or for contacting him, kindly visit IP Lab website.] In his first post, Mr. Dutta writes in simplest of terms as to why we need Intellectual Property.

Why Intellectual Property?

Intellectual capability of human beings makes them the best creation of nature. This intellectual capability has played a great role in the development of human civilizations. We owe our food and taste of food to the inventor of fire. We owe our modes of transportation to the inventor of wheel. The list of valuable inventions is endless but the result of which made our lives comfortable and more efficient. Every invention has two aspects- innovation aspect and the commercialization of the innovation. Hence development of a product indicates towards blessings of goddess of intelligence and goddess of wealth. Truly, intellectual property is nothing else but blessings of intelligence and wealth.

We learn from our experience and society. We made our contribution from our original learning and thus enrich knowledge base of our society. This was how societies were progressing. Knowledge was accessible to all. Hence it was called public knowledge domain. Gradually concept of property came in and proved herself a subject of privilege to her owner. This later on ignited a race for winning more and more property. The positive aspect of it was that though people started with physical capabilities sooner or later realized importance of intellectual faculties in winning more and more property. Introduction of intellectual faculty started monopoly in knowledge and creation of private knowledge domains.

Since private knowledge domains were subject matter of wealth creation, people who had no right to access to those private domains tried to steal the knowledge from private knowledge domains. This forced private knowledge domain owners to keep private knowledge secret. This stopped or slowed the flow of knowledge and contribution of generations to the existing public knowledge domain. We have seen that civilizations developed due to the enrichment of existing public knowledge domain. This situation halted the process of development of civilization. This forced the requirement for development of legal system for protecting private knowledge domain and restarts the flow of knowledge.

One man's right is obligation for others to honour his right. It means creation of legal rights requires balancing rights-obligations equations. The challenge was to restore the flow of knowledge from private knowledge domains to public knowledge domain and bring an acceptable legal regime for protecting rights of private knowledge domain holders. It was solved by offering time bound monopoly over the new knowledge created by any one through intellectual labor to win economical benefits out of it and pass on the knowledge to the public knowledge domain after the expiry of monopoly time. Public at large was supposed to respect the monopoly knowledge rights because they in turn were exploiting the benefits of the knowledge by paying a fee for the monopoly duration and later on after expiry of monopoly the knowledge was to be transferred into public knowledge domain. The monopoly owners were offered the exclusive rights to fetch economical benefits out of their knowledge by introducing the knowledge in public. This balanced the rights-obligations equations. This system gave birth to patent, trademark, copyright, geographical indication, industrial design, trade secret and integrated circuit layout design. These seven tools form modern intellectual property rights tool.

Follow-up: The next article in this series by Mr. Dutta will be on 'Patents'.

Changing Tax treatment of Real Estate Investment Trusts and Regulation of Art Markets: Sneek peak into upcoming changes in India

Well looks like this blog is evolving all the time and now we are posting exclusive news (well it will be hot news soon enough) contents for India now. The latest updates from the security and capital markets are the two major changes to be brought in soon enough; (i) changing the methodology and structure of taxation of Real Estate Investment Trusts (or simply REITs) and (ii) the proposal to regulate hitherto unregulated art markets in India, reveals a government official (and a close friend of mine) who wishes to be unnamed. We shall deal with both of them in some details, as told to us.

(i) Tax treatment of Real Estate Investment Trusts in
India: Expecting concessions

A REIT is not a different species but a corporation in the business of investing in real estate and having a special treatment of tax. The premise from this starts (despite the economists arguing about 'economic double taxation') from the practice of taxing both the corporation profits and the receipt of dividends in the hands of the shareholders. To illustrate, lets us suppose that there is a corporation with $100 of income. Now the rate of both corporation tax and individual income tax is 30%. Therefore the income available for distribution is $70 only ($100 - $30). Now when these $70 are distributed to the shareholders, the law considers this to be income in the hands of the shareholder and therefore this $70 would be subject to tax again. Thus the individual shareholder would be liable to pay $21 ($70 x 30%) as taxes and the net income from dividends available in the hands of the shareholder is only $49. Thus more than half the corporate income goes in taxes despite the rate of tax being only 30%.

In this situation, while legally there is just one taxation in the hands of the tax-payers (the corporation and individual shareholders being different entities, they are liable to pay tax differently on their incomes) and thus there is no case of double taxation. However speaking in economic terms, the same income is being subjected to tax twice and thus what the government collects as tax is more than the rate of tax it prescribes. Thus economists argue that this is a case of double taxation and thus the tax system should be such to tax the income only at one stage (either in the hands of the corporation or the shareholder) and not at both the stages. While some countries pay heed to this argument and have a taxation system which taxes corporate income only at one stage, most countries are quiet satisfied to see their revenue coffers flushed with money by taxing the same income twice.

