Stamping and Proxies in India

stampingMs. Stuti Bansal

The present article deals with proxies and provisions regarding its stamping as per the laws applicable in India.Section 176 of the Companies Act, 1956 discusses and details the aspects of a proxy. According to Section 176 of the Act, any member of a company, entitled to attend and vote at a meeting of the company, shall be entitled to appoint any person (whether a member or not) as his/her proxy to attend and vote instead of himself at a General Meeting. Thus, the section provides for the persons entitled to appoint a proxy and also for persons disallowed to do so.

Interpreting the section, only an individual can be appointed as a proxy. An artificial or judicial person cannot be appointed as a proxy. Any person whether he is member or not can be appointed as a proxy. In other words, to be appointed as a proxy it is not necessary to be a member of the company. A person who is not a member of the Company is equally eligible for appointment as proxy.Another important provision relating to proxies is that, for a proxy to be valid, it should be properly executed and should contain the date of its execution as also should be duly stamped.This brings us to the definition of ‘Duly stamped’.‘Duly stamped’ has been defined under section 2(11) of the Indian Stamps Act, 1899 as the following –
“Duly stamped” as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law for the time being in force in India.It is thus a requirement that a proxy be duly stamped and cancelled before it is submitted to the Chairman failing which, the proxy is considered invalid. An unstamped proxy is considered invalid and cannot be taken into account.
The Guidance Note on General Meetings, issued by the Institute of Company Secretaries of India (ICSI), in its clause 7.3 provides for the “Stamping of Proxies”. It states that, for a proxy to be valid, it must be adequately stamped in accordance with the rates prescribed under the Indian Stamps Act, 1899 and where a proxy is not duly stamped or effectively cancelled by signing and dating or initialing and dating or in any other effective manner as required by Section 12 of the Act, the proxy will be considered invalid. A vote cast on an unstamped proxy is invalid has been held in In Re. Tata Iron and Steel Co. Ltd.[1]
In this regard, the Hon’ble High Court of Bombay has also held in a case that affixation of a stamp subsequent to execution is not affixation according to law and where a receipt stamp was affixed subsequent to execution but before its production in court it was held to be inadmissible in evidence.[2]
Further, Section 12 of the Indian Stamp Act, 1899 provides that whenever a stamp is affixed on a document or instrument, and is not cancelled, the instrument is considered to be unstamped. Such a document has to be cancelled at the time of the execution of the instrument and in case of instruments already executed, at the time when the stamp is affixed.
12. Cancellation of adhesive stamps
(1) (a) Whoever affixes any adhesive stamp to any instrument chargeable with duty which has been executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again; and
(b) whoever executes any instrument on any paper bearing an adhesive stamp shall, at the time of execution unless such stamp has been already cancelled in manner aforesaid, cancel the same so that it cannot be used again.
(2) Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be used again, shall, so far as such stamp is concerned, be deemed to be unstamped.
The person required by sub-section (1) to cancel an adhesive stamp may cancel it by writing on or across the stamp his name or initials or the name or initials of his firm with the true date of his so writing, or in any other effectual manner.Reading together, clauses (a) and (b) of section 12 stated above, it becomes clear that the stamp to be affixed on the proxy must be affixed by the person executing the proxy and should be cancelled by the same person by either signing across or in any other manner appropriate for effective cancellation.
This has also been held in the case of Nuddea Tea Co. Ltd. vs Asok Kumar Saha and Ors.[3]” –
“It is the requirement under Section 12(1)(a) of the Indian Stamp Act, 1899, that whoever affixes any adhesive stamp to any instrument chargeable with duty which has been executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again. Therefore, under Section 12 of the Indian Stamp Act, 1899, such cancellation of stamp should be made at the time of execution of the document. If any instrument does not bear the requisite stamps and if such stamps are not cancelled, then such instrument shall be deemed to be unstamped.”
In another case, Dayaram v. Chandulal[4], it has been held that when an adhesive stamp affixed to an instrument was cancelled by a third person on a date subsequent to the date on which the instrument was drawn, by putting the date across the stamps, there was no proper cancellation of the stamp.
While there is no fixed format of a valid cancellation of a stamp, the true test for determining the same is whether after the cancellation, the stamp is capable of being used again. After cancellation, the stamp must not be in a position to be used again and the intention to cancel must show the intention to cancel.
Here is it worthwhile to mention that it has been provided under section 18 of the Indian Stamps Act, 1899, that if a proxy sent from abroad is stamped within three months of its receipt in India, it is valid in law.
As far as the mode of cancellation of the stamp affixed on the proxy is concerned, there is no special method provided for the same in any Act. Sub section (3) of section 12 to the Indian Stamp Act, 1899, only provides for guidance on the ways a stamp may be cancelled. The section simply provides that the cancellation should be such as would prevent the stamp being lawfully or conscientiously used again.
Thus, drawing lines across and adhesive stamp, drawing of two parallel lines across three stamps used on a promissory note, and drawing of two lines crossing each other across the face of the stamp, by the person executing the document, have all been held to be effectual cancellation of stamps.

To conclude this discussion, in order that a proxy may be complete and valid, it must be duly stamped by the person executing the proxy and the stamp affixed on it must be cancelled by the same person by either signing across it or cancelling it in any other effectual manner.


 

 

[1] AIR 1928 Bom 80

 

 

 

 

[2] Jetibai v. Ramchandra, 13 Bom 484

 

 

 

[3] 1988 64 CompCas 775 Cal

 

 

 

[4] 27 Bom LR 1118

 

 

Women Reservation Bill : A Step towards Women Empowerment

NEHA JAIN
INTRODUCTION
“Achieving the goal of equal participation of women and men in decision making will provide a balance that more accurately reflects the composition of society and is needed in order to strengthen democracy and promote its proper functioning… Without the active participation of women and the incorporation of women’s perspectives at all levels of decision-making, the goals of equality, development and peace cannot be achieved.”
Fourth World Conference on Women, Beijing, 1995: Article 181
The women reservation bill[1]was first introduced by the Deve Gowda government in 1996 and it can be better understood by looking at a brief overview of what it contains. The main provisions of the Bill, as introduced in the Rajya Sabha in May 2008, are:
Provisions of the bill
(1) The Constitution (108th amendment) Bill, 2008, reserves one-third of Lok Sabha and state assembly seats for women.
(2) One-third of the total number of seats reserved under clause (2) of article 330 (the existing quota for Schedule Castes and Scheduled Tribes) to be reserved for women belonging to the Scheduled Castes or the Scheduled Tribes;
Article 330
(2) The number of seats reserved in any State [or Union territory] for the Scheduled Castes or the Scheduled Tribes under clause (1) shall bear, as nearly as may be, the same proportion to the total number of seats allotted to that State [or Union territory] in the House of the People as the population of the Scheduled Castes in the State [or Union territory] or of the Scheduled Tribes in the State [or Union territory] or part of the State [or Union territory, as the case may be, in respect of which seats are so reserved, bears to the total population of the State [or Union territory].[2]
(3) Reservation of seats to cease to exist or expire after 15 years of the commencement of the constitutional amendment.
(4) To select women candidates through a system of rotation, by which one third of the total number of constituencies to be reserved for women candidates, will be determined through a draw of lots.
(5) To consider extending the reservation to Rajya Sabha and the Legislative Councils of States, without making any definite provisions within the scope of the current Bill.
(6) One of the two LS seats for Anglo-Indians will be reserved for a woman of that community for the first two terms in a block of three elections.
CONSTITUTIONAL AMENDMENTS IN THE BILL
In article 239AA of the constitution in clause (2) in sub-clause (b), for the words “scheduled castes”, the words “the scheduled castes and the women shall be substituted.
After article 330 of the constitution, the following article shall be inserted namely
“330A (1) seats shall be reserved for women in the house of the people.
(2) As nearly as may be, one – thirds of the total number of seats reserved under clause (2) of article 330 shall be reserved for women belonging to the scheduled caste or scheduled tribes, as the case may be.
1n article 331 of the constitution , the following proviso shall be inserted at the end, namely-
“provided that where such nominations are made, in relation to every block comprising of three general elections to the house, one seat shall be reserved for nomination of a woman of anglo-indian community to every house constituted after two general elections and no seat shall be reserved for the women of that community in the house constituted after the third general elections.
After article 332, the following article shall be inserted, namely:
“332A. (1)
In article 333 of the constitution, the following proviso shall be inserted at the end, namely:
“provided that             where such nomination is made, in relation to every block comprising of three
general elections to the assembly , the seat in the assembly constituted after the first general
elections shall be reserved for nomination of a women of anglo-indian community and no seat
shall be reserved for women of that community in the assembly constituted after the second and
third general elections.
After article 334 of the constitution, the following article shall be inserted, namely:
“334A – notwithstanding anything in the foregoing provisions of this part or part VIII, the
provisions of the constitution relating to the reservation of seats for women in the house
of the people, the legislative assembly of a state and the[3]
WOMEN REPRESENTATION IN LOK SABHA: COMPARATIVE STUDY
The bill seeks to empower women and reduce gender inequality. To eliminate gender discrimination and promote female empowerment, women’s decision making capacity must be enhanced within the household, the workplace and the political sphere. For the very purpose of increasing participation of women in Indian parliament and moving them closer to the decision-making process the bill is introduced. Reservation of seats is a basic, consistent and logical step towards both women’s emancipation and inclusive development – particularly for a government which promised that the “equal access to participation and decision making of women in the social, political and economic life of the nation” would be at the heart of its agenda (National Policy for the Empowerment of Women, 2001,goals and objectives, 1.11(iii))[4].It is undoubtedly true that the representation of women in Indian Lok Sabha has been critically low: this can be proved by looking at the no. of women MPs in all the past Lok Sabha sessions, which are hereunder-
Women representation in Lok Sabha[5]
Lok Sabha No. of women members
1st Lok Sabha 23
2nd Lok Sabha 24
3rd Lok Sabha 37
4th Lok Sabha 32
5th Lok Sabha 26
6th Lok Sabha 28
7th Lok Sabha 32
8th Lok Sabha 46
9th Lok Sabha 28
10th Lok Sabha 39
11th Lok Sabha 40
12th Lok Sabha 44
13th Lok Sabha 49
14th Lok Sabha 45
15th Lok Sabha 59
\
As seen from the data above the representation of women in the parliament is not satisfactory. The bill seeks to reserve for women 181 of the 543 seats in the Lok Sabha and 1,370 out of a total of 4,109 seats in the 28 State Assemblies.[6] There is huge debate regarding the bill and whether it should be implemented or not, but before making a judgment as to whether the bill would actually lead to women empowerment or would just prove to be another one of government’s failed attempt to empower women, let us first see the origin of the bill.
CHRONOLOGY
YEAR MAJOR EVENT
1974 The issue of women’s representation in Parliament first raised in a report submitted to the Ministry of Education and Social Welfare by a Committee on Status of Women in India.
1996 INTRODUCTION OF BILL FOR THE 1ST TIME – the Deve Gowda government introduces the women’s reservation bill as 81st constitutional amendment bill.
1998 RE- INTRODUCTION OF THE BILL – The bill is re-introduced in the 12th Lok Sabha as 84th constitutional amendment bill by National Democratic Alliance (NDA) government headed by Atal Bihari Vajpayee
1999 The NDA government re – introduces the bill in the 13th Lok Sabha.
2002 The bill is introduced in the parliament but fails to sail through.
2003 The bill introduced twice in parliament.
2004 The United Progressive Alliance (UPA) government includes it in the common minimum programme.
2005 BJP announced complete support for the Bill.
2008 The government tables it in the Rajya Sabha so that the legislation does not lapse.
2009 The Parliamentary Standing Committee on Law and Justice, and Personnel recommended passage of the Bill in Dec 2009
2010 The bill was cleared by the Union Cabinet on Feb. 25, 2010.

