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.

Regulatory Structure under Competition Laws: Case of EC and India

I. INTRODUCTION

Competition law differs from other branches of law for various reasons. It is not about the fairness or morality to be instilled in the actions which mark societal behaviour. Instead the rules of competition reflect economic principles, designed to render the operation of the markets in a manner beneficial to the common good. These rules are of immense importance as they not only vouchsafe against the monopolistic and exploitative tendencies of the bigger market players, they are also instrumental in providing the smaller and newer entrants in the markets to work towards achieving self-sustaining levels.

Their importance is noted well in by the US Supreme Court when it observed, “the antitrust laws … are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental freedoms”. [United States v. Topco Associates Inc., 405 US 596 at 610 (1972)]

To speak of the European Economic Communities (EEC), the rules relating to competition to be observed in the common markets of the EEC flow from Article 81-86 of the EC Treaty. From these are derived the three central legal provisions upon which this law operates;

• Article 81, prohibiting anti-competitive agreements,
• Article 82, prohibiting abuse of dominant positions, and
• The EC Merger Regulation (ECMR), prohibiting anti-competitive merges, acquisitions and joint ventures.

Each of these rules apply in different circumstances but the underlying purpose beneath them is one and the same: to prevent the problem of welfare loss that can arise when an undertaking or a coordinated group of undertakings exercise certain market power. To effectuate this legal framework, the EC Treaty also vests the powers and functions of regulation upon various bodies functioning under the EC and national member states. The aim of this paper is to examine the regulatory structure in vogue under the EC competition law and to identify the key traits which may as well be applicable for the recently formulated Competition Commission of India, in its quest towards rendering competition workable in the Indian markets.

II. REGULATORY STRUCTURE UNDER THE EC COMPETITION LAWS

The competition law framework, as originally envisaged under the EC Treaty concentrated upon the EU Commission as the sole benefactor and regulator of market actions pertaining to competition in the EEC markets. This framework underwent substantial reform (w.e.f. May 1, 2004) whereby the EC’s modernized competition regime took effect. Thereunder, devolving responsibility for enforcing competition law from the European Commission to national competition authorities (NCAs) and courts in the EU member states, an entirely new framework was given effect to. Known as the European Competition Network (ECN), the system was designed to effectuate a shift in policy. There was a move away from a system of advance clearance or exempting of agreements to a retrospective exception system.

Since the aim is to comparatively examine the EC Competition law structure, it is this new framework which forms the subject-matter of study of this project. With this background, let us proceed towards the attainment of our objectives.

(a) The legal regime for competition in the EC

As with other Community policy areas, EC Competition law is established and developed via a variety of legal sources. At the top of the legal hierarchy is the EC Treaty. By itself the Treaty does not provide sufficient detail to permit the existence of a fully and completely functioning legal order, and a considerable quantity of secondary legislation has been made. Article 249 of the Treaty lists the types of secondary legislation that may be adopted by the EC, which are, regulations, decisions, and directives. Thus EC competition law may be enforced by way of decisions made by the EC Commission and Article 249 provides that a ‘decision shall be binding in its entirely upon those to whom it is addressed’.

The legislations may further be interpreted by the European Court of Justice (ECJ) or the national courts. Thus these decisions serve as the third source of EC competition law. Further, the notices and guidance issued by the EC Commission are also binding instruments of state policy and thus serve as another important source of the competition law.

As noted above, Article 81 and 82 comprise the bulk of the substantive competition rules of the EC. However what is important as regards their implementation is the objective set forth in Article 2 of the EC Treaty, which includes ‘a high degree of competitiveness and converging economic performances.’ Further, Article 3(g) provides that the activities to be undertaken for the purpose of achieving the objectives of Article 2 include, the development of ‘a system ensuring that competition in the internal market is not distorted. In these one may find the broad objectives upon which the functioning of the EC competition law regime is based.

(b) The EC Regulatory Authorities

While Articles 81 and 82 form the bulk of the substantive rules, Articles 83 and 85 provide the mechanism for the implementation of these substantive rules. Article 83 makes a provision for the enactment of ‘any appropriate regulation or directives to give effect to the principles set out in Articles’ 81 and 82. Thereunder various regulations have been made, the major ones being Regulation 1 of 2003, block exemption regulations, etc.

In this framework, Article 85 confers upon the EC Commission the primary role in the enforcement of the EC Competition law by requiring it that it ‘shall ensure the application of the principles laid down in Article 81 and 82’. In this regard, the Commission is required to investigate infringements of law and in cases of breach, it is duty bound to ‘propose appropriate measures to bring it to an end’. Thus our study proceeds with the examination of the EC Commission.

(i) EC Commission

Given the importance of the institution and its pivotal role in rendering the EC competition law effective, the Commission has been described as the ‘guardian of the Treaty’, or the ‘watchdog of the Community’. Established under the Treaty itself, the rules relating to the Commission are set out in Articles 211-19 of the Treaty with Article 211 providing that the Commission should ensure compliance with the EC law, and exercise specific powers given to it by the Council of Ministers.

The Commission consists of 27 Commissioners, nominated by the Member States. Administratively the Commission is divided into Directorates General, with one Directorate General having responsibility for competition policy, which includes the contentious areas of state aids, and merger policy as well as ‘antitrust’.