A Real Estate Investment Trust, similar to make other structures that law gives recognition to, is one method of avoiding this economic double taxation. The premise of this form of relief given to the REIT is the condition attached with the REIT that it would distribute a significant part of its income and profits (if you consider 90% as a 'significant' and not 'almost everything') to its shareholders or beneficiaries. With this condition attached to the REIT, they are taxed only at one stage (i.e. either in the hands of REIT of in the hands of the shareholders of REIT), thus avoiding economic double taxation. The percentage of distribution as a qualifying criterion and the methodology of taxation of REITs varies in different jurisdictions but then the essence remains the same.

As regards the taxation in
India of such REITs (which forms the crux of this update), there is no distinct position of REITs i.e. no special advantage is given to these REITs meaning thereby that they are subject to economic double taxation.

The update that we have got is that in the coming budget (i.e. three days from now), the Finance Minister might announce such an exemption scheme for REIT from the upcoming Financial Year. The aim would be to enhance and development the yet languishing real estate markets in
India. And therefore not just this benefit, a plethora of other exemptions are also expected. For illustration, income from investment in REITs may be totally exempted from tax within the taxable caps. In fact the market regulator SEBI has already come out with Draft Regulations in REITs (click here for the draft regulations) but without ensuing tax benefits which REITs generally carry, the market might not develop at all.

So keep your ears open for the Finance Minister can surely come out (unless there are some last minute hiccups) with tax exemption scheme for REITs in
India, accentuating the real estate markets to take off in India.

(ii) Regulating Art Markets in
India: Some policy perspectives expected

The market for arts and artistic products has been facing a boom for sometime now. This might have very well slipped from our coverage but for the word of our friendly source. But looking back, I find three credible financial papers writing on it (1. Financial Times, 2. International Herald Tribune, 3. BusinessWeek).
India has not been an exception to it and its art market is estimate to be near the Rs. 1000 crore mark at the last wild guess by various experts covering the field. But the only problem is that it is unregulated.

The modus operandi for operations in this field have been coming together of private funds to invest in works of art that are later sold on at profitable returns, thereby giving value for money to the investors. Something very similar on the lines of private equity but for the fact that the funds are purely for investment in artistic products alone. These private investments are known as 'art funds'.

Perhaps bothered by the size of the market and the potential fallouts of non-regulation, it was only recently that SEBI (in its capacity as market regulator of sorts) came out with a caution note for the investors and players in the market. SEBI announced that technically these 'art funds' are characteristically the same as 'collective investment schemes', a term defined under Section 11AA(2) of the SEBI Act, 1992 and therefore they fall within the regulatory arena of SEBI. Consequently therefore, as SEBI announced, these funds are liable to registration under the 'SEBI (Collective Investment Schemes) Regulations, 1999' and thus art funds operating without registration are liable for criminal actions, thereby giving a serious blow to the hitherto unfazedly operating art funds in India. [click here for the full message from SEBI]

The move has been welcomed by almost all cross-sections associated with the arts market [msn news, sify news] and though this is a recent move by SEBI (12th February), there is aggressive murmurs within the financial corridors of there being a policy statement coming out from the FM in this budget to cast more light on the future and working of these art funds in India. Though the ET has already come out with a prediction to this regard but we are told that this is not a mere possibility but a serious one. Keep your ears clear for this one as well.

25 Feb 2008

Gender Equality and 204th Report of Law Commission of India

Gender Equality and Indian laws are a diagonally opposite paradigm. Right from the archaic code of criminal laws (namely the Indian Penal Code of 1860) to the newly enacted Domestic Violence Act, all of these have been sharply criticized as suffering from enormously high gender bias, all inclined towards bestowing rights on the fairer sex at the expanse of the male fraternity. I do not wish to speak much on how much the laws in India are inclined (if not biased) towards the egalitarian (if not superior) positioning of females, for it has already been spoken a lot and commented upon from all quarters of Indian society both from amidst the intellectual fraternity as well as the common folk.