MARCH 9, 2010- The upper house of the Indian Parliament, the Rajya Sabha, passed the bill.
WHY SHOULD THERE BE RESERVATION FOR WOMEN?
“There is nothing so unequal as the equal treatment of unequals”.
– Aristotle
“It is important for women to know that they have to be there (within the political process) where it matters. Whether it is at the rural council, urban council or other levels of policy making, they have to be there to ensure their lot is addressed”.
– Gita Welch, United Nations Development Fund for Women (UNIFEM)
The World Economic Forum’s annual Gender Gap Report (2009) stated that India ranked 114 among the 134 countries surveyed in The Global Gender Gap Index 2009. India has the largest number of maternal deaths in the world and shocking rates of female malnutrition, and a woman in India has lesser chance of survival than in all but 2 of 128 countries. The oft-discussed imbalance in the sex ratio can be attributed – not only to female infanticide, as is often assumed – but to sustained neglect from infancy of female health, nutrition and wellbeing. A girl child is up to 3 times more likely to be malnourished than her brother (UN), and is also significantly more likely to drop out of school before completing a full eight years of education. As well as passive neglect, violence against women and girl children is on the rise: the number of rapes per day has increased by nearly 700 per cent since 1971, and thousands of dowry deaths occur each year (National Crime Records Bureau).[7]
Gender equality and our constitution
Article 15(1) -The State shall not discriminate against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them.[8]
Article 15(3) – Nothing in this article shall prevent the State from making any special provision for women and children.[9]
Article 325 – There shall be one general electoral roll for every territorial constituency for election to either House of Parliament or to the House or either House of the Legislature of a State and no person shall be ineligible for inclusion in any such roll or claim to be included in any special electoral roll for any such constituency on grounds only of religion, race, caste, sex or any of them.[10]
Women particularly need reservations because of the following reasons –
  • Women represent half of the population of a country and therefore have the right to half of the seats, since decisions made in parliament have a direct impact on their lives.
  • Women have different social and biological experiences which should be represented in institutions of governance.
  • Women and men have partly conflicting interests.
  • Women in positions of power can inspire more women to place themselves in influential and decision-making roles.
IMPLICATIONS OF THE BILL
  • In the Lok Sabha, out of a total of 543 seats, 122 are already reserved for the scheduled castes and tribes (SC/STs). Now a further 181 will be reserved for women, leaving only 282 seats open for the general category. Same is the case in the state assemblies, where out of the 4,109 seats, 1,167 are reserved for SC/STs and 1,370 for women, leaving 2,942 for the general category.[11]
  • Since the ratio of reservation is 1:2, thus in the course of three election terms, in each seat in Lok Sabha and each seat in assemblies, there would be two free terms and one reserved term. Thus in a fifteen year term, each seat will get reserved for women only once as in India elections are held every five years.
  • Reservation for women expected to create equal opportunity for both men and women, Skewed sex ratios (1.06 males per female) may be checked as women get equal status in Society.
POSSIBLE DRAWBACKS OF THE WOMEN RESERVATION BILL
  • Reservation system would directly affect the Indian democratic recipe as instead of promoting equality, it is representing that women are weaker and need to be supported. This may further provoke for the demand of reservation on further caste creed factors which would be an unhealthy practice in the free India.
  • This Bill takes away the democratic right of 33% of the electorate to elect their representatives as after the implementation of bill it became compulsory to fill the reserved seats for women.
  • Gender hatred could be encouraged.
  • Political parties may have to locate women candidates irrespective of the candidate’s vision mismatch with that of the party’s.
  • Powerful male members might be tempted to ‘reserve’ seats for women relatives (and thereby for themselves).
  • Only elite women might stand to gain from the passing of this Bill Further discriminating against the under – represented and the marginalized.
  • It is not guaranteed that benefits are received by the socially backward and underprivileged women, who really need them.  Excellence never requires reservation. Efficient educated women will make way on their own to the politics. By raising the concept of reservation in every other sector we are just suppressing the actual intellects. Let the people come to politics, administrative service, and army on the basis of their caliber rather than on sex, caste or religion.
  • · This Bill takes away the democratic right of 33% of the electorate (22 crore people) to elect their representatives. It restricts the choice of both men and women in those constituencies. The state has no right to limit the pool of representatives available to the public to choose from. This is against all democratic principles of free choice.
    This takes away the democratic right of about 11 crore men to contest in elections, thus imparting a severe blow to the health of democracy in India. This is against the fundamental rights of 11 crore men. It violates the right to equality guaranteed under the constitution
  • · The number 33 % is totally arbitrary and no justification has been provided. Even in advanced democracies like US and UK, where most women are already empowered, the number of women in legislature is less than 20%.
  • · This bill suggests a rotation system which would be determined by draw of lots, in such a manner that a seat would be reserved only once in a block of three general elections. This is a serious flaw, insofar as it mechanically provides for entry of women members to fill one-third of vacancies in Lok Sabha and Vidhan Sabhas. This subverts the democratic process which is all about free choice vis-à-vis a mechanical action/ process..
    8. The concept of reservation is an insult to women and their capability. It is an admission on her part of her inferiority. It gives the impression that women are incapable of competing with men and hence need protection and a support structure to enter public offices of parliament and state legislatures. In India, women have always been side-by-side with men in council as well as in battles.
  • · This law perpetuates gender discrimination. To seek any form of preferential treatment would be to violate the Integrity of the universal demand of Indian women for absolute equality of political status.
  • § Rather than taking a judicious and considered approach towards the issue, which normally expected during the legislative process, the current Bill builds on gender stereotypes and makes several deeply flawed assumptions such as:
  • § Women only vote for other women – More than 50% of the women exercised their franchise in the General Election of 2004 and elected their representatives, both men and women.
  • § Men cannot represent women’s interests – Men have always been more sympathetic to women and this has been proved beyond doubt in the last 60 years with women being empowered with legislations and policies of special significance. Female literacy rate, employment and political empowerment have happened without any reservations.
  • § Forcing more women on the electorate is women empowerment – Forcing more women in the parliament through undemocratic means will only serve to undermine the legitimacy and efficacy of the elected women representatives.
  • § All women are under-privileged – A gross generalization is made that all women are under-privileged, deprived and discriminated. That women are a homogenous group and there are no differences in terms of social status, education, etc. and hence, an across the board reservation system is needed. This major flaw would be misused by upper caste and upper class women to dominate lower class/ caste women. Thus, the really needy women would continue to be oppressed while the creamy layer among women would become richer and powerful.
  • § All men are privileged – Similarly, a gross generalization is made that men are a homogenous group and are all privileged and have a natural advantage over women.
  • § Women are disadvantaged – Assumption is made that women have no natural advantages over men. That, the society discriminates only women and not men. It does not recognize the natural and societal advantages that women have got in terms of moral superiority, greater faith and sympathy.
  • § Reservation is indispensable – The bill does not recognize the fact that there have been many women who made it to high public offices and there have been many women Chief Ministers and a Prime Minister. Right now, we have a Woman President and a Woman Speaker. They all assumed office through their own efforts and without any reservation. The bill is based on the false assumption that women need reservation to enter high public offices.
POSSIBLE ADVANTAGES OF THE BILL
A WOMAN constitutes a crucial segment of the human resources in a community. Unfortunately, despite their numerical strength, the role of women has been grossly underplayed. It is an established fact that Indian women, in spite of the constitutional and legal safeguards, are still in the process of struggling for equality of status and equality of participation in the development process.
The suppression of women, is not only based on biological differences, but also the ever existent male dominance has added to the disadvantage of women. The relationship between men and women was ‘grounded on force’. The women have always played a passive role in the family hierarchy. Furthermore, the existence of certain socio-economic constraints like poverty, unemployment, exploitation and social taboos prevent women from participating in the political life. They not only continue to remain economically dependent on men, but also have a little say in the distribution of benefits of the system in the society. The situation of women as it exists is one of low status, powerless, endangered by development, suppressed by poverty and oppressed by patriarchy.
This bill would improve the participation of women in the parliamentary affairs of the country and this in turn would have a positive impact on the decision making of the system. Since women had a marginal role in the policy making programs of the country, thus many weaknesses of the system would be eliminated. Issues directly related to the women can now gain more importance and could be dealt more effectively by them.
CONCLUSION
One thing which still remains to be seen is what would happen when the bill is taken to the Lok Sabha. We have crossed 1 small hurdle after 14 years of struggle; but the question still hangs,” will the bill ever become a law?”
The women reservation bill can be seen as a Long Delayed and a Much Needed Step which would prove to be milestone towards the empowerment of women and their participation in the parliament, into the decision-making process where it counts. Although the bill seems to be a good venture for the future but certain questions still remain unanswered.
How far will women’s reservation empower women and the society? Is being a woman enough to “represent” women? In the absence of meaningful inner – party democracy and electoral reforms, is the bill just going to window- dress the republic? Is it fair to expect everything from a Bill that merely seeks to let in more women?
WEBLIOGRAPHY
Sites Referred:
DOCUMENTS REFERRED:
The copy of women reservation bill as presented in the rajya Sabha as on may 8, 2008 from
A policy brief for parliamentarians prepared by CLRA (Centre For Legislative Research and Advocacy) retrieved from http://www.corecentre.co.in/Database/Docs/DocFiles/clra.pdf

[1] Herein after referred to as the ‘bill’
[2] Dr. J.N. Pandey, THE CONSTITUTIONAL LAW OF INDIA, 46th edn., Central Law Agency, p. 691
[3] See : copy of women reservation bill as presented in the Rajya Sabha on may 8 ,2008 retrieved from http://www.prsindia.org/uploads/media/Constitution%20Eighth/1211455181_The_Constitution__One_Hundred_and_Eighth_Amendment__Bill__2008.pdf p.
[4] See http://wcd.nic.in/empwomen.htm, goals and objectives 1.11 (iii)
[5] Manorama Yearbook 2010, Malyala Manorama, 45th edn.,p. 934
[8] Dr. J.N. Pandey, THE CONSTITUTIONAL LAW OF INDIA, 46th edn., Central Law Agency, p. 124
[9] Ibid at 126
[10] Constitution of india

Rape Laws in India

Rape is a stigma which exists in the society from a long time. The dictionary meaning of word rape is “the ravishing or violation of a woman.” The rape victim i.e. a woman as woman cannot commit rape due to biological reasons. She is traumatized after the event; it is very difficult for a woman to come out of this trauma. Rape in India is a cognizable offence. There are many provisions in various Acts. The word rape is legally defined u/s 375 of Indian Penal Code, 1860. It defines the rape and also prescribes its punishment. Whenever a man penetrates or does sexual intercourse with a woman without her consent or will it amounts to rape. Penetration here means that only a slightest of the touch of penis to vagina amounts to rape, unruptured hymen of woman does not prove that rape was not committed. There are exceptions to it also i.e. when a man does sexual intercourse with his wife who is above 15 years of age. The rape law under Indian Penal Code had gone through a lot of amendments. In 1983, amendment was made and S. 376(2) i.e. Custodial rape, S. 376(A) i.e. marital rape & S. 376(B to D) i.e. Sexual Intercourse not amounting to rape were added.

U/s 228A of Indian Penal Code, No person can disclose the name of the rape victim and if anybody discloses the name, he shall be punished with either description for a term which may extend to two years and shall also be liable for fine.

U/s 114-A of Indian Evidence Act, presumption can be made as to the absence of consent in certain prosecutions for rape.

U/s 53(1) of Code of Criminal Procedure, When a person is arrested on a charge of committing an offence of such a nature and alleged to have been committed under such circumstances that there are reasonable grounds for believing that an examination of his person will afford evidence as to the commission of an offence, it shall be lawful for a registered medical practitioner, acting at the request of a police officer not below the rank of sub-inspector, and for any person acting in good faith in his aid and under his direction, to make such an examination of the person arrested as is reasonably necessary in order to ascertain the facts which may afford such evidence, and to use such force as is reasonably necessary for that purpose.

U/s 164A of Code of Criminal Procedure, provisions for medical examination of rape victim are given.

U/s 327(2) of Code of Criminal Procedure, there should be in camera trial for all rape victims.

The Judiciary in India is burdened with a lot of work and therefore judgment of the rape cases comes very late. Sometimes it comes so late that either of the parties had died. So, there should be speedy trials in rape cases so that the victim gets justice as it is rightly stated that “Justice delayed is justice denied.”

As every coin has two sides, in this case also there are two sides. Many a times girls also make fake complaints just to ruin the life of a boy, sometimes the parents of girl compels her to file a complaint against the boy she loves, as the law shows a lot of sympathy towards the girl. The accused is left with nothing, when the complaint is made his life is ruined irrespective of the fact that he was proved guilty or not. So, in my views there must come an amendment which equalizes the burden of proof on both the sides and the law works smoothly. It should be such that is contradicts the statement i.e. “Law is there for vigilant.”

Introduction:

Rape is a crime, which has a devastating effect on the survivors; it has been described as a “beginning of a nightmare”. The aftershocks include depression, fear, guilt-complex, suicidal-action, diminished sexual interest. etc., “one becomes afraid of’……..writes a victim, “half the human race”. Referring to the pitiable condition of women in society Mr. Justice S. Ahmad observed that “unfortunately, a woman in our country, belongs to a class or group of society who are in a disadvantaged position on account of several social barriers and impediments and have therefore, been victims of tyranny at the hands of men with whom they, unfortunately, under the Constitution “enjoy, equal status”. “Women also have the right to life and liberty; they also have the right to be respected and treated as equal citizens. Their honour and dignity cannot be touched or violated. They also have the right to lead an honorable and peaceful life”.

Rape is a crime against basic human rights and is also violative of the victim’s most cherished of the fundamental rights, normally, the right to life contained in Article 21 .

Incidence and prevalence:

South Africa has the highest per capita rate of reported rapes in the world: 119 per 100000 people, according to the UN. That compares with 30 per 100000 in the US. Analysts and women’s advocacy groups argue South Africa’s total, including unreported rapes could be five to nine times higher .

Police statistics show more than 50000 rapes are reported every year . In 1987 and 1991 number of cases reported were7767 and 9793 respectively. About 26% (11112) increase in number in the year 1992 – (NCRB). There is one rape in every 54 minutes .

As observed by Justice Arjit Pasayat:

” While a murderer destroys the physical frame of the victim, a rapist degrades and defiles the soul of a helpless female.”

Justice Krishna Iyer has observed in a very famous case of Rafiq v. State :

“A murderer kills the body but a rapist kills the soul.”

What is Rape?

Rape under English law is defined more particularly where the law cover all the aspect of rape. Under the Sexual Offences Act 2003, which came into force in April 2004, rape in England and Wales was redefined from non-consensual vaginal or anal intercourse, and is now defined as non-consensual penile penetration of the vagina, anus or mouth of another person. The changes also made rape punishable with a maximum sentence of life imprisonment. Although a woman who forces a man to have sex cannot be prosecuted for rape under English law, if she helps a man commit a rape she can be prosecuted for the crime (see, for example, the conviction of Claire Marsh in 2001). A woman can also be prosecuted for causing a man to engage in sexual activity without his consent, a crime which also carries a maximum life sentence if it involves penetration of the mouth, anus or vagina. The statute also includes a new sexual crime, called “assault by penetration”, which also has the same punishment as rape, and is committed when someone sexually penetrates the anus or vagina with a part of his or her body, or with an object, without that person’s consent.

Sexual offence act, 2003 states as follows:-

Rape

(1) A person (A) commits an offence if-

(a) he intentionally penetrates the vagina, anus or mouth of another person (B) with his penis,

(b) B does not consent to the penetration, and

(c) A does not reasonably believe that B consents.

(2) Whether a belief is reasonable is to be determined having regard to all the circumstances, including any steps A has taken to ascertain whether B consents .

With compare to this law, law of India under penal code not cover the penetration of mouth and if such happened then that not amount to rape under our present law above all in India it is observe by our Hon’ble courts that in case of rape if any woman help to commit such rape she will be not charge for the offence of rape as she help to commit the rape but in England it happens and their punishment are also more than us so any one before committing this must think and in the mind of people there is some fear about law and it’s punishment.

Like every other country, laws relating to rape do exist in India. However, justice is rarely achieved. In most cases, rape victims themselves hesitate to make a complaint due to the stigma attached to it in society. Sometimes, even if a complaint is made, the offender gets away due to wide spread ignorance of the laws relating to the offense.

Rape means an unlawful intercourse done by a man with a woman without her valid consent. (Section 375 of the Indian Penal Code, 1860 )

A man is said to commit “rape” if he has sexual intercourse with a woman under circumstances falling under any of the six following descriptions :-

1. Against her will.

2. Without her consent.

3. With her consent, when her consent has been obtained by putting her or any person in whom she is interested in fear of death or of hurt.

4. With her consent, when the man knows that he is not her husband, and that her consent is given because she believes that he is another man to whom she is or believes herself to be lawfully married.

5. With her consent, when, at the time of giving such consent, by reason of unsoundness of mind or intoxication or the administration by him personally or through another of any stupefying or unwholesome substance, she is unable to understand the nature and consequences of that to which she gives consent.

6. With or without her consent, when she is under sixteen years of age.

Explanation: Penetration is sufficient to constitute the sexual intercourse necessary to the offence of rape.

Exception: Sexual intercourse by a man with his own wife, the wife not being under fifteen years of age, is not rape.

AMENDMENTS TO RAPE LAWS IN 1983 were made to address mainly 3 issues :

A. Minimum Punishment in rape cases (IPC Section 376 sub section 1)

B. Special cases of rape (IPC Section 376 subsection 2 a-g )& A)

C. Marital Rape (IPC Section 376 A)

D. Abuse of official power (IPC Section 376,B,C,D)

A. MINIUM PUNISHMENT (Section 376 subsection 1 of Indian Penal Code)

1. Whoever, except in the cases provided for by sub-section (2), commits rape shall be punished with imprisonment of either description for a term which shall not be less than seven years but which may be for life or for a term which may extend to ten years and shall also be liable to fine unless the woman raped is his own wife and is not under twelve years of age, in which case, he shall be punished with imprisonment of either description for a term which may extend to two years or with fine or with both : Provided that the court may, for adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment for a term of less than seven years.

Issues

Prior to this amendment, minimum punishment wasn’t specified, hence this is commendable, but if the judge decides that there is an adequate reason the punishment can be reduced.

B. SPECIAL CASES OF RAPE like rape of a girl who is below twelve years of age, rape knowing the woman to be pregnant , gang rape, and custodial rape definitions, Specific (and sometimes increased) Punishment in some of these cases Shift of burden of proof to defendant from the victim in some of these cases. (Section 376 subsection 2 (a-g) of Indian Penal Code)

1. Rape of a woman who is under twelve years of age [Sec.376 (2) (f)]

Punishment

Rigorous imprisonment for a term which shall not be less than ten years but which may be for life and shall also be liable to fine: Provided that the court may, for adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment of either description for a term of less than ten years.

Issues

Unfortunately other than the increased minimum punishment from 7 years to 10 years, no other special concession is given to Child Rape given the increased trauma for the girl. Since even the minimum punishment can be reduced by the judges, much needs to be done in this area.

2. Rape of a woman, knowing her to be pregnant (Sec.376 Subsection 2- e)

Punishment

Rigorous imprisonment for a term which shall not be less than ten years but which may be for life and shall also be liable to fine: Provided that the court may, for adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment of either description for a term of less than ten years.

Exemption from burden of proof if the victim states in court that she did not consent, then the court shall presume that she did not consent and the burden of proving consent shall shift to the accused

3. Gang Rape ( Sec.376 Subsection 2- g)

“Where a woman is raped by one or more in a group of persons acting in furtherance of their common intention, each of the persons shall be deemed to have committed gang rape within the meaning of this sub-section. ”

Thus even if five men force a women into having sexual intercourse with only one of them, the remaining four will also be considered to have committed rape under this law. Punishment

Rigorous imprisonment for a term which shall not be less than ten years but which may be for life and shall also be liable to fine: Provided that the court may, for adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment of either description for a term of less than ten years.

Exemption from burden of proof :

If the victim states in court that she did not consent, then the court shall presume that she did not consent and the burden of proving consent shall shift to the accused.

4. Custodial Rape: (Sec.376 Subsection 2 a, b, c , d):

Rape committed on a woman in their or their subordinate’s custody by

a) police officer

(i) within the limits of the police station to which he is appointed; or

(ii) in the premises of any station house whether or not situated in the police station to, which he is appointed; or

(iii) on a woman in his custody or in the custody of a police officer subordinate to him;

b) public servant

c) management or the staff of a jail, remand home or other place of custody or a women’s or children’s institution

d) management or on the staff of a hospital

Punishment

Rigorous imprisonment for a term which shall not be less than ten years but which may be for life and shall also be liable to fine :Provided that the court.