The role of the Commission, as at present, is to supervise the operation of competition policy and to play the lead role in the formulation of that policy as change is needed. The Commission has the power to investigate infringements of the law, and to take appropriate action, on its own initiative, or in response to complaints. However, each Member state is also required to apply the law in specific areas with the use of the appropriate national procedures applied by the relevant national competition authority. The Commission is also required to submit an annual report to the European Parliament detailing its activities in competition law over the last year.

The change in the role of the Commission came with the EU Council of Ministers adopting Regulation 1/2003 in November 2002 (which came into force from May, 2004), replacing Regulation 17/62 which set out the hitherto existing procedural rules for enforcement of Articles 81 and 82. This Regulation introduced fundamental changes to the process by which EC competition law was enforced and also the roles of the various authorities.

Under the new regime, the Commission is not required to be notified in advance about their proposed actions whereas earlier the companies were required to notify agreements to the Commission in advance for clearance confirming that the arrangements do not infringe Article 81(1) or an exemption confirming that the arrangements infringe but are exempted under Article 81(3). Under the new regime, companies will now have to form their own view on whether the agreement is compliant and would survive an attack by a regulator or other third party during the life of the arrangements or even after they are concluded. Thus the market players have been vested with the power to declare that the conditions of Article 81(3) are satisfied so as to protect arrangements from attack; an instance of self-regulation.

Nonetheless, in order to assist the players in arriving at decisions regarding compatibility of their actions with the competition law, the Regulation does not formally prevent parties applying to court for a declaration as to the status of an agreement. Further, in respect of novel or unresolved questions on the application of Articles 81 and 82, the Commission retains the power to provide informal guidance.

It may also be noted that now the power of regulation is decentralized with the National Competition Authorities (NCAs) and the national courts of the Member states also allowed enforcing Articles 81 and 82. This may, depending on the geographical spread of the arrangements, give aggrieved parties a range of potential venues. Nonetheless the parental role of the Commission is retained with the Regulation requiring each NCA to send the Commission drafts of its intended decisions at least 30 days before the NCA intends to adopt the decision. This would allow the Commission to detect any inconsistency in the application of Articles 81 and 82 and, if necessary, take over the investigation.

It is now widely believed that under the aim of modernization the purpose is instead to allow the Commission to focus its attention on the enforcement of competition law; moving from being a regulator to a policeman, a belief which has been reinforced with present Competition Commissioner Mrs. Neelie Kroes’ handling of the Microsoft case. Under the new regime, the Commission deals only with complaints that have a sufficient ‘Community interest’. This is brought out by the draft Commission notice on the handling of complaints which may be only in cases wherein;

• One or more agreements or practices have effects on competition where there are cross-border markets covering more than three member states or several national markets; or
• Where a Community decision is required to develop Community competition policy or provide effective enforcement.

This emphasizes the Commission’s new role as dealing only with matters that are strategic or of EU-wide significance.

(ii) The Advisory Committee

Article 14 of Regulation 1/2003 makes provision for an Advisory Committee on Restrictive Practices and Dominant Positions, which must be consulted before the Commission takes various decisions, in particular those which have an adverse affect on those to whom they are addressed. It is the forum where experts from the various competition authorities discuss individual cases and general issues of Community competition law. It is consulted at the request of the Commission or a Member State and is composed of ‘representatives of the competition authorities of the Member States’. [Article 14(2) of Regulation 1/2003] Thus this Committee serves as an important link between the Commission and the Member States. The Commission is required to take an utmost account of the opinion delivered by the Committee. [Article 14(4) of Regulation 1/2003]

(iii) National Competition Authorities & European Competition Network

With the modernization in 2004, an important role was assigned to the National Competitions Authorities (NCAs) in the effectuation of the EC competition law regime. While earlier they had been responsible for giving effect to the national competition laws and the orders of the Commission in so far as they pertained to their states, now they also vested with the powers to apply Article 81 and 82 of the EC Treaty, a power which was hitherto vested solely with the EC Commission.

Towards this end, Article 5 of Regulation 1/2003 sets out the basic role of the national competition authorities. It states,

“The competition authorities of the Member States shall have the power to apply Articles 81 and 82 of the Treaty in individual cases. For this purpose, acting on their own initiative or on the complaint, they may take the following decisions:

- requiring that an infringement be brought to an end,

- ordering interim measures,

- accepting commitments,

- imposing fines, periodic penalty payments or any other penalty provided for in their national law.

They may also decide that there is no ground for action. However their importance in the EC competition law framework is derived from Article 11(1) of Regulation 1/2003 which provides that ‘the Commission and the competition authorities of the Member States shall apply the Community competition rules in close cooperation’. Thus from being independent observers and actors, the NCAs have been formally instituted as the lower tier of the EC competition regime, supplementing the functions of the Commission.