Instead my task today is to bring forth the highly daunting task that the Law Commission of India has proposed for it and come out with a report thereon, dealing with the issues of Gender Bias for the first time from a legal-policy-perspective basis and come out with a strong case in favour of gender equal laws. Yes, I refer to the 204th Report of the Law Commission entitled "Proposal to amend the Hindu Succession Act, 1955", issued in this month itself. In the opening paragraph, the Commission itself acknowledges "inspite of the constitutional mandate for gender equality, gender bias and discrimination continue to be prevalent in the Indian society in one form or another. Though there are distinct signs of gradual reduction of inequalities on the basis of sex, yet these could not be eliminated altogether. There is no denying the fact that the fight against gender inequalities has to be pursued with sustained rigours on a long term basis until the ultimate goal of gender justice is attained." Really high speaking words but yet the action on them is to be awaited.

On these lines, the Law Commission has on its own taken a stock of the discrepancies in the earlier recommendation for reform (referring to the 174th Report on the basis of which the Hindu Succession Act was amended in 2005). Acknowledging the mistakes, the Commission has come out with further proposals for amendment of the Act such that the males can also get a fair share in the distribution of the property in cases of intestate succession. While the recommendations are technical and may not be understood by the reader lacking a background in the succession rules, nonetheless on a broader perspective, it would be clear that the Commission seeks to set rules of fair play and gender equality with a pragmatic dimension in the existing rules.

I am not going to comment upon the individual recommendations made for that would require myself to brush-up with the minutes. Nonetheless for a curious reader I do have something to offer. This is something I worked on during law school; an analysis of the the rules of intestate succession in Hindus, the paper on which I have posted on SSRN. [click here for the SSRN article on intestate succession rules] There I have sought to enumerate the basic provisions and how they work, something which will enable the reader to understand and place the 204th Report of the Law Commission in proper perspective. [click here for the full text of the 204th Report]

Updates till 24th Feb

Better late than never. A couple of days delay in coming up with the weekly updates, but not our fault really. There weren't enough updates to carry and so we decided to wait a while before we ran up this post. So here we go, with the updates from legal circles in the last ten days.

Reporting the views of Cyril Shroff (Managing Partner of Amarchand Mangaldas), this news-piece portrays the concern in the Indian legal fraternity from the competition offered by foreign law firms and their entry into the Indian markets. Mr. Shroff argues that the liberalization of legal services in India is undesirable at this point of time and it would do the laywers and law firms in India more harm than good if foreign law firms are allowed to practice in India. [click here to read his full views and also a critique of the same]

Equally interesting (and quiet in variance with the view of Mr. Shroff) is the news that Allen & Overy, a magic circle law firm, has entered into an arrangement with Trilegal, a quick rising corporate law firm. In what might be the starting point of long term partnership (and also an indirect entry of A&O in India), the deal is a clear reflection of how foreign law firms are eying India as a potential ridden market for them. [click here for the full post] [another news-piece on the same issue]

Coming from far West, another indication as to why Harvard is No. 1, is the Harvard Press release compiling data to show that 'Harvard Law School Professors are among the country's leading lawyers'. Traversing across the profile of these successful lawyers-cum-teachers, Harvard boasts of its industry-related curriculum and expertise it offers. [click here for the full report]

In a move, which was being widely anticipated, the Ministry of Finance has secured a huge sum for interest subsidy to exporters who have been grappling with the strengthened Rupee and have been facing fall in exports. The Ministry's proposal has been accepted by the Cabinet and $125mn have been allowed to subsidize the interest rates on loans from exporters. [click here for the full news item] However I am not sure of the compatibility of this allowance with the WTO rules, the fate of which could only be decided if another member of WTO decides to challenge this grant as violative of the WTO rules.

Writing on the sidelines of the recent Marathi-non-Marathi controversy in Mumbai incited by comments of Raj Thackrey, this post in law-and-other-things blog analyzes the legal position on the issue. Titled 'is nativism unconstitutional?', the article examines the position of such 'son-of-soil' arguments under the constitution and otherwise and gives some interesting insights in the issue. [click here for the full post]

Reviving a debate which has been dormant for a while,
Luxembourg parliament has passed bill legalizing euthanasia [click here for full text of the bill, in French]. While it has been a heated topic of debate in the late 1990s and in the early years of this decade, the allowance by law to a person to end one's life has been vociferously argued amongst on both legal and social lines, with the Church standing out sternly against the move. [click here for more]

This research article on the pitfalls of granting 'Universal Jurisdiction' to international criminal courts offers intriguing insights on the issues involved and the problems with such wide powers being divested on courts. Equally interesting are the comments on the article, which reflect the concern of the readers on the issue. [click here for the full article]