To understand the impact of sexual harassment on women one must listen to the account of its victims as no one conveys the meaning and truth of sexual harassment better than the women who have endured it. In response to the question “What kind of emotional response do eve-teasing /sexual harassment evoke in you”, not a single woman ticked the category of “indifferent”. The survey of the Gender Study Group shows that most women felt disgusted, insulted and scared by any sort of harassment.

Women often internalise male perceptions of sexual harassment and blame themselves for having brought on the harassment. They not only doubt the validity of their own experiences but begin to believe that they themselves must be ‘abnormal’, ‘cheap’, ‘indecent’ or deserving the violence that comes their way.

Sexual harassment is nothing less than the showcasing of male dominance. Given an opportunity, such men (those committing sexual harassment) would try fulfilling their desire. However, it also not true that all cases of sexual harassment are such- where the accused is guilty of conceiving the intention of a sexual intercourse. But it also depends on each individual case and circumstances, because it may well be the case that the woman may also be at fault.

Every 60 minutes, two women are raped in this country. What is more horrendous is that 133 elderly women were sexually assaulted last year, according to the latest report prepared by the National Crime Records Bureau (NCRB). A total of 20,737 cases of rape were reported last year registering a 7.2 per cent increase over the previous year, with Madhya Pradesh becoming the “rape capital” of the country by topping the list of such incidents.

Going by the NCRB statistics, two women are raped in the country every hour. Madhya Pradesh accounted for 14.5 per cent of the total cases (3,010), with West Bengal following with 2,106 such incidents. Records of high incidence in other states include Uttar Pradesh (1,648), Bihar (1,555) and Rajasthan (1,238). The national capital had 598 cases in which 602 women were sexually assaulted.

In its report Crime in India — 2007, the NCRB noted that offenders were known to the victims in as many as 19,188 cases (92.5 per cent). That included 6,902 incidents in which neighbours were involved. Parents or close family members were involved in 405 cases while in 1,448 cases relatives were involved. “Everywhere in this country, over 90 per cent of the victims are raped by person known to them,” a senior police official said.

According to the official statistics of 1991, one woman is molested every 26 minutes. These statistics refer to the reported cases. Whereas, if the unreported cases were to be included, it would be a matter of seconds- rather than minutes. investigation of Most cases are not reported by victims because of various reasons such as family pressures, the manner of the police, the unreasonably long and unjust process and application of law; and the resulting consequences thereof.

In instances where women have reported such illegal and unwelcome behavior, there have been significant victories in the past decade or so. Also considering the fact the sometimes these victories are achieved after a wait of a decade or so.

As Kiran Bedi., Retd. Joint Commissioner, Special Branch has observed:

“The law of rape is not just a few sentences. It is a whole book, which has clearly demarcated chapters and cannot be read selectively. We cannot read the preamble and suddenly reach the last chapter and claim to have understood and applied it.”

In the Mathura rape case , wherein Mathura- a sixteen year old tribal girl was raped by two policemen in the compound of Desai Ganj Police station in Chandrapur district of Maharashtra.

Her relatives, who had come to register a complaint, were patiently waiting outside even as the heinous act was being committed in the police station. When her relatives and the assembled crowd threatened to burn down the police chowky, the two guilty policemen, Ganpat and Tukaram, reluctantly agreed to file a panchnama.

The case came for hearing on 1st June, 1974 in the session’s court. The judgment however turned out to be in favour of the accused. Mathura was accused of being a liar. It was stated that since she was ‘habituated to sexual intercourse’ her consent was voluntary; under the circumstances only sexual intercourse could be proved and not rape.

On appeal the Nagpur bench of the Bombay High Court set aside the judgment of the Sessions Court, and sentenced the accused namely Tukaram and Ganpat to one and five years of rigorous imprisonment respectively. The Court held that passive submission due to fear induced by serious threats could not be construed as consent or willing sexual intercourse.

When the appeal was made to the Supreme Court, the Senior Counsel “Ram Jethmalani” while defending the accused Policemen divided the concept of consent into two i.e. Express and Implied consent. He said that there was not express consent but it was implied because Mathura raised no alarm, there was no tearing of clothes, no semen on clothes, no cry for help etc, he again said if there had not been any consent, there would have been at least a cry for help. These circumstances are enough to show that there was implied consent. The Supreme Court acquitted both the accused and held that Mathura had raised no alarm; and also that there were no visible marks of injury on her person thereby negating the struggle by her.

The Court in this case failed to comprehend that a helpless resignation in the face of inevitable compulsion or the passive giving in is no consent. However, the Criminal Law Amendment Act, 1983 has made a statutory provision in the face of Section.114 (A) of the Evidence Act , which states that if the victim girl says that she did no consent to the sexual intercourse, the Court shall presume that she did not consent.

In Mohd.Habib Vs State , the Delhi High Court allowed a rapist to go scot-free merely because there were no marks of injury on his penis- which the High Court presumed was a indication of no resistance. The most important facts such as the age of the victim (being seven years) and that she had suffered a ruptured hymen and the bite marks on her body were not considered by the High Court. Even the eye- witnesses who witnessed this ghastly act, could not sway the High Court’s judgment.

In State of Punjab vs. Gurmit Singh , the Supreme Court has advised the lower judiciary, that even if the victim girl is shown to be habituated to sex, the Court should not describe her to be of loose character.

The Supreme Court has in the case of State of Maharashtra Vs. Madhukar N. Mardikar , held that “the unchastity of a woman does not make her open to any and every person to violate her person as and when he wishes. She is entitled to protect her person if there is an attempt to violate her person against her wish. She is equally entitled to the protection of law. Therefore merely because she is of easy virtue, her evidence cannot be thrown overboard.”

In Delhi Domestic Working Women v. Union of India , the Apex Court laid down the following broad guidelines:

• The complainants of sexual assault cases should be provided with legal representation i.e. they should be provided an advocate who could help her properly.

• Legal assistance will have to be provided at the police station since victim of sexual assault might very well be in a distressed state upon arrival at the police station and guidance of a lawyer at that stage is very necessary.

• The police should be under duty to inform the victim of her right to representation before any questions were asked of her and that the police report should state that the victim was so informed.

• A list of advocates who deal in these cases should be kept at the police station for victims who did not have a particular lawyer in mind or whose own lawyer was unavailable.

• In all rape trials anonymity of victim must be maintained, as far as necessary.

• A “Criminal Injuries Compensation Board” should be established.

• Interim compensation should be given to rape victim even if the case is still going on in the court.

• Medical help should be provided and woman should be allowed to abort the child if she becomes pregnant due to the incidence.

• Compensation should be provided to rape victim to rehabilitate herself.

In B. Gautam v. Shubra Chakraborthy , it was held that Rs. 1000 per month should be given to rape victim as an interim compensation.

In Chairman, Railway Board vs. Chandrima Das , a practicing Advocate of the Calcutta High Court filed a petition under Article.226 of the Constitution of India against the various railway authorities of the eastern railway claiming compensation for the victim (Smt. Hanufa Khatoon) – a Bangladesh national- who was raped at the Howrah Station, by the railway security men. The High Court awarded Rs.10 lacs as compensation.

An appeal was preferred and it was contended by the state that:

a) The railway was not liable to pay the compensation to the victim for she was a foreigner.

b) That the remedy for compensation lies in the domain of private law and not public law. i.e. that the victim should have approached the Civil Court for seeking damages; and should have not come to the High Court under Article.226.

Considering the above said contentions, the Supreme Court observed:

“Where public functionaries are involved and the matter relates to the violation of fundamental rights or the enforcement of public duties, the remedy would be avoidable under public law. It was more so, when it was not a mere violation of any ordinary right, but the violation of fundamental rights was involved- as the petitioner was a victim of rape, which a violation of fundamental right of every person guaranteed under Article.21 of the Constitution.”

The Supreme Court also held that the relief can be granted to the victim for two reasons- firstly, on the ground of domestic jurisprudence based on the Constitutional provisions; and secondly, on the ground of Human Rights Jurisprudence based on the Universal Declaration of Human Rights, 1948 which has international recognition as the ‘Moral Code of Conduct’- adopted by the General Assembly of the United Nation.

Causes of Increased Rape Cases in India:

Rape, molestation and abductions, the crimes are numerous but low conviction rates for the same is one of the major reasons for the growing number of offences against women, point out experts.

“Apart from other factors, the low conviction rate in the cases of rape is the biggest worry we have today. There is hardly any deterrence. Law should provide fast track courts to deal with such cases,” says Girija Vyas, Chairperson, National Commission for Women (NCW).

While there were 37,000 cases of molestation and eve-teasing in 2006-07, the conviction rate for such crimes, is below 30 per cent. For rape it is just a dismal 27 per cent.

Brinda Karat, All India Democratic Women’s Association (AIDWA), member says, “I have raised the issue in the Parliament several times that there is a need to step up conviction rate in rape cases drastically. Poor legal system, wrong understanding of policemen in these cases and lengthy procedures especially in child rape where after horrifying rounds of investigation the victim starts feeling that she is an accused and should not have registered the case, are few reasons for low conviction rate.”

“In every 10 hours, a girl of the age of 1-10 is being raped in India. We are raising this issue and have demanded enforcement of stringent laws by government,” she adds.

Reacting to a recent incident in which a minor was raped by a constable and his accomplice in a moving car in the national capital, Vyas says, “This is a special case and it should be dealt with a fast track court. On many occasions, complains do not get registered on time and then it is very difficult to prove that rape actually happened. It should be registered within 24 hours of the incident.”

The accused believe they can get away with it. Officials are corrupt and easily bribed (some are even committing rapes themselves). Women are shamed and humiliated when they come forward because of the backward notion that it’s the woman’s fault (even when the ‘women’ are young children). If they make a case, it becomes public knowledge and their families and society shun them in many cases as they are then seen as ‘damaged goods’. If unmarried they will have great difficulty getting married. Courts don’t always do justice for the victim and find rapists not guilty for ridiculous reasons.

Predators know this and take advantage of it. Even if they get caught, if they have enough money or influence, nothing will happen to them. A woman would have to turn the case into a media circus to have a chance at justice and 90% of rape victims in India would not do so out of fear and shame .

There is a need for review in certain provisions under various laws related to rape so that victims get justice.

The National Commission for Women has identified nine areas for review . These are:

1. Review of the definition of rape

2. Reduction of procedural delays

3.Uniformity in age of consent under sections 375 and 376 of Indian Penal Code, 1860, to bring it in conformity with the Child Marriage Restraint Act, 1869

4. Whether exception to section 375 should be deleted

5. Whether section 155 clause 4 of the Indian Evidence Act 1872 needs to be amended or deleted.

6. Whether statutory provisions are needed for compensation to the rape victim

7. Whether provisions for counseling legal aid should be made mandatory under laws.

8. Death penalty to persons convicted for rape

9. Recommendation for enhancement of punishment in cases where the accused, with the knowledge of suffering from HIV infection/AIDS, infects the victim as a result of rape.

Conclusion:

The courts and the legislature have to make many changes if the laws of rape are to be any deterrence. The sentence of punishment, which normally ranges from one to ten years, where on an average most convicts get away with three to four years of rigorous imprisonment with a very small fine; and in some cases, where the accused is resourceful or influential- may even expiate by paying huge amounts of money and get exculpated. The courts have to comprehend the fact that these conscienceless criminals- who sometimes even beat and torture their victims- who even include small children, are not going to be deterred or ennobled by such a small time of imprisonment. Therefore, in the best interest of justice and the society, these criminals should be sentenced to life imprisonment.

Law remains but the number of victims (including minor) continues to increase destroying the very soul of the helpless women. The concept of marital rape does not exist in India. Contrary to the popular belief rape is almost never perpetrated for sexual gratification. It is an ‘acts of violence that happens to be expressed through sexual means’.

The Amendment 1983 has brought about some important changes in the existing laws of rape as a response to the growing public opinion demanding more stringent anti rape laws. It amends Section 376 IPC and enhances the punishment of rape it also provides enhanced punishment of minimum of 10 years of imprisonment for police officers or staff of jail, the remand homes or other places of custody established by law. The Act further inserts a new Section 114-A IEA, by raising a presumption as to absence of consent in cases of custodial rape, rape on pregnant women and gang rape at least partially, removed the infirmity from the evidence of a victim of rape that was hitherto unjustly attached to her testimony without taking note of the fact that in India, unlike the occident a disclosure of the girls identity, rehabilitation in society for all times to come and unless her story was painfully true she would not have taken such a grave risk merely to malign the accused.

Severe and certain punishment in a time bound manner, of the rapists has some deterrent value. Arrest alone may not constitute a strong societal response. Lengthy prison sentences have some behavior-altering deterrent values. Many well-known jurists and public men have advocated capital punishment for the criminals who commit rape as it is an offence worse than murder so far as its impact is concerned. Still there is need for amending the anomaly related to the age of consent, and of wife in accordance with the Marriage Act in India.

Anti-defection law

SCHEDULE X OF OUR INDIAN CONSTITUTION- A MYTH OR A REALITY?

Our Indian Bureaucratic and Legislative system is running through our politicians,politicians comes from the word “Politics.” The word politics comes from the Greek word “Politika” which means “of, for, or relating to citizens,” but our Indian Politics according to a layman is a bog where a person once enters never comes out. Politicians make promises but never fulfill those promises; they work on filling their pockets and making life of people miserable. Earlier after the Independence, it was very easy for a legislative elected member to hop around from one party to another to fulfill their ambitions, but this led to many Governments toppling around, keeping in mind all this our legislatures made an amendment in the year 1985 which was our 52nd Amendment Act and passed a law called “Anti-defection law” which added a new schedule to our Constitution, i.e., X Schedule.

Anti-defection lawIntroduction:

Anti-defection law, its main intent is to combat ‘the evil of political defections.’ This law was passed soon after Lt. Shri. Rajiv Gandhi became the Prime Minister of the country with a massive mandate. This law would not have been passed if there had been no Rajiv Gandhi and his government with an unparalleled massive majority. This law was passed so that it curbs the political deflections but the ever increasing hunger of our legislatures and with our excellent legal fraternity it was not a difficult task to find some loopholes in this law and they used it to their interest.

What is Anti-defection law?

Schedule X of our Constitution provides for Anti-defection law, it is as follows:-

1. Interpretation.—In this Schedule, unless the context otherwise requires,—

( a ) ” H o u s e ” m e a n s   e i t h e r   H o u s e   o f   P a r l i a m e n t   o r   t h e   L e g i s l a t i v e   A s s e m b l y   o r ,

a s   t h e   c a s e   m a y   b e , e i t h e r   H o u s e   o f   t h e   L e g i s l a t u r e   o f   a   State ;

( b ) ” l e g i s l a t u r e p a r t y ” , i n  r e l a t i o n  t o  a  m e m b e r  o f  a  H o u s e   b e l o n g i n g   t o   a n y

p o l i t i c a l   p a r t y    i n   a c c o r d a n c e   wi t h  t h e   p r o v i s i o n   s o   f paragraph   2   o r   p a r a g r a p h 4 , m e a n s   t h e    g r o u p   c o n s i s t i n g   o f    a l l   t h e    me m b e r s    o f    t h a t    H o u s e    f o r    t h e    t i m e   b e i n g    b e l o n g i n g    t o   t h a t     p o l i t i c a l    p a r t y    i n    a c c o r d a n c e    w i t h    t h e    s a i d    p r o v i s i o n s ;

( c ) ” o r i g i n a l   p o l i t i c a l     p a r t y ” , i n    r e l a t i o n    t o    a    m e m b e r   o f      a     H o u s e , m e a n s    t h e

p o l i t i c a l p a r t y t o w h i c h h e b e l o n g s f o r t h e p u r p o s e s o f s u b – p a r a g r a p h ( 1 ) o f

p a r a g r a p h 2 ;

( d ) ” p a r a g r a p h ” m e a n s a p a r a g r a p h o f t h i s S c h e d u l e .