The purpose of this new system is the expected faster resolution of competition cases than it has been in the past where the Commission was the sole arbiter in such matters. In its zeal to maintain constant communication between the two tiers of regulators, Article 11 of the Regulation 1 of 2003 imposes upon the Commission the requirement to send the NCAs copies of important documents in its possession, and the NCAs in turn are required to tell the Commission whenever they commence formal investigative measures. Similarly, the NCAs intending to take infringement actions or accepting commitments etc., are required to inform the Commission and provide a summary of the case and a copy of the proposed decision. Thus it is seen that significant powers have been conferred upon the NCAs but nonetheless they are required to act in close coordination with the EC Commission. [To this effect, the Commission has also produced a Notice on cooperation with the Network of Competition Authorities (2004) OJ C101/43]

In order to maintain close coordination amongst the various authorities responsible for implementation of the EC competition law and to avoid inconsistencies in their actions, the Regulation 1 of 2003 also created a framework, known as the European Competition Network (ECN). This ECN consists of the European Commission and the competition authorities of the 25 Member States. It was established during the modernization reform of the EC antitrust rules as a forum for discussion and cooperation of Member States competition authorities in cases where Articles 81 and 82 of the EC Treaty are applied. The ECN ensures an efficient division of work and an effective and consistent application of EC competition rules.

This creates an effective mechanism to counter companies which engage in cross-border practices restricting competition. As European competition rules are applied by all members of the ECN, the ECN provides means to ensure their effective and consistent application. Through the ECN, the competition authorities inform each other of proposed decisions and take on board comments from the other competition authorities. In this way, the ECN allows the competition authorities to pool their experience and identify best practices.

(III) EC MODEL: LESSONS FOR INDIA

The above examination of the regulatory model for the implementation of competition law in the EC may serve some purpose in the re-evaluation of the competition model proposed for India. Let us analyze the same.

(a) Regulatory Structure under the Competition Act, 2002

Enacted on the lines of the recommendations of the Raghavan Committee, the Competition Act of 2002 marks a significant shift in the economic policy of India. It can broadly be stated as the second tier of reforms after the broad and swift changes in 1991 in the industrial policy of India. Repealing to a large extent the Monopolies and Restrictive Trade Practices Act of 1969, the Competition Act of India is in line with the international state of affairs as regards their attempts to regulate markets giving full effect to competitive positions.

Chapter III of the Act provides for a ‘Competition Commission of India’, which is the sole authority under the Act to give vigor to the substantive provisions and also to ensure its implementation. Of this, Sections 7 to 17 deal with the establishment, composition, conditions of membership etc. However what is relevant for our purposes is Chapter IV which entails the ‘duties, powers and functions of the Commission’.

Section 19 of the Act required the conducting of ‘inquiry into certain agreements and dominant position of enterprise’. This may be proceeded to upon the basis of a complaint alleging contravention of the provisions of the Act or by the Commission on its own motion. Similarly Section 20 requires ‘inquiry into combination by the Commission’. Section 22 provides for the Benches of the Commission and Section 23 provides for the ‘distribution of business of Commission amongst Benches’. Thereupon there are other provisions providing the procedure for investigation and its necessary fallouts.

This provisioning for the exercisal of the quasi-judicial functions of the Commission may as well be comparable with the various Tribunal operating in India. However the fact that that the Commission is entrusted with both investigative and adjudicatory powers is concomitant with its existence as a market regulatory, on the lines of SEBI. Similar positioning is also found of the various commissions under the competition laws of other nations.

It is noteworthy that the arrival of the Competition Act of 2002 of India coincides with the British reform of its competition law, also enacting the Competition Act of 2002, wherein the powers and functions of the Competition Commissions under the two enactments is largely the same.

(b) Lessons from the EC model for India

The EC Competition law model is a unique one as it envisages two tiers of regulatory structure (pursuant to the 2004 reform) and the situation is almost unparallel across the world. Even the United States, with 50 states to manage, operates with the Federal Trade Commission as the sole arbiter to manage the federal anti-trust statues. The coordination between the federal and state authorities is not that pronounced as in case of EC.

Given the existing situation, the Competition Commission of India (CCI) is at best comparable as a NCA of the EC framework, being required to administer the Competition Act of 2002 alone. However in my opinion it would be worthwhile to develop the CCI on the lines of the EC Commission as the first tier of regulator. This presupposes institution of the second tier of regulator, which may in case of India, may be best instituted as the various competition commissions of the states. This may not necessarily mean that there would be requiring a competition commission for each state but the jurisdiction could be divided on the basis of geographic lines and dominance of economic activities. However that is for the administration to decide.

What I propose is that in its quest for competition to spurt from the grass root levels and thereupon to gush up to the top, the aspect of regulation should be decentralized to these local commissions with the CCI to monitor their functioning and involved in the designing of the policy framework, being equipped with all the relevant information and filled with the experience of these commissions.

Thus I propose a second tier of competition commissions, initially divided on geographic lines (like one for north, south, east, and west regions each) and later on one for each state, which are primarily entrusted with the responsibility and functions of investigation, monitoring compliance etc., on the lines of the NCAs in the case of EC. They would act in close coordination with each other and with the CCI at the top to assist them and regulating their activities.