In what we can term as the find of the week, this blog is a focused solely on Legal Process Outsourcing (something very commonly known in Indian legal circles as LPOs) [click here for the blog] This recent post on the blog, contemplating the pros and cons of outsourcing in law (and thus the question 'Outsourcing or No-outsourcing' drove us to this blog and really offers some interesting insights on the various issues involved therein. [click here for the full post]

Then seeking reasons for why lawyers are one of the most hated professionals, the news item puts the blame on TV serials which portray the lawyers in negative spotlight, corrupting the mindsets of the masses who being to see them as harbingers of corruption and greed. An interesting post. [click here for the full comment]

In an interesting development in international law terms, Kosovo has declared its independence from
Serbia. Why I call this interesting is because of the 'recognition' problem, which constitutes an important facet of international law. 'Recognition' or a government and nation (mind it, these two are different concepts) are an essential factor before other governments transact or have official relationship. Therefore a nation, as such, needs to be recognized by other governments before it can be said to be possessing nationhood (i.e. ability to make laws which are respected by other nations and capable of possessing legal personality, which allows it to take official membership of international organizations etc.). On this count the declaration by Kosovo of its independence is significant as its independence has been recognized by a number of nations (including the United States and most EC countries) but its recognition has been rejected by Russia. Therefore while Kosovo is defacto an independent nation, it cannot become a member of the United Nations (UN) so long as Russia does not change its stance and for UN it will not be a dejure independent nation. [click here for the news-report]

In what promises to be a shift from a military regime to a democracy, the Constitution Drafting Committee of Myanmar has come out with a draft constitution which it says is ready for a referendum. Though the draft has not yet been published, yet it shows signs of progress atleast and this thus represents a worthwhile move. [click here for the full news item]

Quiet interesting subject for finance buffs (though not purely legal), this article in rediff tells in simpler terms 'How SENSEX is calculated'. Traversing from explaining the methodology and also giving interesting facts on the exchange itself, a worthwhile reading overall. [click here for the article]

A big new for the ever expanding law firm culture comes from Australia. The top law of the country 'Slater and Gordon', which last year became the first law firm to get itself listed on a stock exchange has fared very well in the first year of its listing, reporting a huge rise in its profits. Seems like the future of law firms lies in publicly traded corporations route. [click here for the full news-item]

This informative post entailing details on resources and guidelines for budding authors comes in the right perspective when it brings to ensure (though only in a US law journal perspective) that authors do not miss out publications only because of technical details. [click here for full post]

As Shashwat points out, there is an outcry amongst the biotech firms in India calling for reform of the patent law. Despite the massive changes brought under the patent legislation of India in 2005, this association of more than 1100 firms feels that the legislation falls deficiently short of the level which would be an appropriate mix of protection and promotion for innovation. [click here for the full news-item]

Then the news which would excite most law students. The Harvard Law School has finally come up with an online version of the Blue Book of Citations. Gone are the days when the students (and law professors equally) would be required to scroll through the thick blue book looking for the appropriate mode of citation of the article etc. they sought to cite. This online facility would really go on a long way to reducing such tendencies. [click here for Harvard Update on Bluebook]

In this quiet longish post, the author brings to fore the new trends facing the familial scenario in India and the rate at which divorce cases are coming up. Relating the changed social statuses of the Indians with the need to move on, the author does bring some interesting pieces for thought on looking at divorce as a social phenomenon. [click here for the full post]

We then come across this fully-developing-country-styled-oriented-view of the WTO's TRIPs Agreement. In this long article on SpicyIP, the background is the recent dispute under the WTO's dispute settlement understanding relating to Antigua's gambling practices. Taking cue from the fact situation of the case and the outcome handed by the dispute settlement body, the author bashes the TRIPs Agreement of its shortfalls through cross-reference of other models for intellectual property protection and on other counts as well. [click here to read the full post]

Coming from a geologist but nonetheless this article brings out really interesting facts and figures on the present and prospects of India's forest and the related paraphernalia. (and therefore a worthwhile read for all environmental law buffs) [click here for the full article] Also from the same author is another article on India's Tigers and forests. Bring to forefront the real concerns behind the falling population of tigers in India. Another worthwhile reading. [click here for the full article]

Then we stumbled across this blog, which portrays itself as a general knowledge book. Titled 'Indian Current Affairs', it comes out with one post a day to summarize and bring to light all the events which took place in India on that day across the time line. Do subscribe to the RSS feed. [click here for the blog]

Then we have the latest policy brief by CUTS (really this NGO has surprised us all by regularly coming out with such timely and befitting researched opinions on competition policy in India) on "Competition and regulatory regimes in small and developing countries". It argues for extending the main principles of competition and regulatory regimes developed in the west to be emulated in the developing countries but only by making proper adjustments for the local differences. [click here for the full report]