2. Disqualification on ground of defection.—(1) Subject to the provisions of [Paragraphs 4 and 5], a member of a House belonging to any political party shall be disqualified for being a member of the House—

( a ) if he has voluntarily given up his membership of such political party ; or

( b ) if he votes or abstains from voting in such House contrary to any direction

issued by the political party to which he belongs or by any person or authority

authorised by it in this behalf , without obtaining , in either case , the prior permission of such political party , person or authority and such voting or abstention has not

been condoned by such political party , person or authority within fifteen days from the date of such voting or abstention .

Explanation.—For the purposes of this sub-paragraph,—

( a ) an elected member of a House shall be deemed to belong to the political

party, if any , by which he was set up as a candidate for election as such member ;

( b ) a nominated member of a House shall , —

(i) where he is a member of any political party on the date of his nomination as such

member, be deemed to belong to such political party;

(ii) in any other case, be deemed to belong to the political party of which he

becomes, or, as the case may be, first becomes, a member before the expiry of six months from

the date on which he takes his seat after complying with the requirements of article 99 or, as the

case may be, article 188.

(2) An elected member of a House who has been elected as such otherwise than as a candidate set up by any political party shall be disqualified for being a member of the House if he joins any political party after such election

(3) A nominated member of a House shall be disqualified for being a member of the House if he

joins any political party after the expiry of six months from the date on which he takes his seat after Complying with the requirements of article 99 or, as the case may be, article 188.

(4) Notwithstanding anything contained in the foregoing provisions of this paragraph, a person who, on the commencement of the Constitution (Fifty-second Amendment) Act, 1985, is a member of a House (whether elected or nominated as such) shall,—

(i) where he was a member of political party immediately before such commencement , be deemed , for the purposes of sub-paragraph (1) of this paragraph , to have been elected as a member of such House as a candidate set up by such political party ;

(ii) in any other case , be deemed to be an elected member of the House who has been elected as such otherwise than as a candidate set up by any political party for the purposes of sub-paragraph (2) of this paragraph or , as the case may be , be deemed to be a nominated member of the House for the purposes of sub-paragraph (3) of this paragraph .

* * * * *

4. Disqualification on ground of defection not to apply in case of merger.—(1) A member of a House shall not be disqualified under sub-paragraph (1) of paragraph 2 where his original political party merges with another political party and he claims that he and any other members of his original political party—

(a) have become members of such other political party or , as the case may be, of a new political party formed by such merger ; or

( b ) have not accepted the merger and opted to function as a separate group, and from the time of such merger , such other political party or new political party or group , as the case may be , shall be deemed to be the political party to which he belongs for the purposes of sub-paragraph ( 1) of paragraph 2 and to be his original political party for the purposes of this sub-paragraph .

(2) For the purposes of sub-paragraph (1) of this paragraph , the merger of the original political party of a member of a House shall be deemed to have taken place if , and only if , not less than two – thirds of the members of the legislature party concerned have agreed to such merger .

5. Exemption , —Notwithstanding anything contained in this Schedule , a person who has been elected to the office of the Speaker or the Deputy Speaker of the House of the People or the Deputy Chairman of the Council of States or the Chairman or the Deputy Chairman of the Legislative Council of a State or the Speaker or the Deputy Speaker of the Legislative Assembly of a State , shall not be disqualified under this Schedule, —

( a ) if he , by reason of his election to such office , voluntarily gives up the membership of the political party to which he belonged immediately before such election and does not , so long as he continues to hold such office thereafter , rejoin that political party or become a member of another political party ; or

( b ) if he , having given up by reason of his election to such office his membership of the political party to which he belonged immediately before such election , rejoins such political party after he ceases to hold such office .

6 . Decision on questions as to disqualification on ground of defection . —( 1 ) If any question arises as to whether a member of a House has become subject to disqualification under this Schedule , the question shall be referred for the decision of the Chairman or , as the case may be , the Speaker of such House and his decision shall be final :

Provided that where the question which has arisen is as to whether the Chairman or the Speaker

of a House has become subject to such disqualification, the question shall be referred for the decision of such member of the House as the House may elect in this behalf and his decision shall be final.

(2) All proceedings under sub-paragraph (1) of this paragraph in relation to any question as to

disqualification of a member of a House under this Schedule shall be deemed to be proceedings in Parliament within the meaning of article 122 or, as the case may be, proceedings in the Legislature of a State within the meaning of article 212.

7. Bar of jurisdiction of courts.—notwithstanding anything in this Constitution, no court shall

have any jurisdiction in respect of any matter connected with the disqualification of a member of a House under this Schedule.

8. Rules.—(1) Subject to the provisions of sub-paragraph (2) of this paragraph, the Chairman or

the Speaker of a House may make rules for giving effect to the provisions of this Schedule, and in

particular, and without prejudice to the generality of the foregoing, such rules may provide for—

( a ) t h e m a i n t e n a n c e o f r e g i s t e r s o r o t h e r r e c o r d s a s t o t h e p o l i t i c a l p a r t i e s , i f

a n y , t o w h i c h d i f f e r e n t m e m b e r s o f t h e H o u s e b e l o n g ;

( b ) t h e r e p o r t w h i c h t h e l e a d e r o f a l e g i s l a t u r e p a r t y i n r e l a t i o n t o a m e m b e r o f

a H o u s e s h a l l f u r n i s h w i t h r e g a r d t o a ny c o n d o n a t i o n o f t h e n a t u r e r e f e r r e d t o i n

c l a u s e ( b ) o f s u b – p a r a g r a p h ( 1 ) o f p a r a g r a p h 2 i n r e s p e c t o f s u c h m e m b e r , t h e t i m e

w i t h i n w h i c h a n d t h e a u t h o r i t y t o w h o m s u c h r e p o r t s h a l l b e f u r n i s h e d ;

( c ) t h e r e p o r t s w h i c h a p o l i t i c a l p a r t y s h a l l f u r n i s h w i t h r e g a r d t o a d m i s s i o n t o

s u c h p o l i t i c a l p a r t y o f a n y m e m b e r s o f t h e H o u s e a n d t h e o f f i c e r o f t h e H o u s e t o

w h o m s u c h r e p o r t s s h a l l b e f u r n i s h e d ; a n d

( d ) t h e p r o c e d u r e f o r d e c i d i n g a n y q u e s t io n r e f e r r e d t o i n s u b – p a r a g r a p h ( 1 ) o f

p a r a g r a p h 6 i n c l u d i n g t h e p r o c e d u r e f o r a n y i n q u i r y w h i c h m a y b e m a d e f o r t h e

p u r p o s e o f d e c i d i n g s u c h q u e s t i o n .

(2) The rules made by the Chairman or the Speaker of a House under sub-paragraph (1) of this

paragraph shall be laid as soon as may be after they are made before the House for a total period of thirty days which may be comprised in one session or in two or more successive sessions and shall take effect upon the expiry of the said period of thirty days unless they are sooner approved with or without modifications or disapproved by the House and where they are so approved, they shall take effect on such approval in the form in which they were laid or in such modified form, as the case may be, and where they are so disapproved, they shall be of no effect.

(3) The Chairman or the Speaker of a House may, without prejudice to the provisions of

Article 105 or, as the case may be, article 194 , and to any other power which he may have

under this Constitution direct that any willful contravention by any person of the rules made

under this paragraph may be dealt with in the same manner as a breach of privilege of the

House.

Advantages and Disadvantages of this law:

This law have its own advantage and disadvantages and it is upon our politicians and our citizens to see how they interpret this law and help in the proper functioning of the democracy.

Advantages:

• Provides stability to the government by preventing shifts of party allegiance.

• Ensures that candidates elected with party support and on the basis of party manifestoes remain loyal to the party policies. Also promotes party discipline.

Disadvantages:

• By preventing parliamentarians from changing parties, it reduces the accountability of the government to the Parliament and the people.

• Interferes with the member’s freedom of speech and expression by curbing dissent against party policies.

Disqualifications in Parliament and State Legislatures :

According to a statistics from 2004, from 1985 to 2004 there had been 88 complaints of anti-defection made in Parliament and 268 complaints in State Legislatures, out of which 26 were approved in the Parliament and 113 in State Legislatures. Punjab State Legislature tops the chart with 23 disqualifications till 2004 followed by Nagaland with 15 and Goa with 12.

The Law Relating to Defection in Other Countries :

Anti- defection law is not only practiced in India but it is provided by various other countries like Bangladesh, Kenya, South Africa, etc. Article 70 of the Bangladesh Constitution says a member shall vacate his seat if he resigns from or votes against the directions given by his party. The dispute is referred by the Speaker to the Election Commission.

Section 40 of the Kenyan Constitution states that a member who resigns from his party has to vacate his seat. The decision is by the Speaker, and the member may appeal to the High Court.

Article 46 of the Singapore Constitution says a member must vacate his seat if he resigns, or is expelled from his party. Article 48 states that Parliament decides on any question relating to the disqualification of a member.

Section 47 of the South African Constitution provides that a member loses membership of the Parliament if he ceases to be a member of the party that nominated him.

Defect of Defections:

Defections numbering more than one-third of the party’s strength were considered to be legal. It also provided for the disqualification of individual members defecting from the party through which the member was elected. Even here, the law is open to considerable interpretation, and in some state legislatures the bias of the Speaker leads to confusion, often resulting in litigation.

The first challenge to the anti-defection law was made in the Punjab and Haryana high court in Parkash Singh Badal and others v. Union of India and others . One of the grounds on which the law was challenged was that paragraph 2(b) of the Tenth Schedule to the Constitution violated Article 105 of the Constitution, wherein the court held: “So far as the right of a member under Article 105 is concerned, it is not an absolute one and has been made subject to the provisions of the Constitution and the rules and standing orders regulating the procedure of Parliament. The framers of the Constitution, therefore, never intended to confer any absolute right of freedom of speech on a member of the Parliament and the same can be regulated or curtailed by making any constitutional provision, such as the 52nd Amendment. The provisions of Para 2(b) cannot, therefore, be termed as violative of the provisions of Article 105 of the Constitution.(Para 28).”

The Constitution (32nd Amendment) Bill 1973 and the Constitution (48th Amendment) Bill 1978 had provisions for decision-making by the president and governors of states in relation to questions on disqualification on ground of defection.

The Constitution (52nd Amendment) Bill 1985 suddenly introduced the provision that questions of disqualification on ground of defection shall be decided by chairmen and speakers of the legislative bodies. The intention was to have speedier adjudicative processes under the Tenth Schedule. This provision was a subject matter of serious debate in both Houses of Parliament when the bill was being passed.

The 91st Amendment to the Constitution was enacted in 2003 to tighten the anti-defection provisions of the Tenth Schedule, enacted earlier in 1985. This amendment makes it mandatory for all those switching political sides — whether singly or in groups — to resign their legislative membership. They now have to seek re-election if they defect and cannot continue in office by engineering a “split” of one-third of members, or in the guise of a “continuing split of a party”. The amendment also bars legislators from holding, post-defection, any office of profit. This amendment has thus made defections virtually impossible and is an important step forward in cleansing politics. Irony of the situation today is that the events have nullified the real intent of the dream of Rajiv Gandhi.

There have been instances wherein after the declaration of election results, winning candidates have resigned from their membership of the House as well as the party from which they got elected. Immediately, they have joined the political party which has formed the government and have again contested from that political party, which appears to be a fraud and goes against the spirit of the democracy and 52nd constitutional amendment. The ingenious human brain invented innovative ideas to obtain resignations and, in effect, made the anti-defection law a cover to hide their heinous crime.

This law excluded the jurisdiction of judiciary from reviewing the decisions of Speakers. This part was held to be unconstitutional by Supreme Court, while it upheld the rest of the law. The Supreme Court was unanimous in holding that paragraph 7 of tenth schedule completely excluded jurisdiction of all courts including the Supreme Court under Article 136 and High Courts under Articles 226 and 227 in respect of any matter connected with the disqualification of the member of a House. The Constitution does not allow the legislature to limit the powers of judiciary. ‘The Speakers/Chairmen while exercising powers and discharging functions under the Tenth Schedule act as Tribunal adjudicating rights and obligations under the Tenth Schedule and their decisions in that capacity are amenable to judicial review’, Supreme Court said. Accordingly the Supreme Court reviewed and struck down the order passed by Speaker of Goa Assembly for disqualifying two members in violation of constitutional mandate contained in paragraph 3 of Tenth Schedule to the Constitution.

If we go deep into the impact of this law, it curbs the legislators’ freedom of opposing the wrong policies, bad leaders and anti-people bills proposed by the ‘High Command’ in arbitrary and undemocratic manner. This law has given additional dictatorial power to the political party to keep the flock together for an entire term.

Jeeth Choudhary in his article ‘Whether Dissent Equals Defection in the Indian Parliament?’ Concluded: “Section 2(b) of the Tenth Schedule puts the Member of Parliament into the straight jacket of obedience to the despotic dictates of the party whips which undermines the democratic spirit. It also violates the principle of representative democracy by empowering the party, and undermining the relationship between elected representatives and their constituents. The anti defection law makes a mockery of parliamentary democracy by marginalizing debates, as the legislators are not allowed to dissent, without being disqualified by the House. Disruptions, rather than substantive debate, become the only form of opposition possible. Parliamentary debate has thereby become largely redundant. Without letting Indian politics degenerate like this, the author supports the proposed amendment so that our politicians can be allowed to publicly and legitimately debate political ideology, negotiate electoral prospect and be persuaded by ideas’.

The Tenth Schedule has laid down certain norms for keeping the flock of legislators of each party together, and the ‘whips’ in the hands of legislative party leaders reducing the hon’ble leaders and people’s representatives into shepherds and sheep. As the political parties invented mechanisms to fail this constitutional legislation, the judiciary played a very significant role in upholding the legality and morality of the law besides expanding its horizons to curb most treacherous practice of sudden political disloyalty. This Tenth Schedule whenever used enhancing the burden of courts. The political parties, instead of maintaining standards within the party with effective leadership, are resorting to litigation, begging the courts to decide the political issues, which they failed to settle. The Karnataka High Court is now engaged with the issue of political leadership of ruling party and manipulative politics of opposition party. This is another unfortunate development. It is not fair to blame judiciary for taking time to decide this tricky question within the frame work of constitution. Neither the Governor nor the Speaker is bona fide. Their moves are not fair. They desperately try to use Constitutional power to settle political scores and wreck political vengeance. In the process they just do not care the people’s will in electing a party to power, for whatever reasons that might be.

Dependents and Independents

There are a few nominated seats provided by the Constitution in legislative houses. Unless he is dependent, he cannot be nominated as legislator. Hence he can decide his loyalty. A nominated member of a house will be disqualified if he joins any political party after six months. That means law permits him to be loyal or disloyal to nominating party only for six months. (Section 2(3) of Tenth Schedule of Constitution of India)

It is wrong to say that there are no provisions for disqualifying independent members for defection from their ‘independent’ status. If an independent legislator joins a political party he would lose membership. Law mandates an independent legislator to maintain the independent status. He can choose to support any political party but should not attach himself to any. . This decision should be supported by the material placed on record. . In Jagjit Singh v State of Haryana the legislators were elected as Members of Assembly as independent candidates. Later they joined a political party and news of their joining was reported in print as well as electronic media. That fact was allegedly admitted

by members in an interview given to a TV news channel. Thereafter those members were

disqualified from being members of Assembly by Speaker. It was challenged. The Supreme Court held: “when an independent member is alleged to have joined a political party the test to be applied is whether the member has given up his independent character on which he was elected. This has to be determined on appreciation of material on record and conduct of the member of the Speaker. No hard and fast rule can be laid down when the answer is dependent on facts of each case. The substance and spirit of anti-defection provisions are the guiding factors”. Disqualification of these members by speaker was upheld, despite the allegation of procedural defect in enquiry.

Supreme Court also clarified one more question in Jagjit Singh case: “Where a sole member of a political party in an Assembly joins another political party, he can not get protection of paragraph 3 of Tenth Schedule of the Constitution and will be disqualified from being member under paragraph 2 of the Tenth Schedule of the Constitution.”