This would serve three fold purposes. Firstly, the CCI would be rendered divested from the investigative functioning and thus it can devote its resources towards designing of policy framework for competition in India and spearheading the litigation at the level of higher courts of India. Secondly, with the second tier of commissions being responsible with the investigative aspects and there being close coordination and sharing of information between these commissions, with a proper reporting system available with the CCI, the CCI would be able to monitor the competition scenario on a national and holistic level in India. This would also equip it with the necessary data for the formulation of guidelines and issuance of directions, a niche area with the capital market regulator SEBI has perfected well. Thirdly, with the localization of the regulatory functioning through the second tier of commissions, the markets in the India would be more closely monitored and the vastness of geographic markets would not be an issue which could arise in proper administration of the competition policy of India.

To this effect, I am aware that this may be termed as premature for India given the fact even the CCI has not yet come into full vigour even five years of the enactment. Nonetheless, keeping in line with the reform aspect of the Indian economy, I believe the germination of competition model requires such close regulatory supervision.

(IV) CONCLUSION

The position of EEC is unique in world economy history and continues to fascinate the researchers as to its efficient working despite divergent considerations posed by the member states. With the shift in policy approach and the redesigning of framework in 2004 owing to the joining of 10 more members, the EC competition law model has send signals to the world as regards the improvements that may be made in the existing state-of-affairs in regulation of competition.

In tandem with India's transition from a highly controlled to liberalized economy, the Competition Act 2002 has replaced the earlier focus on concentration of economic power with a focus on effects on competition, thereby bringing Indian competition law substantially in line with international practice. However the country is yet to witness an efficient competition regulator.

It is imminent that by the time a proper competition framework becomes operationalized in India, there may be yet other changes in the EC competition law regime. However we may fail in our commitments towards making the Indian economy self regulatory and providing means to all irrespective of the size if we are unable to incorporate the lessons learned from abroad in our system. The redesigning of the regulatory functions and the established of ECN in the EC regime marks the beginning of dual system of regulators in competition law frameworks. India would be tremendously benefited by incorporating such changes in it own system, definitely only when the correct time come for bringing such changes.

Indo-Mauritius Double Tax Convention: The story untold

Today I am writing on an issue over which a lot has been written, litigation culminated with a rhetoric decision of Supreme Court and lot of political hue and cry been witnessed by the Parliament and yet the matter is as it was earlier, yet unresolved and ailing for a cure. Yes, I am speaking of the contentious Double Tax Convention between India and Mauritius, which allegedly has led a lot of black money flowing in the Indian capital markets and has also allowed the flight of profits earned in India without the payment of tax thereon. However what I intend is to instill a new dimension to the debate, taking cue from the US model DTC's 'Limitation of Benefits' clause and aim to improve the situation in manner acceptable both politically and legally. So let us first begin with what the problem is, its magnitude, its causes, before discussing its cure.

Indo-Mauritius DTC: Tracing the timeline

India and Mauritius signed a Double Tax Avoidance Agreement on 24-08-1982. Formally titled the 'Convention between the Government of the Republic of India and the Government of Mauritius for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes of Income and Capital Gains', the Convention came into force on 06-12-1983 [vide Notification F. No. 501/20/73-FTD]. Under this Convention, taxing rights were allocated between the two countries and also various reliefs for the tax payers hit by the tax systems of both the countries were provided (in the form of 'double tax reliefs'). Thus crux of the issue was however the low tax rates and the absence of capital gains tax in Mauritius, as we shall see later.

The situation was normal for almost a decade and investment began to flow under the DTC until 2000 when the background for a raging debate was being built. In the year 2000, in the wake of heightened reports about evasion of tax and treaty shopping, few Income Tax Assessing Officers required the entities operating on India-Mauritius route to prove that their Residence was established in Mauritius in accordance with the principles for determination of Residence, as provided for under Section 6 of the Income Tax Act, 1961 and as developed and clarified by the courts. This was alleged by the affected entities as an indirect violation of the DTC as there was no such requirement in the DTC. To clarify (and seeming to settle the matter) the Central Board of Direct Taxes (CBDT) issued a Circular [No. 789 of 2000] clarifying that a certificate of residence issued by Mauritius would constitute sufficient evidence for accepting the status of residence as well as ownership for applying the provisions of the DTC. This implied that the Certificate would override the Income Tax Act, 1961 and therefore was challenged in a public interest litigation.

In the same Circular the CBDT had also clarified that the test of Residence would also apply to income from capital gains on sale of shares. Thus, FIIs Resident in Mauritius would not be taxable in India on income from capital gains arising in this country on sale of shares. This exemption from capital gains tax was also challenged as arbitrary, discriminatory and against the spirit of the Act.

Satisfied that it was beyond the powers of the CBDT and contrary to the Act, the Delhi High Court declared the Circular invalid and quashed it as inapplicable. [Shiv Kant Jha v. Union of India, (2002) 256 ITR 563]. However in another public interest litigation [Union of India v. Azadi Bachao Andolan, (2003) 263 ITR 706], which reached the Supreme Court, a three judge bench headed by Justice Ruma Pal took quiet a contrary view. Stating that in terms of Section 90 and 90A of the Income Tax Act, the Government of India was entitled to make provisions necessary to adopt/implement the DTC with a foreign country and since the CBDT Circular was only clarifying the provisions of the Indo-Mauritius DTC, they were within the legal ambit and thus valid.