And we bring to you now what officially US thinks about Chinese economy. Entitled 'How large is China's economy? How does it matter?', this report by the Congressional Research Committee carries the findings which would be relied upon by the US Congressmen for taking appropriate action and thus finds a significant place in the scheme of affairs. Raising concerns on the increasing size of the economy, the Report does offer the Congressmen an idea to be cautious about dealing with it. [click here for the full report]

21 Feb 2008

Supreme Court strength to be increased: Mixed reactions

While the United States Supreme Court works with a strength of nine judges (including the Chief Justice), the Indian Supreme Court is finding a strength of 25 + 1 (Chief Justice) as insufficient to deal with the increasing appetite for judicial intervention by the Indians. The piling list of pending cases just reaffirms the need to set priorities right in justice delivery system. [click here for the figures of pending cases in Supreme Court] While it is a good point to have a higher number of cases being registered in the Court, for it highlights the growing confidence in the judicial system on the part of the citizens (unlike other countries where heightened corruption woes deter approaching the courts), on the other hand management (or as some would put it 'logistics') of such heightened curiosity of the citizens to seek judicial intervention in almost all legal and extra-legal issues hits the system hard in the back-log it creates.

The demand for increasing the number of judges has been in vogue for long. However it has never been as regards the judges at the apex court and instead reforms have been called for to increase the number of judges at the District courts level and the High Courts, where the pendency is the most. And what we haven't witnessed is the hike in the judges level at the lower rungs of the judicial system, which is the more important priority if the system has to cope up with the increasing number of law suits, which are rising in tandem with the rise in the population status of the country. Instead what we witness is a proposal to increase the number of judges in the Supreme Court evokes mixed reactions from my side for I seek to look beyond just the problem of pendency of cases, as the Cabinet suggests the reason for the recent move.

In my opinion, the proposal to increase the number of judges at the Supreme Court is to add another dimension to the ever-green (I call this ever green as this issue props up every now and then) debate on having a bench of the Supreme Court for south India. Under the Constitution, the Supreme Court shall have a seat at Delhi. But also the Constitution recognizes that the Supreme Court may have its seat where-ever it wants in India. But unfortunately (unfortunately for the government), this decision to have a seat elsewhere is one purely the discretion of the Supreme Court and repeated number of petitions have been brought before the Court for it to consider having a bench in the South such that the litigations on the other corner of India do not have to spend so much resources in traveling and otherwise in their quest for justice. However, on all occasions a unanimous Supreme Court has always come up against any such fissiparous tendencies.

This recent move to increase the number of judges at the Supreme Court, in my view, is done with the motive to provide an additional dimension to reconsider this debate of having a southern bench for the Court. With the number of judges raised to 30, there is now a more scope to argue for a two-bench court for cases could be dealt with more efficiently and litigation costs reduced considerably with a southern bench disposing off the cases of the southern part of the county. However, I must be quick to add here, that I am totally against a case for a two-bench court for I completely agree with the reasoning given by the Court of 'preserving the integrity of a united court'.

With 26 judges and 13 court rooms (not to speak of individual chambers of the judges as well), it is already hard for the judges to keep track of what their brother judges rule in cases before them. Unlike the system in the United States Supreme Court, where all judges sit on all cases, the division of work of the Supreme Court in India is determined by the Chief Justice who issues standing instructions (called the roaster) to the Registry which puts up the cases before identified judges and thus other judges are not aware (unless there is some really important case and sitting judges do care to take the opinion of other judges) of the matters posted before them, till the time they are published and reported in the official reporter of the court and circulated before them. In such a scenario, atleast a common meeting point in the form of regular meetings in the Chief's chamber and for other administrative purposes keeps them united. Sending half the judges to other corner of the country would definitely give a blow to this system.

Further, one must also remember that the Supreme Court is not just the highest court of appeal. It is also a constitutional court, vested with the duty of interpreting the constitution and also ensuing that the government policies operate within the stipulated framework. But even more than this, intendedly or unintended, the Court also pursues a political agenda of its own. As brought out from the decision of Keshvananda Bharati case, 1973 (where the 'basic structure doctrine' was laid down), S.P. Gupta case, 1981 (whereby the court opened a gate for public opinion to participate in the law-making process, through the Public Interest Litigation route), Supreme Court Bar Association case, 1990s (wherein the Court reserved it itself the power to nominated judges in the Supreme Court and the High Court, as opposed to the government nominating the judges), Rameshwar Prasad case, 2005 (wherein the Court declared that it could look into the illegalities committed within the legislative process), the recent case (cannot recall the name of this one) wherein the Court held that Schedule IX of the Constitution was not beyond judicial review (and thus ending a run for governments to make arbitrary laws and beyond judicial challenge) or even the pending case of reservation in educational institutions; the history of the court is flooded with such decisions in which the political agenda of the court is clearly brought out. This could not have been possible in a divided court and required a integrated for making such bold and unprecedented initiatives.