Judicial interpretation by Courts :

In Kihota Hollohon vs. Zachilhu and Others a question was raised that whether the right to freedom of speech and expression is curtailed by the Tenth Schedule, the Apex Court held that “The provisions do not subvert the democratic rights of elected members in Parliament and state legislatures. It does not violate their conscience. The provisions do not violate any right or freedom under Articles 105 and 194 of the Constitution.” In the present case few more issues were raised that whether Para 6 & 7 of the X schedule are constitutional or not? The Supreme Court held that to the extend that the provisions grant finality to the orders of the Speaker, the provision is valid. However, the High Courts and the Supreme Court can exercise judicial review under the Constitution. Judicial review should not cover any stage prior to the making of a decision by the Speakers/ Chairmen. Para 7 seeks to change the operation and effect of Articles 136, 226 and 227 of the Constitution which give the High Courts and Supreme Court jurisdiction in such cases. Any such provision is required to be ratified by state legislatures as per Article 368(2). The paragraph was therefore held invalid as it had not been ratified.

In another case an issue was raised that whether a member can be said to voluntarily give up his membership of a Party , if he joins another party after being expelled by his old political party, it was held by S.C. that “Once a member is expelled, he is treated as an ‘unattached’ member in the house. However, he continues to be a member of the old party as per the Tenth Schedule. So if he joins a new party after being expelled, he can be said to have voluntarily given up membership of his old party.”

In another case it was asked whether a Speaker can review his own decision to disqualify a member under the Tenth Schedule, it was held that The Speaker of a House does not have the power to review his own decisions

to disqualify a candidate. Such power is not provided for under the Schedule, and is not implicit in the provisions either.

In Ravi S, Nayak v. Union of India two issues were raised that whether the Speaker of a legislature is bound by the directions of a Court and Whether judicial review by courts extends to rules framed under the Tenth Schedule, it was held by the Hon’ble Apex Court that “the orders passed by a speaker are subject to judicial review and rules under the Tenth Schedule are procedural in nature. Any violation of those would be a procedural irregularity. Procedural irregularity is immune from judicial scrutiny.”

A very important issue regarding that when can a court review the Speaker’s decision making process under the Tenth Schedule was answered by the S.C. in Rajendra Singh Rana and Ors. vs. Swami Prasad Maurya and Ors. , it was held that if the Speaker fails to act on a complaint, or accepts claims of splits or mergers without making a finding, he fails to act as per the Tenth Schedule. The Court said that ignoring a petition for disqualification is not merely an irregularity but a violation of constitutional duties.

Recent Orders on Disqualification by the Speaker for Defection :

• Shri Rajeev Ranjan Singh “Lalan” vs. Dr. P.P. Koya, JD(U), (January 9, 2009). Dr. Koya defied a party whip requiring him to be present in the House and vote against the Motion of Confidence for the government. He claimed he was too ill to be present in the House. The Speaker concluded that Dr. Koya abstained from voting by remaining absent, and the evidence of the ‘illness’ is not sufficient to conclude that he was so ill that he could not be present in the House.

• Shri Prabhunath Singh vs. Shri Ram Swaroop Prasad, JD(U), (October 3, 2008). Shri Prasad defied a party whip requiring him to be present in the House. In his defence, he denied that any whip was issued or served. The Speaker held that in view of the fact that there is evidence to show that the whip had been delivered to Shri Prasad’s house, and had been duly received, it cannot be said that Shri Prasad had no knowledge of the whip.

• Shri Avtar Singh Bhadana vs. Shri Kuldeep Singh, Indian National Congress, (September 10, 2008). The INC alleged that Shri Bishnoi often dissented from, and criticized the Congress government publicly, and had demanded the dismissal of the government in Haryana. The Speaker held that a person getting elected as a candidate of a political party also gets elected because of the programs of the party. If the person leaves the party, he should go back before the electorate.

• Shri Rajesh Verma vs. Shri Mohammad Shahid Akhlaque, BSP, (January 27, 2008). It was alleged that Shri Akhlaque joined the Samajwadi Party in a public meeting. It was alleged that at this meeting, Shri Akhlaque had said that at heart, he had always been a member of the SP. The Speaker reasoned that there is no reason why news clippings and stories in the media would be untruthful. The Speaker therefore held Shri Akhlaque disqualified for having voluntarily given up membership of the BSP.

• The most recent case relating to anti-defection is from the Karnataka State Legislature where B.J.P. is the ruling party and 14 members of B.J.P. and 5 independent members sent a letter of discontent against the Chief Minister. A complaint was made against them and speaker disqualified them from their membership. The case is pending in the S.C.

Recommendations of Various Bodies on Reforming the Anti-Defection Law:

 Dinesh Goswami Committee on electoral reforms (1990)

 Disqualification should be limited to cases where (a) a member voluntarily gives up the membership of his political party, (b) a member abstains from voting, or votes contrary to the party whip in a motion of vote of confidence or motion of no-confidence.

 The issue of disqualification should be decided by the President/ Governor on the advice of the Election Commission.

 Law Commission (170th Report, 1999)

 Provisions which exempt splits and mergers from disqualification to be deleted.

 Pre-poll electoral fronts should be treated as political parties under anti-defection law.

 Political parties should limit issuance of whips to instances only when the government is in danger.

 Election Commission

 Decisions under the Tenth Schedule should be made by the President/ Governor on the binding advice of the Election Commission.

 Constitution Review Commission (2002)

 Defectors should be barred from holding public office or any remunerative political post for the duration of the remaining term.

 The vote cast by a defector to topple a government should be treated as invalid.

Conclusion:

Anti-defection law when it was passed, it aimed at bringing down the political defect but due to ever increasing political dishonesty and corruption this law never evolved properly and now a question have arose that ‘whether achieving the goals of this law a reality or a myth?’ Politicians found loopholes in this law and used it for their own benefit.

It is high time that a watchdog should be provided to our Parliament and there is a need for our constitutional pundits to revisit the issue to combat the menace of corruption and defection which has eroded the values of democracy.

Social activists like Anna Hazare and now public figures like Baba Ramdev are doing their best with the help of citizens and using the method of ‘non-violence’ and ‘satyagrah’ which were adopted by the father of the nation ‘Mahatma Gandhi’ to eradicate Britishers from the country and doing their best to make sure that our sleeping government should wake up and start taking steps towards eradicating political corruption and only this will help in achieving the goal which was set while passing this law. This law can also work if certain recommendations mentioned above are taken into consideration and an amendment be made in this law.

In the end I would like to quote that “ a government, for protecting business only, is about a carcass, and soon falls by its own corruption and decay,” so the government has a duty to stand and deliver now and not let this law turn into a myth.

Stamp Duty on Consortium Documents

Question: Whether Joint Deeds of Hypothecations and Joint Deeds of Mortgages executed in Consortium Finance are covered under Section 5 or under Section 6 of Bombay Stamp Act or they do embrace separate and distinct matters or transactions or not? Whether or not they are liable to be stamped as separate instrument with separate stamp duty?

Ans: No

Joint Deeds of Hypothecations and Joint Deeds of Mortgages are not covered under Section 5 nor under Section 6 of Bombay Stamp Act as they do not embrace separate and distinct matters or transactions and not liable to be stamped as separate instrument with separate stamp duty. That Joint Deed of Mortgage & Joint Deed of Hypothecation are executed by the Borrowers in prescribed formats devised by IBA under directions of RBI are not embracing separate deeds or transactions but the documents formats have statutory binding and force and are of one single transaction carried out as a lenders partnership with common rights and liabilities.

REASONING FOLLOWS: –

What is Consortium?

A group of Independent Companies participating in a Joint Venture for mutual benefit. Companies in a Consortium co-operate with one another, often sharing technology as needed. A Consortium allows the Companies to conduct operations that they would not be able to do individually. It is important to note, however, that a Consortium is not a merger and the Companies remain independent. A group of Organizations that participate in a Joint Venture. Airbus Industries, a European Airplane manufacturer, is a Consortium of four Public and Private Corporations in Britain, France, Spain and Germany. A group of Organizations, sharing the same goals, which combine their resources and risks. Consortium Banking was popular in the late 1970s, when a number of major Banks would combine to form a Merchant-Banking or Finance-Company offshoot. Many of Australia’s Merchant Banks were formed as consortia with European, Asian and US Banks teaming with Australian Banks. Consortium is a coalition of Organizations, such as Banks and Corporations, set up to fund ventures requiring large capital resources. A Consortium is an association of two or more Individuals, Companies, Organizations or Governments (or any combination of these entities) with the objective of participating in a common activity or pooling their resources for achieving a common goal. Consortium is a Latin word, meaning ‘partnership, association or society’ and derives from consors ‘’ Partner”, itself from con- ‘together’ and sors ‘fate’, meaning owner of means or comrade.

Consortium of Bank

A Subsidiary Bank owned by several different Banks. Each Owner Bank has an equal share so that no Bank is the majority shareholder. The Owner Banks are often in different countries. A Consortium Bank is created to finance a specific project; once the project is complete, the Consortium Bank dissolves itself. While they are not as common as they once were, they are useful when a project involves multiple currencies. 

Definition

A Banking Syndicate formed by multiple Banks, often from different countries, for the singular purpose of financing a specific project that is too large for any individual Bank to finance on its own. Under this arrangement participating Banks completion of the project the Consortium Bank is disbanded.

That it means Consortium of Bank itself is a community of interest and member brigs its resources in certain percentage in the common pool. And therefore it shares the security interest in common.

RBI’s Role in Consortium Finance:-

Large Lending’s are formed always under Consortiums as per the guidelines issued by DBOD of RBI. That DBOD of RBI as such issues circulars and guidelines from time to time including documentation one of such is enclosed at Annexure I hereunder which please be read as part of this opinion as our opinion Consortium of Bank itself is a community of interest and member brigs its resources in certain percentage in the common pool formed under statutory directives and documents are obtained as per the IBA formats strictly devised as per directions of RBI. That in terms of the guidelines which has statutory force the Consortium of Banks has a force of community of interest.

Now the question springs up for my opinion whether a deed of hypothecation or Mortgage created by a borrower in consortium lending shall be treated as one instrument or separate instruments for the purpose of section 5,6 of Bombay Stamp Act. Whether it is a multifarious instrument covering Several distinct matters? We will have to refer the provisions of Bombay Stamp Act

Where several distinct matters and transactions are embodied in a single Instrument, the Instrument is called the multifarious instrument.

Meaning of Distinct Matters: 

The expression “Distinct Matters” connotes distinct transaction. The Term Distinct Matters mean the Matters of different kinds such as agreement for service and a lease. Similarly where a document under consideration is both an agreement for dissolution of a partnership and a bond, it is chargeable under Section 5 with aggregate duty with which two such separate instruments would be chargeable. 

The word “Instrument” is defined in Section 2(14) to include “every document by which any right or liability is or purports to be, created, transferred, limited, extended, extinguished or recorded.” If by an Instrument a distinct right is transferred it should be described for the purpose of stamp duty as an instrument to transfer of such right. The subject of the schedule of the Stamp Act is the amount of duty to be charged on every instrument mentioned in it, as laid down by Section 3 of the Act. It appears to me to be a subject which is repugnant to the application of the rule that the singular should include the plural. The first column of the first schedule of the Stamp Act is headed as “description of Instrument,” and the second prescribes a duty with reference to the description thereof.

Distinct Matters would be comprised in an instrument, if different transactions are sought to be evidenced by the same deed. So long a transaction is one and the same it would not comprise Distinct Matters simply because the goods or properties dealt with by the transaction happen to be more than one.

When a transaction refers to several Distinct Matters documents can be executed in respect of those several Matters but for convenience can be jointly executed. Although for convenience one document is executed it should be treated as several documents and Section 35 of the Indian Stamp Act has to be applied to every one of those several instruments. It is true that when a document relates to several items of immovable properties and it does not bear a stamp chargeable in respect of all the properties it cannot be admitted in evidence in respect of some of the properties. A document which relates to a transaction relating to five distinct properties cannot be regarded as five documents relating to each of the five properties. But a document which relates to a mortgage of five properties and a receipt for the payment of `. 3500/- can be regarded as two instruments one relating to a Mortgage of immoveable properties and the second relating to the payment of `. 3500. In its popular sense, the expression “distinct matters” would connote something different from distinct “categories”. Two transactions might be of the same description, but all the same, they might be distinct.

Expression “distinct matters” in Section 5 and “description” in Section 6 – Whether have different connotations-Instrument in question-Whether comprised distinct matters. Can be decided only by strict construction and interpretation of relations which subject has with the object.

It is settled law that when two persons join in executing a Power of Attorney, whether it comprises distinct matters or not will depend on whether the interests of the executants in the subject matter of the power are separate or not. Conversely, if one person holding properties in two different capacities, each unconnected with the other, executes a power in respect of both of them, the instrument should logically be held to comprise distinct matters. It was held in 1956 AIR 35, 1955 SCR (2) 842, that the instrument in question in that case being braded as Exhibit A,-the impugned Power of Attorney -comprised distinct matters within the meaning of Section 5 of the Indian Stamp Act in respect of several capacities of the respondent mentioned therein. The fact that the donor of the Power of Attorney executes it in different capacities is not sufficient to constitute the instrument, one comprising distinct matters and thus requiring to be stamped with the aggregate amount of the duties with which separate instruments each comprising or relating to one of such matters would be chargeable under the Act, within the meaning of Section 5 of the Indian Stamp Act.

When two words of different import are used in a statute in two consecutive provisions, it cannot be maintained that they are used in the same sense and therefore the expression “distinct matters” in Section 5 and “description” in Section 6 have different connotations.

The statutory provisions bearing on the question are Sections 3 to 6 of the Act. Section 3 is the charging section, and it enacts that subject to certain exemptions, every instrument mentioned in the Schedule to the Act shall be chargeable with the duty of the amount indicated therein as the proper duty therefore. Section 4 lays down that when in the case of any sale, mortgage or settlement several instruments are employed for completing the transaction, only one of them called the principal instrument is chargeable with the duty mentioned in Schedule 1, and that the other instruments are chargeable each with a duty of one rupee. Section 5 enacts that any instrument comprising or relating to several distinct matters shall be chargeable with the aggregate amount of the duties with which separate instruments, each comprising or relating to one of such matters, would be chargeable under the Act. Section 6, so far as is material, runs as follows: “Subject to the provisions of the last preceding section, an instrument so framed as to come within two or more of the descriptions in Schedule I, shall, where the duties chargeable there under are different, be chargeable only with the highest of such duties”.

The point for decision is as to the meaning to be given to the words “distinct matters” in Section 5. The contention which found favour with the majority of the learned Judges is that the word “matters” in Section 5 is synonymous with the word “description” occurring in Section 6, and that they both refer to the several categories of instruments which are set out in the Schedule. The argument in support of this contention is that: Section 5 lays down that the duty payable when the instrument comprises or relates to distinct matters is the aggregate of what would be payable on separate instruments relating to each of these matters. An instrument would be chargeable under Section 3 only if it fell within one of the categories mentioned in the Schedule. Therefore, what is contemplated by Section 5 is a combination in one document of different categories of instruments such as sale and mortgage, sale and lease or mortgage and lease and the like, But when the category is one and the same, then Section 5 has no application, and as, in the present case, the instrument in question is a Power-of- Attorney, it would fall under Article 48 (a) in whatever capacity it was executed, and there being only one category, there are no distinct matters within Section 5. We are unable to accept the contention that the word “matter” in Section 5 was intended to convey the same meaning as the word “description” in Section 6. In its popular sense, the expression “distinct matters” would connote something different from distinct “categories”. Two transactions might be of the same description, but all the same, they might be distinct. If ‘A’ sells Survey No. 145 to ‘X’ and Mortgages Survey No. 155 to ‘Y’, the transactions fall under different categories, and they are also distinct matters. But if ‘A’ Mortgages Survey No. 145 to ‘X’ and Mortgages Survey No. 155 to ‘Y’, the two transactions fall under the same category, but they would certainly be distinct matters. But if ‘A’ Mortgages Survey No. 145 & 155 to ‘X’ and ‘Y’ jointly and severally, the two transactions fall under the same category, and they would certainly not be distinct matters. That in Consortium Finance there exist community or association common interest and therefore the Mortgage will be in favor of a group of persons branded as A Bank Consortium and therefore the interpretation that such Mortgage embraces separate and distinct subjects or matters or transaction is misnomer. That person interpreting such is not understanding the concept of consortium finance at all.