The Supreme Court categorically held that the mere fact that the government was losing revenue payable to it on account of tax leviable but not charged because of the DTC, was not a valid reason for holding the provision ultravires for it was within the mandate of the Parliament as reflected from Section 90 which allowed the Government to enter into DTCs for promoting India’s trade etc. Thus the Supreme Court decided to play a deaf year to the administrative and fiscal concerns for the stance adopted by the Government was legally justified.

This authoritative and unambiguous decision of the Supreme Court did put an end to the litigation but did not reduce the criticism of the existing scenario in any manner. It was pointed out (and continues to be so) that huge amounts of revenue [Rs. 4000 crores according to last estimate] flow out of India without being subject to tax and that this has a number of demerits for India; (i) this promotes treaty shopping and consequently a lot of evasive structures come into being to operate in India, (ii) Indian government loses out on the revenue it is legitimately entitled to tax and collect, (iii) the burden of loss of revenue is to be shared and met by all those already paying the tax and complying with the system, (iv) the infrastructure provided for and used in India by these companies is not compensated for because of the foregone tax to be collected on these, and so on and so forth. For this reasons, there was hue-and-cry from almost everyone aware of the system to call for a revision of the DTC.

Consequently, after serious consideration to the matter, the Mauritius Government was requested by India to review the DTC in early 2007. However recently it has come out in news that the Mauritius government has refused to reconsider the treaty and therefore the situation would continue to be so for some more time.This is true despite the alleged offer on the part of the Government of India (though I do not know how such a thing in possible in India given the constitutional setup and control of the legislature over the executive) to compensate the Mauritius Government in terms of revenue on account of the proposed revision of the Treaty. Let us now see why this all has happened and then how to deal with it.

Why Mauritius route at all?

Investment coming into India from Mauritius is peculiar for a special reason which in international tax terms is known as the ‘Residence/Source’ principle. We have dealt with these in quiet some detail in one of our earlier posts but then we may need to look back at them for some understanding of this problem.

Under a ‘Residence’ approach, a country taxes all the income of the persons Resident in the country. For this purpose, ‘Residence’ is defined under the Income Tax laws of the country and is generally associated with the number of days stayed in the country in a particular year or in a number of preceding years or a combination of both. For example, for Indian context, ‘Residence’ is defined under Section 6 of the Income Tax Act, 1961 which states; An individual is said to be resident in India in any previous year, if he (i) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or (ii) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

Under the ‘Source’ rule context (which applies when the person in question is not a Resident of the country seeking to apply tax), the country taxes only that portion of income of the person which arises or relates in part to the country in question. For example for a person Resident in South Africa giving management advice to an Indian company and getting paid management fees for such advice would only be liable to pay tax on that potion of Management fees received in India and not on anything more.

This Residence/Source principle has been the major driver for the problem in India-Mauritius DTC. In Mauritius, there is no charge of capital gains while in India capital gains are chargeable to income tax at two rates; 10% and 30+% on short term and long term capital gains respectively. This has the following outcome;

• For a person resident in India, capital gains are chargeable to tax at the given rates [because of the ‘Residence principle’].
• For a person not resident in India, capital gains are again chargeable to tax at the given rates [because of the ‘Source principle’].
• For a person who is resident in Mauritius, no capital gains tax is chargeable because of the Indo-Mauritius DTC.

Therefore one can see that there is a lot of advantage for the tax payer if the Residence is located in Mauritius. This also means there is an added reason to opt for bringing your investments into India (if you are not an Indian tax Resident) and this is why Mauritius route becomes interesting. But then having looked through the implications, let us also see how this is done. Is it that easy to gain the residence status of Mauritius or is it just hype that has been created.

Under the Mauritius laws, for a company to derive the benefit under the Indo-Mauritius DTC, the Mauritius Offshore Business Activities Act 1992 (MOBAA) comes into play. Under this Act, in order to gain the benefits of the DTC, certain requirements must be met by the company whereupon it is granted a ‘Certificate of Residence’ in Mauritius. These conditions are;

• There must be two local (i.e. of Mauritius) directors in the company, who have been approved by the MOBAA authority,
• The company’s bank accounts must be in Mauritius, and
• The company is required to comply with the Mauritius corporate law formalities. Once these conditions are met and the Certificate granted, the company is deemed to be a Resident of Mauritius for the purposes of both Mauritius tax law and as well as under the Indian Income Tax Act, 1961.

Onces these conditions are satisfied, the company is granted as 'Certificate of Residence' for Mauritius, and as we saw above, this Certificate is sufficient under the Indian laws to let the income of the person tax free in India. This problem (for India) is particularly enhanced by the fact that Mauritius promotes itself as a off-shore activity business centre. This implies that the country offers significant advantages for companies based in Mauritius but engaged in activities outside Mauritius. [For a quick look, have a look here and here] Thus the Mauritius government itself advocates for companies from abroad to set their subsidiaries to get incorporated (or otherwise become Resident) in Mauritius and thereupon invest outside Mauritius (typically India because of the tax benefits which come into being) and thus the problem which we have been discussing for long, comes into being.

I have thought of a 'Limitation of Benefit' clause type solution for this problem. However given the lengthy post that this has already become, I will discuss it soon in a subsequent post.