Given the ongoing tussle between establishing the might for power between the legislature and the judiciary (the Delhi-land sealing case is the most potent but not the only example to this end, along with the reservation case as well), and the fact that in this first decade of the twenty-first century the court had indeed come out with certain remarkably bold decisions asserting its independence and role in shaping the legal paradigm, I am sure the legislature and most importantly the executive would no doubt be looking for ways and means to dilute this growing omnipotent positioning of the court. And it would not be a big surprise for me if this turns out to be the hidden agenda behind the move to increase the number of judges in the Supreme Court, for if the Cabinet for really concerned with the backlogs in the cases, they should have started working from the ground realities, namely the district courts.

Further coverage of the news-item;

  1. NDTV
  2. Sify
  3. Rediff

20 Feb 2008

Bayh-Dole: Protecting University IP

Bayh-Dole Act is one of the most inspired piece of legislation to be enacted in America till date. According to "Innovation's Golden Goose," an opinion piece published in The Economist in the year 2002: "Together with amendments in 1984 and augmentation in 1986, this unlocked all the inventions and discoveries that had been made in laboratories throughout the United States with the help of taxpayers' money. More than anything, this single policy measure helped to reverse America's precipitous slide into industrial irrelevance."

Enacted in the year 1980, the Bayh-Dole Act created a uniform patent policy among the many federal agencies that fund research, enabling small businesses and non-profit organizations, including universities, to retain title to inventions made under federally-funded research programs. This legislation was co-sponsored by Senators Birch Bayh of Indiana and Robert Dole of Kansas.
As per AUTM:

Major provisions of the Act include:

  • Non-profits, including universities, and small businesses may elect to retain title to innovations developed under federally-funded research programs
  • Universities are encouraged to collaborate with commercial concerns to promote the utilization of inventions arising from federal funding
  • Universities are expected to file patents on inventions they elect to own
  • Universities are expected to give licensing preference to small businesses
  • The government retains a non-exclusive license to practice the patent throughout the world
  • The government retains march-in rights.

The Bayh-Dole Act was especially instrumental in encouraging universities to participate in technology transfer activities.

The Union ministry for Science and Technology, to ensure protection to the intellectual property conceived and developed in research centers of universities and public institutions, is planning a legislation on lines of the Baye Dole Act, to provide for better incentives to Universities involved in research work. In all probability the draft of the bill would be tabled in the Parliament very soon.

This Act would lay the foundation of systematic IP management and policies for the Universities which are involved in advanced scientific research. The recently set up Technology Transfer departments at various IITs are a attempt in the direction to Organise the disoriented University IP sector. This is a much needed attempt to protect the inventions which are developed in these centres of knowledge and learning.

19 Feb 2008

Online Banking:Regulatory framework in India

This particular post is a modified version of an abstract prepared for a conference on Online banking. During the research I could found that the literature on regulatory aspect on online baking is very less. I thank Kalpit for working with me for this post.

Shedding the conventional brick and mortar banking style, the Indian banking has entered the new forte of online/internet banking, though of late. This being the transition period, the banking community is facing immense challenge and issues of feasibility also pop-up.

I. Feasibility of Online banking in India

The redtapism in public sector banking and lesser consumer base is being attributed to as the reasons for the Indian banks to enter into the online banking this late. With the rapid development in the technological infrastructure (security, confidentiality is being mainly referred to) and the legal framework being better equipped, the online bank has become a feasible mode of banking in India.

Regulatory framework in India has gone a long way forward, with the Information Technology Act 2000 attempting to address a number of e-commerce regulatory issues, address the need for banks to go online and have laid out security measures to be adopted (since online baking is overlapping with e-commerce on most occasions and having to deal with cross-border jurisdictions), and with the comprehensive and forward looking guidelines brought out by the RBI.

Along with the favorable scenario in the techno-legal aspect and the increasing internet consumer base has taken the trend of online banking from basic information dissemination service to fund-based transactions on their accounts, hinting at the ample growth prospect of online banking in India.