As held by Honorable Supreme Court of India in THE MEMBER, BOARD OF REVENUE Versus ARTHUR PAUL BENTHALL {1956 AIR 35 1955 SCR (2) 842} Conversely, if a number of persons join in executing one instrument, and there is community of interest between them in the subject-matter comprised therein, it will be chargeable with a single duty. That in the above case old celebrated judgments were relied on in deciding previously it was held in Davis v. Williams (1804 104 ER 358), Bowen v. Ashley (1804 104 ER 358), Good-son v. Forbes (1804 104 ER 358) and other cases. That if the interests of the executants are separate, the instrument must be construed as comprising distinct matters. In case of community of interest it should not be treated likewise.

Relying on the observations I have to opine that In case of Consortiums relations spurting out are from agreements between parties and a community of interest is created. if such community of interest is spelt out in the documents itself then such Mortgage or Hypothecation can not be said to have separate and distinct matters and such holding will be misinterpretations of law and misapplication of fiscal statute as well as it will be misunderstanding the concept of Consortiums rather it will be poor understanding of legal and factual position concerning Bank lending… 

In the said judgment it was further Held that “No instrument chargeable with stamp duty under the heading Letter or Power of Attorney and Commission, Factory, Mandate, or other instrument in the nature thereof’ in the First Schedule to the Stamp Act, 1891, shall be charged with duty more than once by reason only that more persons than one are named in the instrument as donors or donees (whether jointly or severally or otherwise), of the powers thereby conferred or that those powers relate to more than one matter”.

In the matter of Vide Freeman v. Commissioners of Inland Revenue {(1804) 104 ER 358}. Applying the same principle to Powers-of-Attorney, as held in Allen v. Morrison that when members of a mutual insurance club executed single power, it related to one matter, Lord Tenterdon, C. J. observing that “there was certainly a community of purpose actuating all the members of this club”. In Reference under Stamp Act, S. 46(1), a Power of Attorney executed by thirty-six persons in relation to a fund in which they were jointly interested was held to comprise a single matter. On the other hand, where several donors having separate interests execute a single Power-of-Attorney with reference to their respective properties as, for example, when ‘A’ constitutes ‘X’ as attorney for management of his estate Black-acre and ‘B’ constitutes the same person as attorney for the management of his estate White-acre, then the instrument must be held to comprise distinct matters.

If the intention of the legislature was that the expression ‘distinct matters’ in Section 5 should be understood not in its popular sense but narrowly as meaning different categories in the Schedule, nothing would have been easier than to say so. When two words of different import are used in a statute in two consecutive provisions, it would be difficult to maintain that they are used in the same sense, and the conclusion must follow that the expression “distinct matters” in Section 5 and “descriptions” in Section 6 have different connotations.

It is urged against this conclusion that if the word “matters” in Section 5 is construed as meaning anything other than “categories” or in the phraseology of Section 6, “descriptions” mentioned in the Schedule, then there could be no conflict between the two sections, and the clause in Section 6 that it is “subject to the provision of the last preceding section” would be meaningless and useless.

There is no provision in the statute law of this country similar to the above, and it is significant that it assumes that a power of attorney might consist of distinct matters by reason of the fact that there are several donors or donees mentioned in it, or that it relates to more than one matter.

It is, as has been stated above, settled law that when two persons join in executing a Power-of-Attorney, whether it comprises distinct matters or not will depend on whether the interests of the executants in the subject- matter of the power are separate or joint.

That will be in consonance with the generally accepted notion of what are distinct matters, and that certainly was the view that express recited in the power that the executants executed it both in his individual capacity and in his other capacities.

I have to rely on the views expressed in judgment part rendered by Justice BHAGWATI J.- “ dissentingly he observed that “I am unable to agree with the conclusion reached in the Judgment just delivered. While agreeing in the main with the construction put upon Sections 4, 5 and 6 of the Act and the connotation of the words “distinct matters” used in Section 5, I am of the view that the question still survives whether the instrument in question is a single Power of Attorney or a combination of several of them. The argument which has impressed my Brother Judges forming the majority of the Bench is that though the instrument is executed by one individual, if he fills several capacities and the authority conferred is general, there would be distinct delegations in respect of each of those capacities and the instrument should bear the aggregate of stamp duty payable in respect of each of such capacities. With the greatest respect I am unable to accede to that argument. I agree that the question whether a Power of Attorney relates to distinct matters is one that will have to be decided on the consideration of the terms of ‘the instrument and the nature and the extent of the authority, conferred thereby. The fact, however, that the donor of the Power of Attorney executes it in different capacities is not sufficient in my opinion to constitute the instrument one comprising distinct matters and thus requiring to be stamped with the aggregate amount of the duties with which separate instruments each comprising or relating to one of such matters would be chargeable under the Act, within the meaning of Section 5. The transaction is a single transaction whereby the donor constitutes the donees jointly and severally his attorneys for him and in his name and on his behalf to act for him in his individual capacity and also in his capacity as managing director, director, managing agent, agent, secretary or liquidator of any company in which he is or may at any time, thereafter be interested in any such capacity as aforesaid and also as executor, administrator, trustee or in any capacity whatsoever as occasion shall require”.

If the transaction or matter to which the instrument in question relates is single and indivisible and cannot be separated without destroying the object of the transaction it will not be treated as relating to two distinct matters within the meaning of Section 5, Stamp Act. The instrument contains only one contract, a demise; the option of renewal of the lease is ancillary to it and forms part of the consideration for entering into the lease.

It was there held that an instrument can be regarded as falling under two distinct categories each requiring a separate stamp, only where there is what is called a “distinct consideration” for each and not where there is a unity of consideration as in the present case.

The instrument clearly says that the properties shall continue as security until the entire amount due is discharged. Article 6 (2) relating to stamp duty payable, on a pledge runs:

“Article 6. Agreement relating to deposit of title deeds, pawn or pledge, that is to say, any instrument evidencing an agreement relating to …………………………………

(2) the pawn or pledge of moveable property, where such deposit, pawn or pledge has been made by way of security for the repayment of money advanced or to be advanced by way of loan or an existing or future debt.”

The very Article gives an Indication of what is meant by pawn or pledge of moveable property. The moveable property must have been given by way of security for the repayment of money advanced or to be advanced by way of loan or an existing or future debt. In this case, moveable property has been pledged for an existing debt. Section 172 of the Indian Contract Act defines “pawn” or “pledge” as bailment of goods as security for payment of a debt or performance of a promise. Clearly, the instrument also satisfies the requirement of Article 6. As the instrument is attested, it does not fall under the exemption to Article 6.

The fact that there has been so much difference of opinion shows that the Stamp Act on the point in question is capable of various interpretations. I think I have to accept that interpretation which is for the benefit of the subject borrower, the Act being purely a fiscal one it is to be construed strictly and no far and no further. That in matters of consortium advances basis of the consortium is not to be destroyed for Stamp Act.

Hence in our opinion Consortium of Bank itself is a community of interest and member brigs its resources in certain percentage in the common pool formed under statutory directives and documents are obtained as per the IBA formats strictly devised as per directions of RBI. That in terms of the guidelines which has statutory force the consortium of banks has a force of community of interest and bank documentation is to be strictly construed as Homogenous transaction and not separate transaction as apprehended.

As a conclusion:- Joint Deeds of Hypothecations and Joint Deeds of Mortgages are not covered under Section 5 nor under Section 6 of Bombay stamp Act as they do not embrace separate and distinct matters or transactions and not liable to be stamped as separate instrument with separate stamp duty. That Joint Deed of Mortgage & Joint Deed of Hypothecation are executed by the Borrowers in prescribed formats devised by IBA under directions of RBI are not embracing separate deeds or transactions but the documents formats have statutory binding and force and are of one single transaction carried out as a lenders partnership with common rights and liabilities. That thus it is admittedly proved fact that the joint documents are not separate and distinct contracts but interwoven as a single transaction and hence they do not embraces separate and distinct matters or transactions and hence not liable to be stamped as separate instrument with separate stamp duty.

This article is for removing the established misconception about the interpretation that such documents embraces separate and distinct matters or transactions and hence not liable to be stamped as separate instrument with separate stamp duty and based on that certain practice adopted by the Banks of over stamping it. It is suggested that borrowers are unnecessarily burdened with such unwarranted stamp duty. If Bank feels it a borrower may be directed to seek the opinion of competent Court and get the confirmation of the situation.

Annexure I

CONSORTIUM ADVANCES 

It is not uncommon to find a Borrower availing Term Loan as well as Working Capital limits from a number of Financial Institutions and Commercial Banks. A Term Loan to a Borrower may be sanctioned jointly by All India Financial Institutions and Banks. Similarly, Working Capital limits may also be availed by the Borrower from a number of Banks partly because of the large size of borrowing and partly to have a degree of flexibility in his operations with different Banks. 

The Borrower may have a multiple Banking relationship where he has independent arrangement with each Bank, security offered to each Bank is separate and no formal understanding exists between different Banks financing the same Borrower. Under this arrangement Banks may not be exchanging information on the Borrower and limits might have been sanctioned on different terms and conditions. This arrangement may be preferred by the Borrower as it affords him a great flexibility in operating his accounts with different Banks but goes contrary to the expectations of Reserve Bank which desires that a wholesome view of entire operations of a customer must be taken by the Banks and the assessment of credit needs be also done in totality. 

The other arrangement for sanctioning of credit limit to such a Borrower may be to form a Consortium of Banks to take care of the entire needs, of the Borrower. No definite guidelines on formation of consortium of Banks, however, existed in past and it was generally left to the Borrower to decide this issue. 

The first attempt in this regard was made by Reserve Bank of India while it constituted a study group in December, 1973, headed by Shri G. Lakshmmaryanan, which submitted its report in July, 1974. The report was accepted by Reserve Bank. 

RBI Guidelines on Consortium Advances 

The concept of Consortium Advance has since gone many changes and most of the large Borrowers are now being financed by Banks in consortium. Reserve Bank of India had also issued revised comprehensive guidelines in June 1987 on this subject. 

Reserve Bank of India further constituted a Committee in January, 1993. under the Chairmanship of Shri J.V. Setty, Chairman and Managing Director, Canara Bank, to review the extant guidelines on lending under Consortium arrangement and suggest measures for improving the efficiency of banking system in delivery of credit. Based upon the report submitted by the above Committee, Reserve Bank announced important changes in die existing guidelines. Guidelines m applicable to Consortium advance are as under.1 

• The overall exposure to a single borrower should not exceed 25%2 of the net worth of the banking institution. For this purpose non fund based facilities shall be counted @ 50%3 of limits sanctioned and added to total fund based facilities to arrive at total exposure to the borrower.

• Exposure limit to group has also now been stipulated. The overall exposure to a group should not exceed 50%2per cent (60%2 in case of infrastructure projects consisting of power, telecommunication, roads and ports) of the net worth of the banking institution. 

(a) The borrowers who are already having multiple banking arrangement and enjoy fund based credit limits of Rs. 50.00 crores or more must necessarily be brought under Consortium arrangements. The bank who is having the largest share in the credit facilities would automatically become the leader of Consortium and would ensure that Consortium arrangements are finalised immediately. 

(b) The borrowers who are already having multiple banking arrangement and enjoy fund based credit limits of less than Rs.50 crores should also be brought under formal Consortium arrangements at the time of further enhancements which would take the aggregate limits to Rs.50 crores or more. The enhancements in such cases would be considered jointly by the financing banks concerned and the bank which takes up the largest share of fund based limits shall be the leader of the Consortium. 

(c) These provisions would also be applicable to new units which approach more than one bank for sanctioning of working capital limits of Rs.50 crores or more. 

The net effect of these provision amounts to that no borrower will be allowed to have multiple banking arrangement if the total fund based credit limit sanctioned to him amounts to Rs.50 crores or more. A formal Consortium will have to he constituted in such cases and the bank having largest share in fund based credit limits will automatically assume the status of the leader of the Consortium. 

Reserve Bank has since withdrawn its instructions for obligatory formation of Consortium. It will thus not be obligatory on the part of banks to form a Consortium even if the credit limit per borrower exceeds Rs.50 crore. The need based Finance required by the borrowers may, therefore, be extended by the banks either entirely on their own, subject to observance of exposure limits, or in association with other banks. As an alternative to sole/multiple banking/ Consortium arrangement, banks may adopt loan syndication route, irrespective of the quantum of credit involved. 

• There is no ceiling on number of banks in a Consortium, whether it is obligatory (fund based credit limits of Rs.50 crates and above from more than one bank) or voluntary (fund based credit limits below Rs.50 crores from more than one bank) in nature. However, the share of a bank as member of Consortium should he a minimum of 5 per cent of the fund based credit limits or Rs.1 crore whichever is more. This provision would itself restrict the number of banks in a Consortium. To illustrate this point let us consider these two examples:

(a) In a Consortium for total fund based credit limits of Rs.3 crores, the minimum share should be Rs1.00 crore.

(b) In a Consortium for total fund based credit limits of Rs.50 crates, the minimum share should be Rs.2,50 crores.

• The banks who have sanctioned term loans to a unit or who have also participated in term loans sanctioned in Consortium with term lending financial institution should also provide working capital facilities to such a unit. ‘These banks may, however, associate other banks, if so warranted, to provide working capital Finance.

• The borrower who is being financed under a formal Consortium arrangement should not avail any additional credit facility by way of bills limits/ guarantees/acceptances, letters of credit etc. from any other bank outside the Consortium. It has been stipulated by Reserve Bank of India that any bank outside the Consortium should not extend any such facility or may not even open a current account without the knowledge and concurrence of the Consortium members. 

This stipulation is applicable to even those borrowers who are enjoying total fund based credit limits of above Rs.50 crores from a single bank or under syndication without a Consortium arrangement. 

• In case of borrowers enjoying aggregate fund based credit limits of Rs.1 crore and above but below Rs.50 crore from more than one bank, and where there is no formal Consortium arrangement, banks should obtain full details of the credit facilities (including ad hoe facilities) availed of by such borrowers from the banking system, each time any fresh facility/enhancement is sought. Also the banks should ensure timely exchange of information and co ordinated approach in the interest of overall health of advance made to such borrowers. Further, in the case of borrowal accounts enjoying fund based credit limits below Rs.50 crore from more than one bank, the concerned banks will be free to enter into a Consortium arrangement at their option.

• Banks/consortia treat borrowers having multi division/ multi product companies as one single unit, unless there is more than one published balance sheet. Similarly, in the case of merger, the merged unit will be treated as a single unit. In case of split, the separated units will be treated as separate borrowal accounts provided there is more than one published balance sheet.

• In case of borrowers enjoying fund based credit limits of Rs.50 crore and above, the concerned single bank and/or the leader of the existing Consortium, will be free to organise a ‘syndication’ of the credit limits.

• In cases, where banks/consortia/syndicates am unable to adhere to the recommended maximum time frames for disposal of loan applications/ proposals, borrowers will be free to bring in a new bank or new banks to form/ to join a Consortium /syndicate. Within seven days of sanction of any credit facility, such new banks should inform the existing Consortium /syndicate/ regular banks/(s) and. should not disburse the limit without obtaining ‘no objection’. In case such ‘no objection’ certificate is not received within next ten days, it would be doomed that existing consortia/syndicates/regular bank/(s) have no objection to the new bank/(s) joining/forming consortia/syndicates.

• In the cases of existing consortia, if a member bank is unable to take up its enhanced share, such enhanced share in full or in part could be reallocated among the other existing willing members. In case other existing member banks are also unable to take up such enhanced share of an existing & member bank, a new bank willing to take up the enhanced share may be inducted into the Consortium in consultation with the borrowers.

• While a member bank may be permitted not to take to up its enhanced/incremental shares it cannot be permitted to leave a Consortium before expiry of at least two years from the date of its joining the Consortium. An existing member bank way be permitted to withdraw from the Consortium after two years provided other existing member banks and/or a new bank is willing to take its sham by joining the Consortium.

• In cases whore the other existing member banks or a new bank an unwilling to take over the entire outstanding of an existing member desirous of moving out of the Consortium after the expiry of above mentioned period of two years, such bank may be permitted to leave the Consortium by selling its debt at a discount and/or furnishing an unconditional undertaking that the repayment of its dues would be deferred till the dues of other members are repaid in full. 