Further readings;

1. Fenwick & West LLP's advice on investment in India through Mauritius
2. A nice background to the Azadi Baachao Case.
3. Hindu article on LOBs in Indo-Mauritius DTC
4. Recent update on Indo-Mauritius DTC.
5. List of India's Double Tax Avoidance Treaties

Updates till 20th March

Well firstly, the gone 20th March marks the third completed month of this blog. On its attainment of second straight month of posting we had promised a number of new features on the blog. We have begun with most of them with the Featured Article section running and getting good responses and also with our Expert's Corner hosting its maiden article as of now but looking forward for interesting and intriguing posts. We no doubt have become a bit slow in putting content on the blog, which primarily relates to all of our bloggers collectively having gone in hibernation from posting being bogged down by immensly busy and tight schedules. Nonetheless we continue to bring you stuff from around the world as usual.

This week (actually a fortnight since the last update) we have a number of interesting updates from around the world but then this time lots of them from India. So let us being with the most interesting ones first.

News from the Indian legal front

What we have to offer to you, most exclusive I believe, is the immense shake-up to the law firm arena in India. The merger of two major Tax law firms of India; 'Lakshmikumaran & Sridharan' an indirect tax primer and 'Vaish & Associates' a leading direct tax practice. Coming up together, they together would constitute the largest tax law firm in India (even overshadowing the Big Four) and also incidently becoming the second largest firm in India, catering to IPR and corporate arena besides dominating the Direct and Indirect taxes front. A steady sign of the Indian law firm culture strengthening and preparing itself for the eventual entry of foreign law firms in India, we expect more such deals to come through in this arena. [click here to read more]

Then in a sort of continuation to one of our posts on Bayh Dole Act (of the United States), the same legislation is sought to be introduced in India. SpicyIP reports the recent coverage of the issue in Indian press and around. A nice update.

In another update from SpicyIP, covering the recent feud between Bajaj and TVS on an alleged patent violation claim by Bajaj against TVS, an interesting insight has been offered by the author on the criteria for determining an infringement, delineating technical dimensions and appraising them in legal paraphernalia. An interesting dissection of the case. [click here to read more]

As you all probably we aware of, in the recent budget presentation, the Finance Minister had waived the debt of the farmers [click here for our coverage of budget and details of this move]. However this en blank waiver has brought in furore from economists from all over the country calling this as an ill-considered and non-starter move. What we update you now is the challenge which has been filed against this move in the Supreme Court by a public interest litigation. The law-and-other-things blog has made an excellent coverage of this update looking not only at the legal dimensions of the problem but also the economic and financial implications of the decision on either side. [click here for the analysis]

Then a good news for the Indian legal system which is crumbling under its own weight. The Government of India has doubled its outlay on the judicial system. Increasing the allocation in the Tenth Financial Plan and earmarked for the modernization of the judicial system, an outlay of Rs. 700 crores has been allocated for this purpose. [click here to read more]

A hot topic in the United States, 'private equity' [click here to see how much] has now come to haunt Indian capital markets. To introduce the underlying basis of 'private equity', they are more like mutual funds except for the fact that contribution to these funds is by a closed group of people who come together to pool in resources and allow a hired manager to invest this pool in a quest for higher returns. This post by a fellow-blogger gives an account of the movement abroad to bring private equity within the scope of regulation and then comes upon to give an insight on the action being mulled over by SEBI for the Indian capital markets. An informative read ... [click here for the full post]

Culling out lessons from the controversy surrounding Islamic law's (or Shariah) interaction with the western concepts, this post from the Indian Muslims blog discusses some socio cultural issues prevailing in India and in the light of lessons learned from abroad, looks for a way forward. An interesting stock-taking of political game-play and the plight of an average Muslim in India. [click here for full post]

Then on a related but different topic, we have the update from the Muslim Woman Personal Law Board of India which has unveiled its new model 'Nikahnama'. Suffice is to note the fact that unlike Hindu law (where marriage is a sacrament), in Muslim law marriage is a contract and thus the various formalities and conditions required for a valid contract are required for a valid Muslim marriage. In an attempt to raise the dignity and status of the Muslim women in India, the Board has come out with a model nikahnama which is suggested to be adopted for upcoming marriages such that the rights of the Muslim girls in India could be protected and their status elevated. [click here for more on the topic] [another nice article on new Nikahnama]

Reflecting that IndLaw is coming up as a worthwhile online law resource, the collection of articles on the site is increasing quiet quickly. This week we have the article on Tort law in India (really an unexplored subject) featured on the site. Discussing right from the origin of tortious principles and relating them with the uncodified and case-law based law in India, the article is an interesting yet exhaustive narration of the Tort law of India. A collector's item.