II. Challenges

In the Internet banking system, information is considered as an asset and so worthy of protection. However, the present system of authentication does not address the security aspect in full. This calls for an urgent need to acclimatize the whole system.

According to Online Banking Association, member institutions rated security as the most important issue of online banking. There is a dual requirement to protect customers' privacy and protection against fraud. Another major issue is that of Data Protection and the need for a legal and regulatory framework.

Currently, India has no law on data protection. Information security in e-banking presents two main areas of risk: preventing unauthorized transactions and maintaining integrity of customers’ transactions. Data protection falls in the latter. Data protection laws primarily aim to safeguard the interest of the individual whose data is handled and processed by others. ‘Interests’ are usually expressed in terms of privacy, autonomy and/or integrity.

The Information Technology Act, 2000 does not address this issue. India should take cue from nations, which have favored ad hoc enactment of sectoral laws over omnibus legislation. Along with these issues, the contradictory issues present in the Banking Regulations Act, 1949, the Reserve Bank of India Act, 1934 and the Foreign Exchange Management Act, 1999 need also to be looked into.

On the technological front the Indian Internet banking system is facing many hurdles. The problems include operational risks, security risks, system architecture risks, reputational risks and legal risks. Phishing is another issue that needs attention. Experts suggest that simple rules such as not sharing login IDs and passwords with anyone, would keep customers safe.

III. Future

It would obviously take much time before the online banking could be called a fully alternative banking mode to the conventional one. Legal and cross-border risks can be avoided through proper customer identification devices, information screening techniques, periodic reviews on compliance with various laws, and gaining knowledge of various national laws (applicable) and guide the customers through their cross-border dealings. The compliance part and policy regulation part should be assured by the RBI and the need for a data protection law cannot be denied.

The security issues can be tackled by having the bank's systems technologically equipped to evade operational and security risks. Reputational risks can be prevented by testing of the system before implementation, developing contingency plans (to handle system disruptions, system hackers, security lapses and virus attacks) and creating back-up facilities. Customer education and awareness also need to addressed, as unless the customers are taken into confidence and made comfortable with the working of online banking all the technological development will go in vain.

Trade Secrets and the University: Can They Co-Exist?

Traditional University norms and practices includes Dissemination of Knowledge (public purpose) and Faculty-student publishing requirement. Apart from this the purpose of a University in Traditional setup is Training of students and having Open campuses. As a result of this there is the much needed student interaction, collaborations with peers and academic freedom.

Now the
Modern University setup which invents on Government and private funding (eg. MIT, University of Chicago and new addition is India's very own IITs) generally protects the inventions via Patents eventually put the same in public domain and license or assign the same as per the pre existing contracts with funding agency or as per the university policy. But the case for Trade Secrets can in no circumstance be the same.

Trade Secrets in a University are largely derived from Research and Computer Code Development. The use of Trade Secrets in a University setup is for :

  1. Licensed alone for commercial use (often called “Know-how” licenses)
  2. Licensed as part of software source code licensing

The essential elements required for a trade secret are Information of the employer, not generally known to the public, of commercial value and the released only with protection against further disclosure

Thus the Trade Secrets in a University set up not only put limitations to the concept of open campuses and faculty student interaction but also to a large extent curb the academic freedom which the universities have enjoyed over the years.

The big question is that in this capital driven world can the Trade Secrets and Universities co- exist?

18 Feb 2008

Child Marriage in India: Policy changes proposed by the Law Commission of India

What can be described a significant change in the legal policy, the Law Commission of India has proposed a number of changes regarding child marriages and otherwise. Responding to the queries raised by the Supreme Court in a writ petition before it wherein the Court sought the opinion of the Commission on certain issues relating to child marriages and the legal framework associated therewith in the country, and also dwelling upon the issues in the light of the recently enacted 'Prohibition of Child Marriages Act, 2006', the Law Commission has come out with the 205th Report entitled 'Proposal to Amend the Prohibition of Child Marriage Act, 2006 and other allied Laws'.

Before beginning with the analysis of the Report, it would be wise to make a survey of the existing legal framework governing marriage of citizens below the prescribed age of marriage (i.e. 21 and 18 for boys and girls respectively). Prior of 2006, the legal position was that it was the policy of the state to discourage child marriages (under the 'Child Marriage Restraint Act, 1929'). Thereunder those promoting or engaged in the act of marrying under-age boys and girls were liable for punishment. However the new spouses were not liable for any action and the marriage, despite either or both parties being under the prescribed age, was legally valid a
nd enforceable and there lied a proper civil action of the enforcement of conjugal rights from such marriage; a right which is a concomitant of a legally recognized marriage.