Note : It would be open to a borrower to choose his bank/(s) for obtaining credit facilities as also for the bank/(s) to take a credit decision on the borrower. However, once a Consortium(obligatory or voluntary) is formed, on” of a new member into a Consortium should be in consultation with the Consortium. 

• Quite often non availability of data or submission of incorrect data or non receipt of required financial statements results in banks/consortia being not able to take decisions within a stipulated period of time. These data/

• statements include, among other, audited financial results for the last two years, estimated and projected results for’ the current and subsequent years respectively. More often than not borrowers require an average time of at least six months to obtain audited financial statements. Considering all these aspects as also available technology, the following maximum time frames are prescribed for formal disposal of loan proposals provided applications/proposals are received together

• with required details/information supported by requisite financial and operating statements : 

Proposals for sanction of fresh/enhanced credit limits 60 days (45 days)

Proposals for renewal of existing credit limits 45 days (30 days)

Proposals for sanction of ad hoc credit facilities 30 days(15days)

Note: Figures in brackets are the maximum time frames for sanction of export credit limits. 

• Further, individual banks/consortia/syndicates should review the borrowal accounts during the first quarter of the current year on the basis of audited statements for the year before lust, provisional statements (where audited statements are not available) for the last accounting year, provisional estimates for the current accounting yew and forecast for the next year. Consequently, individual banks/consordia/syndicates, at their discretion, may release 50 per cent of the additional credit requirement during or before the second quarter of the current accounting year. The remaining 50 per cent could be released consequent to submission of audited results provided there is no significant difference between the provisional estimates and the audited results.

• No bank will be allowed to move out of the Consortium in case of sick/weak units since in such cases all the banks are required to associate themselves with rehabilitation efforts.

• The appraisal of credit proposals will be done by the lead bank.

The customer has to submit all the necessary papers and data regarding appraisal of his limits to the lead bank who will in turn arrange for preparation of necessary appraisal note and its circulation to other member banks. Lead bank must complete the entire work relating to appraisal within the maximum time frame. Reporting to and attending to any correspondence with Reserve Bank of India shall also be the responsibility of lead bank.

• There may sometimes be disagreement between the member banks on the quantum of permissible bank Finance, terms and conditions or any other matter. In such cases, decision of the Consortium will be binding on the lead bank as also other members. Lead bank will however, enjoy the freedom to sanction an additional credit upto a pre determined percentage in emergent situations. The lead bank should however, inform other members immediately together with their pro rata share.

• There also exists a provision for forming steering committee consisting of leader bank and the bank with next highest share in the Consortium. Normally steering committee banks must have more than 5 1 % share. Wherever Consortium fails to reach the consensus, other member banks shall follow the decision of the steering committee.

• Earlier, the terms and conditions including rate of interest, margin etc. finalised at the Consortium meeting were uniformly applicable to all banks. Reserve Bank has however, relaxed the guidelines in this regard with freedom granted to banks to determine their own lending rates for advances above Rs.2 lacs. The banks in a Consortium will now be free to offer different rates of interest and other charges on their shares.

• The ancillary and non fund based business should also be passed on by the borrower to all the member banks in almost the same proportion in which funds based limits are shared.

• The inspection/verification of securities may be done by the lead bank or members in rotation as per arrangement which may be finalised in the Consortium.

• The quarterly operating statements as required under Chore Corn mince for fixation of quarterly operative limits will also be required to be sent to the lead bank who shall in association with the bank having the next largest share in the credit facilities should meet at quarterly intervals and fix the operative limits and also individual bank’s share thereof for the next quarter.

• The information regarding quarterly operating limits fixed in such a manner would be communicated by the lead bank to other member banks.

• In a Consortium, lead bank or the lead bank and the bank with the next highest share will be the final authorities in case of differences of opinion and their views will prevail in all cases of disputes among the member relating to terms and conditions. 

From the above discussion it will be appreciated that the borrower under the Consortium arrangements is required to deal with the lead bank and bank having second largest share in total credit limits for an practical purposes. The borrowers were, however, put to inconvenience for execution of varied types of documents etc. with various banks in the Consortium. On the recommendations of ‘Mahadevan Committee’ who submitted its report in April, 1988, Reserve Bank revised guidelines in relation to Consortium advances and the ultimate ideal set for the banking industry is to achieve ‘Single Window Concept For Lending (SWCL), to minimise delay and inconvenience to the borrowers. Single Window Concept has now been brought into operation in respect of two important areas of lending in Consortium as under: 

First Disbursement 

Lead bank in all Consortium will have the authority from each of the other member banks to make available their shares of entire/enhanced limits if latter’s decision is not conveyed to the lead bank within the prescribed time of two months. The borrower will thus be able to avail first disbursement from the lead bank itself, if other member banks delay their decision. However, after first disbursement as above, the borrower will be allowed to operate his accounts with different member banks according to his requirements subject to the limits allocated to them. 

Documentation 

Important recommendations as accepted by Reserve Bank for implementation are as given below: 

(i) The borrower should tie required to execute only one document, which will be signed by the lead bank on its own behalf as well as on behalf of other members.

(ii) The lead bank should complete the formalities connected with creation and registration of charge etc. with the Registrar of Companies.

(iii) As soon as the documents are executed, the lead bank shall send a confirmation in this regard to other members by telex/telegram.

(iv) The sharing of security and the rights and responsibilities of the banks, including the lead bank, should be documented by means of an inter se agreement among the members of the Consortium. 

To bring, in the uniformity in respect of type of documents to be obtained by different banks. Indian Bank. Association has finalised model documents to be adopted by all the banks uniformly. The document procedure as recommended by IBA for implementation by the banks has been revised and now the execution of following documents: 

(i) Resolutions to be passed by the borrower’s Board of Directors authorising the borrowing company to borrow under the Consortium arrangement.

(ii) Working capital Consortium agreement.

(iii) Joint deed of hypothecation.

(iv) Revival letter for purposes of limitation.

(v) Letter of undertaking from the borrower for creating a second mortgage on the fixed assets.

(vi) Agreement to be signed with the lead bank who signs on behalf of itself and on behalf of other member banks. 

Model forms for all these documents have already been circulated by IBA to all the banks for implementation and borrowers may approach their bank to get copies of these documents. In addition the banks are required to sign various inter se agreements as per revised proforma adopted by IBA . 

Classification of Advance 

As per the norms specified by Reserve Bank each borrowal account is to be classified in any of the four categories as under: 

(i) Standard Asset

(ii) Sub standard Asset

(iii) Doubtful Asset

(iv) Loss Asset 

The banks are further required to make provisioning at the prescribed rates in their profit and loss ale on the basis of the above classification at the time of finalising their annual accounts. Classification of borrowal account has thus assumed an added significance. 

As per the practice, member banks were following the classification as given by the lead bank in a Consortium. It has now been stipulated by Reserve Bank that each member bank will classify the ale on its own keeping in view the relevant guidelines. If any bank under the Consortium classifies the ale as 1 sub standard’ all the Banks under the Consortium will have to classify such ale as ‘sub standard’. This stipulation has been brought into effect to ensure that borrower lakes steps to maintain his a/cs with all member banks free of irregularities. 

Lead Bank charges 

Reserve Bank has permitted the lead bank to charge a suitable fee (say 0.25 per cent of the limits) per annum for various services rendered to the borrower. Detailed guidelines in this regard are as under: 

(a) The fee of 0.25 percent per annum is to be reckoned with reference to the fund based working capital credit limits sanctioned by the Consortium.

(b) The rate of fee may be negotiated with the borrowers with the ceiling of 0.25%.

(c) Service charge on enhancement of limits after regular sanction has taken place will be charged on the amount of enhancement/incremental limits.

(d) No fee is payable on syndication of limits.

(c) No service charge is to be levied on working capital limits authorised under special arrangements, by Reserve Bank of India for procurement/purchase under price support/market intervention operations etc. to public sector corporations or agencies of State Government. 

It may be mentioned here that formation of Consortium is no more obligatory and instruction relating to conduct of Consortium which were issued by Reserve Bank Iron, time to time have also been withdrawn. Consortium members have been given powers to frame their own ground roles governing the Consortium arrangement viz. number of participating banks, minimum share of each bank, entry into/exit from the Consortium, sanction of additional/adhoc limit in emergent situations/contingencies by lead banks/ other banks, the fee to be charged by the lead bank for the services rendered by it, the grant of any facility by a non member bank etc. 

Consortium arrangement of lending for working capital needs will continue to exist for operational convenience of the participating banks as well as borrowers. The ground rules of Consortium arrangements discussed in earlier paragraphs will also hold good in most of the cases with certain modifications and hence may be considered relevant. 

Syndication of credit 

A syndicated credit is an agreement between two of more lending institutions to provide a borrower a credit facility using common loan documentation. A prospective borrower intending to raise resources through this method awards a mandate to a bank as ‘Lead Manager’ to arrange credit on his behalf. The mandate spells out the commercial terms of the credit and the prerogatives of the mandated bank in resolving contentious issues in the course of the transaction. The mandated bank prepares an Information Memorandum about the borrower in consultation with the latter and distributes the same amongst the prospective lenders soliciting their participation in the credit to be extended to the borrower. The Information Memorandum provides the basis for each lending bank making its own independent economic and financial evaluation of the borrower, if necessary, by seeking additional supporting information from other source as well Thereafter, the mandated bank convenes a meeting to discuss the syndication strategy relating to coordination, communication and control within the syndication process and finalises deal timing. charges towards management expenses and cost of credit, share of each participating bank in the credit, etc. The loan agreement is signed by all the participating banks. The borrower is required to give prior notice to the ‘Lead Manager’ or his agent for drawing the loan amount to enable the latter to tie up disbursements with the other lending banks. Syndication is thus very similar to the system of Consortium lending in terms of disposal of risk and is a convenient mode of raising long term funds by borrowers. 

Consortium of banks and financial institutions 

Banks are now taking increasing share in term loans sanctioned to borrowers by financial institutions. Granting of working capital assistance remains in the exclusive domain of commercial banks. To avoid delay in project implementation, it is desired that concept of ‘single window clearance’ is brought into operation. It is, therefore necessary that commercial banks either taking a share in term loans and/or financing working capital are associated by all India financial institutions at the appraisal stage of the project. For this purpose, all India financial institutions have to form a Consortium with commercial banks and have proper co ordination in dealing with new investments either by existing companies (as modernisation, diversification, expansion) or by new companies. A summary of important guidelines issued by Reserve Bank in this regard is given below: 

Association of commercial banks with the project appraisal: The promoter of a project must identify commercial bank(s) who should be willing to extend term loan and/or working capital Finance for the project. The bank which is to take the maximum share of term loans among the banks and/or working capital Finance should be associated with appraisal exercise initiated by lead financial institutions. The lead bank is to be given full opportunity for expressing views at the time of appraisal. The bank will not be allowed to withdraw unilaterally from the Consortium at a later date. Where more than one bank is associated, the appraisal as finalised jointly by the lead financial institutions and the lead bank should be accepted by other banks. An added advantage of this exercise would be correct estimation of margin required for working capital as part of project cost and help early sanction of requisite working capital limits after sanction of term loan assistance. 

Extent of participation in term loan by banks: Restriction earlier imposed by Reserve Bank on participation in term loans by banks were related to the cost of project which have since been modified. The restriction is now placed on the basis of quantum of loan irrespective of the cost of project. The present position in this regard is now as under: 

(i) The quantum of loan will be the determining criterion and not the cost of the project.

(ii) Maximum quantum of term Finance /loans sanctioned by a commercial bank together with its other exposures in the form of fund based and non fund based credit facilities, investments, underwriting, and any other commitment, will be restricted to the prudential exposure norm, as prescribed by the Reserve Bank of India from time to time, for individual borrowers/group of borrowers. The earlier ceiling of Rs. 50 crores for individual bank has since been withdrawn.

(iii) Subject to an individual ceiling of term loan for a bank, as per (ii) above various banks in consortia/syndicate may give loans uptoRs.500 crore for each project.

(iv) For projects requiring term finance assistance exceeding Rs.500crore, banks shall continue participating jointly with All India Financial Institutions, subject to share of individual banks not exceeding as per (it) above and that of the banking system Rs.500 crores. 

Ground Rules for Co ordination between hooks and financial institutions1

 (1) Time frame for sanction of facilities:

(a) If only two lenders we involved, all the issues with regard to sanction of facilities should be resolved by them by mutual discussion within 60 days front the date of sanction by the lead,

(b) Where more than two lenders we involved, their agreement or disagreement for sanction of facilities must he conveyed by the lead within 60 days from the date of receipt of complete loan application. The other participating institutions must convey their decision within 60days from there receipt of appraisal note from the lead.

(c) Prima facie rejection of the proposal should be conveyed within 30 days.

(d) Sanction in the case of fresh loan proposals involving more than 2 lenders should be conveyed within two months from the date of appraisal note by the lenders.

(e) Where restructuring is involved, the lead should complete the process within 3 months from die receipt of complete proposal and the other participants should convey their decision within 2 months from the receipt of appraisal note.

 (2) Asset Classification: Banks and Financial Institutions may classify the, recounts based on their performance as per their books. In cases of restructured and Consortium accounts the classification should he same for ill lenders.

(3) Disciplinary Borrowers: The views of the majority of lenders, in a Consortium (say 70% of total funded exposure), on a Consortium specific basis, should he adopted in regard to changing the management of a defaulting borrower unit.

(4) Levy of Charges: Consortium members should decide the rate of interest to be charged oil borrowal accounts. Punitive charges/penal interest, if any, should not exceed two percentage points above the contracted rate.

(5) Group Approach: Normal funding requirements of the healthy units belonging to a group should not be hampered by adopting group approach.

(6) Sharing of Securities and Cash Flow: Exact modalities with regard to sharing of securities and cash flow has it) he worked out between the Consortium members.

Working Capital Finance by Non Consortium Financial Institution 2

In the case of borrowers, whose working capital is financed under it multiple banking arrangement, file financial institution should obtain an auditor’s certificate indicating the extent of funds already borrowed, before considering the request of the borrower for further working capital Finance.

 Prudential Norms for Exposure Limits w.e.f. April, 2002

 To ensure that the banks have proper spread in their advance portfolio and do not commit large resources to a single borrower/group for better risk management, Reserve Bank of India has stipulated prudential norms for exposure to a single borrower or group as under:

 (a) The overall exposure to a single borrower shall not exceed 15% (20% in case of credit to infrastructure projects) of the capital funds of the banking institution.

(b) The overall exposure to a group shall not exceed 40% of the capital funds of the banking Institution (50% in case of credit to infrastructure projects)

 Exposure shall include credit exposure (funded and non funded credit limits) and investment exposure (underwriting and similar commitments) as well as certain types of investments in companies. The sanctioned limits or outstandings, whichever are higher, shall be reckoned for arriving at exposure limit. With effect from 1.4.2003, non fund based exposures should also be reckoned at 100% of the limit or outstandings. Loans and advances granted against the security of bank’s own term deposits may be excluded from the purview of the exposure ceiling. For details refer to Chapter 3 of the Book.

Banks must ensure that its overall commitment to a single borrower/group is invariably within the exposure limit as per prudential norms. No exception in this regard is permitted by Reserve Bank of India except the following exemptions:

 (a) The exposure limits would not he applicable to existing/additional credit facilities to weak/sick industrial units under rehabilitation packages; and

(b) Borrowers to whom limits we allocated directly by the Reserve Bank, for food credit, will be exempt from the ceiling.

 ________________________________________

[R1] Reserve Bank of India has since permitted the banks to decide modalities of the functioning of consortium. Banks may therefore, decide on all issues including rates of interest, allocation of limits, sharing pattern, sanction of adhoc limits etc. in the consortium meting The guidelines issued by Reserved Bank may thus be taken as indicative only.

[R2]The exposure ceiling limits applicable from 1.4.2002 is 15 percent of capital fund in case of single borrower and 40 percent in the case of a borrower group. In case of credit to infrastructure projects this ceiling shall he enhanced to 20% in case of a single borrower and 50% in case of a group.

[R3]Effective from April 1, 2003. non fund based exposure shall he taken at 100%.