Covering the world legal news

As the allied forces (read US) occupation of Iraq completes five years, a number of articles have been written on the issue. What we bring to you (after a selection from a host of them) is the one culling out the implications and lessons this gives to us in our quest for understanding and improving the international law on this aspect. A nice reading ... [click here for the article]

Then we had the presentation of the Budget in the UK Parliament by Chancellor Alister Darling on 12th March. While a number of expected moves have not been formalized in the present budget, overall it was described a 'boring' by the press. Instead of passing our own comments on the same, we simply pass you on through the various proposals in the instant budget. [click here for details]

Then we also have the Annual report from the European Commission (the informal formal executive of the European Community) wherein its action for the year gone by (2007) have been summarized and the direction for the upcoming year narrated. Divided into a number of interesting and intriguingly familiar chapters, overall its a nice stock-taking effort made by the Commission. [click here for the full report]

On the corporate tax law front, the EU has come up with a Taxation paper (titled 'Corporate Tax policy and incorporation in EU') which discusses the key issue facing the harmonization of direct taxes (since indirect taxes have almost been harmonized under the VAT Directive) which notably comes out in the paper as the declining corporate tax to GDP ratios. Overall a gloomy insight.

As we had pointed out in an earlier post, Sovereign Wealth Funds have really become a hornet's nest for the developed nations. Considering their geo-political and economic might, various reactions have already set on way. The United States Senate Committee on Finance has come out with a proposal to tax these SWFs. [click here for more] However a fellow blogger offers a much more comprehensive analysis of the issue; 'Taxing Sovereign Wealth Funds'. An interesting discussion of the issues involved. Then to add to the variety, we have the official view of the Bank of England (the central bank of UK) on the role played by SWFs and the implications of their association in the balance of world financial systems. [click here for an update of the existing law on taxation of SWF in US]

And though 9/11 has been long written off in the history books, we still have massive movements in the national security policies across the globe. While the US is coming up with the trial of those involved in the 9/11 attacks (and facing with the dilemma whether to give them death penalty and avenge the deaths or not to give them death lest they be called martyrs), the UK is not far behind in its tentative movement from being the most watched country to be being the most fearful country. Recently the UK Prime Minister Mr. Gordon Brown released the new National Security Strategy citing the need to secure life of the British citizens as the first and paramount priority. Since the declaration of the 2001 policy being in violation of the European Convention of Human Rights, UK has been grappling with a significant power crisis on the issue. It is hoped that the new Strategy will survive the ECHR onslaught. [click here for the press release and for full strategy document]

In a ruling which might turn out to have huge implications for popular video hosting sites such as YouTube, Google Videos etc., a French Court has held google liable for not doing enough to prevent the viewing of a copyrighted broadcast. The producer of a documentary called ‘Tranquility Bay' sued Google for alleged violation of French law (Confidence in Digital Environment, French Act of 21 June 2004) as a broadcaster not taking precautions for violation of copyrighted content which was posted on the Google Video medium by various subscribers. [click here to read more]

These couple of posts, which we will not technically describe as updates, are an interesting background material for one and all following constitutional law. This week we offer two posts on 'originalism': a method of interpretation of constitution, which is yet unknown to the Indian legal jurisprudence. This first post comes up with a definition and nuances of what originalism implies. Then this second post from Concurring Opinions mocks at the relevance of this idea of originalism in today's dynamically changing world. The two together give an interesting insight into the issue. [click here for another critique of originalism]

In this background of originalism, we have the interview of all United State Supreme Court judges, wherein they bring out their beliefs and reflections on Constitution and the general legal polity. An investment worth pondering over. [click here for the videos and here for an interesting account on them]

Then this is one proposal, which if goes through, will take away a lot of charm from litigation in the United States. It is well known (thanks to the much publicized criticism of the same and John Grisham novels) that Jury selection is an essentially important pre-trial process of litigation in the United States. In trials by jury, both the parties have the right to object/challenge the selection of members of public called forth for jury duty. Despite being a stage of a law trial, this area is replete with the services offered by psychologists, behavioural analysis etc. whose basic purpose is to find a moderate (if not favourable) jury for their side. However this post makes out a case as to why and how this 'peremptory challenge' process should be abolished. If this goes through, the implications for the US jury trial system will be enormous. [click here for the proposal]

And if you thought that UN as a political arbiter of the world, WTO as the primer of international trading system was not enough, this interesting post argues for an international executive in the wake of the recent financial crisis. Remember that it good a great depression and two world wars to establish the first financial international institutions (the Bretton Woods institutions, that is). So why not an international executive to lead the world out of the surging financial crisis. A fanciful insight I would say.

We also have the third (and probably the final) Working Paper from the OECD on how to measure government performance. In line with the recommendation in the First Working Paper to make a comprehensive data classification and analysis framework on six key variables: revenues; inputs; public sector processes; outputs; outcomes; and antecedents or constraints that contextualize government efficiency and effectiveness, this Working Paper comes out with data classification and analysis on the above variables for all the member countries of the OECD and comes out with an understanding on the quality of governance and like. A worthwhile research base.

For non-starters on the sub-prime mortgage crisis and the ongoing turbulent financial times, we have this Report from the UK Treasury which takes into account the situations wherein the problem started, gives an analysis of the existing financial position the world is grappling with and specific reports and coverage on the various parties responsible for it to conclude with key recommendations and suggestions to deal with the situation. A collector's item, again.