The raison d'etre behind such a policy (under the 1929 Act) was that it was in the best interests of the girls involved in such a marriage; for under the existing cultural and social ethos of the land a married girl was no more considered to be a part of the family of her birth and instead a part of the family of the groom. More importantly, since non-recognition of such marriages would imply that the off-springs of such marriage would be ill-legitimate (a stigma which the law seeks to avoid), it was considered important (at the time of framing the Act i.e. 1929) to consider such under-age marriages valid.
However things were changed with the passing of the 'Prohibition of the Child Marriage Act, 2006' and its coming into effect from 1st November, 2007.[click here for the full text of the 2006 Act] Under the new 2006 Act, the parties to an under-age marriage were given rights to get their marriage declared void (thus essentially making child-marriages void-able at the option of the under-age party to such marriage). In any case the right to maintenance of the girl were protected i.e. even of the such marriage was declared void, the girl had the right to maintenance from the husband till the time she got remarried. Further, under the new Act the punishment for encouraging or facilitating or solemnizing such marriages was increased. Nonetheless the policy of not holding the women liable for solemnization of such marriages was continued even under the new Act. But (as it happens in most cases), it seemed to the Law Commission that the 2006 Act was not a panacea to the ills of child marriage and therefore it took up the issue to examine the various facets relating thereto in greater details; and thus the 205th Report.

In this Report [click here for the full text of the report] the Law Commission has examined in details the scientific and medical issues arising out of so-soon a wedlock (detailed in Chapter 3 of the Report) and has come to a conclusion that an early marriage is no good for any and all the parties involved and that too on all counts i.e. physiological, pshychological, and emotional and affects not only the parties to such marriage but also the household in which they stay. Further (in Chapter 4), the aspect of human rights of the parties, in the context of being married at such an early age, have also been examined to conclude that is an abhorable situation. To quote from the Report,

"Child marriage is thus child abuse and a violation of the human rights of the child. It has an extremely deleterious effect on the health and well being of the child. It is a denial of childhood and adolescence; it is a curtailment of personal freedom and opportunity to develop to a full sense of selfhood as well as a denial of psycho-social and emotional well being and it is a denial of reproductive health and educational opportunities. The girl child is the most affected and suffers irreparable damage to her physical, mental, psychological and emotional development."

Upon an extensive review and deliberations upon the various considerations involved in child-marriages and its implications upon other criminal laws, the Law Commission has proposed as under;

(a) Child marriage below the age of 16 be made void (i.e. legally unenforceable under any circumstances)

(b) Marriages where either or both spouses are between 16 and 18 be made voidable (i.e. giving an option of either party to get them annulled);

(c) The provision of maintenance of the girl till her remarriage in either (a) or (b) to be continued and all children arising out of either of the marriages under (a) or (b) to be deemed legitimate;

(d) The concept of marital rape (as being a non-punishable offence) be deleted from the Indian Penal Code;

(e) The legal age for a girl to give sexual consent to be increased to 16 years;

(f) Registration of all marriages to be made mandatory; and most importantly

(g) The age of marriages for both boys and girls be made 18 years; (here the Commission says there is no reason for keeping a difference in the two ages)

I am in favour of most proposals (though I simply cannot conceive the consequences of the reduction in age for marriage of boys to 18 years). However one significant fact which arises upon an evaluation of this Report is its lack of consideration of the Muslim personal laws wherein the age of marriage of girl is the age when she attains puberty. Since the proposal is keen to envisage all girls to be married only after they attain 16 and there is no qualification as to Muslim girls, it would imply that these provisions are applicable across the board to all girls in India, irrespective of the religion or cultural ethos they come from. This makes this proposal the first in line with the cherished idea of a 'Uniform Civil Code' which forms a controversial element in the 'Directive Principles of State Policy' under the Constitution of India.

Though most critiques would jump at the Report for various recommendations it makes (and on the lighter side, I have already seen various funny caricatures on the age of boys for marriage reduced to 18 years), its a progressive piece of advice which the Commission has meted out to the Government and the only item on the agenda which remains to be performed is when (and if at all) the Government decides to translate these proposals into laws. 

Post-Script Rejoinder

After writing post we came across a later decision of the Delhi High Court in which these concepts relating to validity of child marriage have been explained. Since we have covered that in a separate post, we would recommend our readers to have a look at this post titled "Minor's Marriage legally valid".