Then we have this, definitely not connected to law in any way, but then we could not avoid the temptation to cover it. When the entire stock markets in the world are up for a turbulent ride, this post from the Indian Stock Market blog culls out the basic checks which an investor must perform before investing in a company. Though involving technical stuff, the language is lucid and simple enough for even a lay man to come to terms with pros in the field. [click here for the post]

Sikh Marriage Act: A change in six decades of assimilation

What we have today is a newsclip from India which reports the Union Law Ministry having agreed in principle to have a separate law governing the marriage of sikhs. This revives an age long debate whether 'Jain, Sikhs, and Buddhists' are 'Hindus'. The debate has been in vogue since the beginning of 1950s when the then Prime Minister Nehru presented various bills regulating Hindu marriages, succession etc. in the Parliament (earlier he had presented a consolidated Hindu Code, which could not be passed given the refusal to accede to it by the then President Dr. Rajendra Prasad).

Courtesy: The Hindustan Times, 11th March, 2008 (click on the image to enlarge)

Since then the Hindu Marriage Act, 1955 has been the law governing the marriage of Hindus in India, covering almost all dimensions to marriage. However what has been most exception, and for which this post becomes relevant, has been the indiscriminate treatment of other similarly aligned religions in their own rights as Hindus.

To elaborate, the reproduction of Section 2 of the Hindu Marriage Act, 1955 would expedite our understand. It states;

Section 2. Application of Act:

(1) This Act applies—

(a) to any person who is a Hindu by religion in any of its forms or developments, including a Virashaiva, a Lingayat or a follower of the Brahmo, Prarthana or Arya Samaj,

(b) to any person who is a Buddhist, Jaina or Sikh by religion, and

(c) to any other person domiciled in the territories to which this Act extends who is not a Muslim, Christian, Parsi or Jew by religion, unless it is proved that any such person would not have been governed by the Hindu law or by any custom or usage as part of that law in respect of any of the matters dealt with herein if this Act had not been passed.

Explanation.—The following persons are Hindus, Buddhists, Jainas or Sikhs by religion, as the case may be:—

(a) any child, legitimate or illegitimate, both of whose parents are Hindus, Buddhists, Jainas or Sikhs by religion;

(b) any child, legitimate or illegitimate, one of whose parents is a Hindu, Buddhist, Jaina or Sikh by religion and who is brought up as a member of the tribe, community, group or family to which such parent belongs or belonged; and

(c) any person who is a convert or re-convert to the Hindu, Buddhist, Jaina or Sikh religion.

(2) Notwithstanding anything contained in sub-section (1), nothing contained in this Act shall apply to the members of any Scheduled tribe within the meaning of clause (25) of article 366 of the Constitution unless the Central Government, by notification in the Official Gazette, otherwise directs.

(3) The expression “Hindu” in any portion of this Act shall be construed as if it included a person who, though not a Hindu by religion, is, nevertheless, a person to whom this Act applies by virtue of the provisions contained in this section.

A basic reading of the above would reveal that for the purposes of marriage laws applicable to them, Buddhists, Jains and Sikhs are considered to be Hindus and therefore the rules and conventions applicable to Hindus for marriage have been applied across the board on them, or put in other words, imposed on them. This is clear from the language of Section 2(1)(b) of the Act as above.

This extension of the application of the Act in terms implies that for all practical purposes, under the eyes of law, the same rules apply to Jains, Sikhs and Buddhists as they do to Hindus in the conventional understanding of the term. Despite considerably different practices in these sects (or as they say, 'religions' in their own right), all the three significantly represented forms of worship have been herded together in the same group. While Jains believe in their 24 religious teachers (Tirthankars) as showing them the path to enlightenment, Sikhs follow the teachings in Guru Granth Sahib after their tenth Guru Gobind Singh rechristened the Granth Sahib as the last Guru. Buddhists derive their beliefs from the teachings of Buddha who is said to have shown the path to enlightenment by following a code of conduct in daily wakes of life. Hindus on the other hand, have a major portion of their religious conduct arising out of mythological beliefs full of account of tussle between the good and the bad and thus prescribing conduct of belief and action from the lessons learned thereon from these fables (most of which are argued to be true to every word of the term).

On a macro understanding all these faiths, beliefs of religions may appear to be the same (perhaps which prompted the law makers to cover all of them under a same legislation) but then on a closer analysis, it is argued, they differ substantially on the core basis of their beliefs and thus cannot be herded together under one group without doing injustice to a majority of their thoughtful outlook and the way in which they are entitled to practice the religious of their choice, as guaranteed under the constitution. In a few cases the Supreme Court of India has incidentally come forth to examine whether Jains are a part of Hindu religion in the proper understanding of the term but the cross-roads where they have departed from the discussion has left the paths towards understanding them more muddy than clear.

This recent change in stance by the Law Ministry, upon the hushed need called forth by the Sikh community is perhaps an acknowledgment of the difference that lie therein and that different set of laws may be required to accommodate different sets of practices and beliefs that people's faith in religion can forth from them. This might turn out to be a viable proposition for the Sikhs but then accession to this demand has the potential of giving rise to centrifugal tendencies with even Jains and Buddhists coming out with their own leaders to call forth for a separate legislation for their own. And the level of inroads it will make in the aspired goal for a Uniform Civil Code is better not discussed. Let us wait to see how things turn out to be.