[R4]The exposure ceiling limits applicable from 1.4.2002 is 15 percent of capital fund in case of single borrower and 40 percent in the case of a borrower group. In case of credit to infrastructure projects this ceiling shall he enhanced to 20% in case of a single borrower and 50% in case of a group.

[R5]The exposure ceiling limits applicable from 1.4.2002 is 15 percent of capital fund in case of single borrower and 40 percent in the case of a borrower group. In case of credit to infrastructure projects this ceiling shall he enhanced to 20% in case of a single borrower and 50% in case of a group.

[R6]Circular No. DBOD. BP. BC. 82/21.04.048/00 01, dt. 26.2.2001.

[R7] As per RBI FIC No. 85/01 02.00/95 96 dt. 26.6. 1996

[R8] Vide DBOD No. Dir, BC 20/13.03.00/2002-03 dt. 20.8.2002.

Source : http://rushabhinfosoft.com/Webpages/BHTML/CH-20.htm.

 Annexure II

Date: Aug 05, 2009

Lending under Consortium Arrangements/Multiple Banking Arrangements

RBI/2009-2010/116

DBOD.No.FID.FIC.5/01.02.00/2009-10

August 5, 2009

The CEOs of the Select All-India Term-lending and Refinancing Institutions

(Exim Bank, NABARD, NHB and SIDBI)

Dear Sir,

Lending under Consortium Arrangements/Multiple Banking Arrangements

Please find enclosed Circular DBOD.No.BP.BC.46/08.12.001/2008-09 dated September 19, 2008 on the above subject along with subsequent circulars DBOD.No.BP.BC.94/ 08.12.001/2008-09 dated December 08, 2008 and DBOD No. BP. BC. 110 / 08. 12. 001 /2008-09 dated February 10, 2009 respectively and DBS.CO.FrMC.BC.No.8/23.04.001/2008-09 dated June 24, 2009. It is advised that the above guidelines on Consortium arrangements/multiple banking arrangements issued to banks, shall mutatis mutandis apply to the select all-India Financial Institutions (AIFIs) for sharing of information among the AIFIs and with banks.

Yours faithfully,

(Vinay Baijal)

Chief General Manager

Encls : As above

 ANNEXURE III

WORKING CAPITAL FINANCING BY BANKS AND IT’S REGULATION

Reema Srivastava *

ABSTRACTS OF THE ARTICLE (as available on web)

Working capital is the fund invested in current assets and is needed for meeting

day to day expenses. Working capital is the fund invested in current assets. It occupies an important place in a firm’s Balance Sheet. Working capital financing is a specialized area and is designed to meet the working requirements of a business. The main sources of working capital financing are trade credit, bank credit, factoring and commercial paper.

Out of all these, this paper is related only to bank credit which represents the most

important source for financing of current assets. The firms generally enjoy easy access to the bank finance for meeting their working capital needs. But from time to time, Reserve Bank of India has been issuing guidelines and directives to the banks to strengthen the procedures and norms for working capital financing. This paper attempts to analyse the role of bank credit in financing working capital needs of firms. It also tries to give a bird’s eye view about the guidelines issued by RBI to banks in relation to working capital financing.

INTRODUCTION

Working capital is that portion of a firm’s capital which is employed in short term

operations. Current assets represent Gross Working Capital. The excess of current assets over current liabilities is Net Working Capital. Current assets consists of all stocks including finished goods, work in progress, raw material, cash, marketable securities, accounts receivables, inventories, short term investments, etc. These assets can be converted into cash within an accounting year. Current liabilities represent the total amount of short term debt which must be settled within one year. They represent creditors, bills payable, bank overdraft, outstanding expenses, short term loans, etc.The working capital is the finance required to meet the costs involved during the operating cycle or business cycle. Operating cycle is the period involved from the time raw materials are purchased to the time they are converted into finished goods and the same are finally sold and realized. The need for current assets arises because of operating cycle. The opera ting cycle is a continuous process and therefore the need for current assets is felt constantly. Each and every current asset is nothing but blockage of funds.

Therefore, these current assets need to be financed which is done through Working Capital Financing.

There is always a minimum level of current assets or working capital which is

continuously required by the firm to carry on its business operations. This minimum level of current assets is known as permanent or fixed working capital. It is permanent in the same way as the firm’s fixed assets are. This portion of working capital has to be financed by permanent sources of funds such as; share capital, reserves, debentures and other forms of long term borrowings. The extra working capital needed to support the changing production and sales is called fluctuating or variable or temporary working capital. This has to be financed on short term basis. The main sources for financing this portion are trade credit, bank credit, factoring and commercial paper. It is in this context that bank financing assumes significance in the working capital financing of industrial concerns.

 WORKING CAPITAL FINANCING BY BANKS

A commercial bank is a business organization which deals in money i.e. lending

and borrowing of money. They perform all types of functions like accepting deposits,

advancing loans, credit creation and agency functions. Besides these usual functions, one of the most important functions of banks is to finance working capital requirement of firms. Working capital advances forms major part of advance portfolio of banks. In determining working capital requirements of a firm, the bank takes into account its sales and production plans and desirable level of current assets. The amount approved by the bank for the firm’s working capital requirement is called credit limit. Thus, it is maximum fund which a firm can obtain from the bank. In the case of firms with seasonal businesses, the bank may approve separate limits for ‘peak season’ and ‘non-peak season’. These advances were usually given against the security of the current assets of the borrowing firm.

Usually, the bank credit is available in the following forms:

Cash Credit – Under this facility, the bank specifies a predetermined limit and the

borrower is allowed to withdraw funds from the bank up to that sanctioned credit

limit against a bond or other security. However, the borrower can not borrow the

entire sanctioned credit in lump sum; he can draw it periodically to the extent of his

requirements. Similarly, repayment can be made whenever desired during the period.

There is no commitment charge involved and interest is payable on the amount

actually utilized by the borrower and not on the sanctioned limit.

Overdraft – Under this arrangement, the borrower is allowed to withdraw funds in

excess of the actual credit balance in his current account up to a certain specified limit during a stipulated period against a security. Within the stipulated limits any number of withdrawals is permitted by the bank. Overdraft facility is generally available against the securities of life insurance policies, fixed deposits receipts, Government securities, shares and debentures, etc. of the corporate sector. Interest is charged on the amount actually withdrawn by the borrower, subject to some minimum (commitment) charges.

Loans – Under this system, the total amount of borrowing is credited to the current

account of the borrower or released to him in cash. The borrower has to pay interest

on the total amount of loan, irrespective of how much he draws. Loans are payable

either on demand or in periodical instalments. They can also be renewed from time to

time. As a form of financing, loans imply a financial discipline on the part of the

borrowers.

Bills Financing – This facility enables a borrower to obtain credit from a bank

against its bills. The bank purchases or discounts the bills of exchange and

promissory notes of the borrower and credits the amount in his account after

deducting discount. Under this facility, the amount provided is covered by cash credit

and overdraft limit. Before purchasing or discounting the bills, the bank satisfies itself

about the creditworthiness of the drawer and genuineness of the bill.

Letter of Credit – While the other forms of credit are direct forms of financing in

which the banks provide funds as well as bears the risk, letter of credit is an indirect

form of working capital financing in which banks assumes only the risk and the

supplier himself provide the funds. A letter of credit is the guarantee provided by the

buyer’s banker to the seller that in the case of default or failure of the buyer, the bank

shall make the payment to the seller. The bank opens letter of credit in favour of a

customer to facilitate his purchase of goods. This arrangement passes the risk of the

supplier to the bank. The customer pays bank charges for this facility to the bank.

Working Capital Loan – Sometimes a borrower may require additional credit in

excess of sanctioned credit limit to meet unforeseen contingencies. Banks provide

such credit through a Working Capital Demand Loan (WCDL) account or a separate

‘non–operable’ cash credit account. This arrangement is presently applicable to

borrowers having working capital requirement of Rs.10 crores or above. The

minimum period of WCDL keeps on changing. WCDL is granted for a fixed term on

maturity of which it has to be liquidated, renewed or rolled over. On such additional

credit, the borrower has to pay a higher rate of interest more than the normal rate of

interest.

SECURITY REQUIRED IN BANK FINANCE

Banks generally do not provide working capital Finance without adequate

security. The nature and extent of security offered play an important role in influencing the decision of the bank to advance working capital Finance. The bank provides credit on the basis of following modes of security:

Hypothecation – Under this mode of security, the banks provide working capital Finance to the borrower against the security of movable property, generally

inventories. It is a charge against property for the amount of debt where neither

ownership nor possession is passed to the creditor. In the case of default the bank has the legal right to sell the property to realise the amount of debt.

Pledge – A pledge is bailment of goods as security for the repayment of a debt or

fulfillment of a promise. Under this mode, the possession of goods offered as security

passes into the hands of the bank. The bank can retain the possession of goods

pledged with it till the debt (principal amount) together with interest and other

expenses are repaid. . In case of non-payment of loan the bank may either; Sue the

borrower for the amount due;Sue for the sale of goods pledged; or After giving due

notice, sell the goods.

Lien – Lien means right of the lender to retain property belonging to the borrower

until he repays the debt. It can be of two types: (i) Particular lien and (ii) General lien.

Particular lien is a right to retain property until the claim associated with the property

is fully paid. On the other hand, General lien is applicable till all dues of the lender

are paid. Banks usually enjoy general lien.

Mortgage – Mortgage is the transfer of a legal or equitable interest in a specific

immovable property for the payment of a debt. In case of mortgage, the possession of the property may remain with the borrower, while the lender enjoys the full legal title. The mortgage interest in the property is terminated as soon as the debt is paid.

Mortgages are taken as an additional security for working capital credit by banks.

Charge – Where immovable property of one person is made security for the payment of money to another and the transaction does not amount to mortgage, the latter person is said to have a charge on the property and all the provisions of simple

mortgage will apply to such a charge. A charge may be created by the act of parties or by the operation of law. It is only security for payment.

REGULATION OF BANK CREDIT

Till the sixties, bank credit for working capital was available easily and in

convenient form to industrial borrowers. Further, the cash credit arrangement, the

principal device through which such Finance has been provided, is quite advantageous from the point of view of borrowers. Banks have not been concerning themselves about the soundness of the borrower or about the actual end use of the loan. Bank financing was mainly security oriented. This security oriented system tended to favour borrowers with strong financial resources irrespective of their economic function. This resulted in the concentration of economic power. Another problem was that the increase in the bank credit was not commensurate with the expansion in the level of inventory and production. This resulted in a number of distortions in financing of working capital by banks. Major Banks was nationalized in 1969 and with that, approach to lending also changed. Consequently, bank credit has been subjected to various rules, regulations and controls. The basic objective of regulation and control of bank credit is to ensure its equitable distribution to various sectors of the Indian economy. The RBI has been trying, particularly from the mid-sixties onwards, to bring a measure of discipline among industrial borrowers and to redirect credit to priority sectors of the economy. The RBI has been issuing guidelines and directives to the banking sectors towards this end. Important guidelines and directives have derived from the recommendations of certain specially constituted groups assigned with the task of examining various aspects of bank finance to industry.

RECENT RBI GUIDELINES REGARDING WORKING CAPITAL FINANCE

In the past, working capital financing was constrained with detailed regulations on

how much credit the banks could give to their customers. The recent changes made by RBI in the guidelines for bank credit for working capital Finance are discussed below:

1. The notion of Maximum Permissible Bank Finance (MPBF) has been abolished by RBI and a new system was proposed by the Indian Banking Association (IBA). This

has given banks greater freedom and responsibility for assessing credit needs and

credit worthiness. The salient features of new system are:

– For borrowers with requirements of upto Rs. 25 lakhs, credit limits will be

computed after detailed discussions with borrower, without going into detailed

evaluation.

– For borrowers with requirements above Rs. 25 lakhs, but upto Rs. 5 crores, credit

limit can be offered upto 20% of the projected gross sales of the borrower.

– For large borrowers not selling in the above categories, the cash budget system

may be used to identify the working capital needs.

However, RBI permits banks to follow Tandon/Chore Committee Guidelines and

retain MPBF concept with necessary modifications.

2. Earlier RBI had prescribed Consortium arrangements for financing working capital

beyond Rs. 50 crores. Now it is not essential to have Consortium arrangements.

However, banks may themselves decide to form Consortium so that the risks are

spread. The disintegration of Consortium system, the entry of term lending institutions into working capital finance and the emergence of money market borrowing options gives the best possible deal.

3. Banks were advised not to apply the second method of lending for assessment of

MPBF to those exporter borrowers, who had credit export of not less than 25% of

their total turnover during the previous accounting year, provided that their fund

based working capital needs from the banking system were less than Rs. 1 crore. RBI has also suggested that the units engaged in export activities need not bring in any contribution from their long term sources for financing that portion of current assets as is represented by export receivables.

4. RBI had also issued lending norms for working capital, under which the banks would decide the levels of holding of inventory and receivables, which should be supported by bank finance, after taking into account the operating cycle of an industry as well as other relevant factors. Other aspects of lending discipline, viz; maintenance of minimum current ratio, submission and use of data furnished under quarterly information system etc. would continue though with certain modifications, which would make it easier for smaller borrowers to comply with these guidelines.

CONCLUDING REMARKS

From the above discussion we can say that bank credit occupies an important

place in financing working capital requirements of industries. Working capital financing is a specialized line of business and largely dominated by commercial banks. Generally, the bank finance for meeting working capital needs is easily available to firms. But it has been always difficult to determine the norms for an adequate quantum of bank credit required by an industry for working capital purpose. Various committees have been set up for examining the working capital financing by banks and to recommend norms for and to regulate bank credit. Besides this from time to time, Reserve Bank of India has been issuing guidelines and directives to the banks to strengthen the procedures and norms for working capital financing.

REFERENCES:

1. Bhalla, V. K., (2003), Working Capital Management, New Delhi, Anmol Publications Private Limited, 5th Edition.

2. Chandra, Prasanna, (2001), Financial Management: Theory and Practices, New

Delhi, Tata McGraw Hill Publishing Company Limited, 5th Edition,.

3. Khan, M. Y. and Jain, P. K., (2004), Financial Management: Text and Problems,

New Delhi, Tata McGraw Hill Publishing Company Limited, 4th Edition.

4. Maheshwari, S. N., (2004), Financial Management: Principles and Practices, New

Delhi, Sultan Chand & Sons Educational Publishers, 9th Edition.

5. Pandey, I. M., (2001), Financial Management, New Delhi, Vikas Publishing House

Private Limited, 8th Edition.

6. Srinivasa, S., (1999), Cash and Working Capital Management, New Delhi, Vikas

Publishing House Private Limited.

Scholarly Article written by Research Scholar Reema Shrivastava Faculty of Commerce BHU Waranasi

Available at: http://www.onlineijra.com/catogery/english%20research%20paper/WORKING_CAPITAL_FINANCING_BY_BANKS.pdf.

Economy and Biodiversity and Law

Paramita Bhattacharyya

Man has always been fascinated by the diversity of life .Now a days “globalization” has become another sight of fascination of man. All over the world of globalization has been accepted as new global economic policy for the world economic progress in order to bring the spectacular success in most of the countries (developing and developed countries) over the world. Globalization not only heightens the environmental risk for the present and future human generation but it has also deteriorating effect towards the “biodiversity” . So because of rapid exploitation of various species population, Trading with endangered species and expansion of industries, “Biodiversity ” becomes new international buzz word but it has not attracted as much attention as global Warming” or “ozone depletion”, and “climate change”

The biotic environment is made with biotic components ie all living beings including their reactions , interactions and inter-related actions . Bio diversity entails all forms of biological entities inhabiting in earth including prokaryotes and eukaryotes , plants animals, wild plants and wild animals , microorganisms and even genetic materials like seeds and germplasm Biodiversity exists at 3 different levels-

(i) Species diversity – Variety of living organism on earth

(ii) Genetic diversity-variation in genes with a particular species

(iii) Eco-system diversity- Varity of habitats

India is a tropical country with a tremendous heterogeneity of environment, ranging from tropical rain forest of Andaman and Arunachal Pradesh to hot desserts of Rajasthan and cold desert of Ladakh . . The total plant species in India are 45584, and total number of species of animals are 49778 . So India has a rich biological wealth

After 1991 India has accepted the global economic trend, It has liberalized its economic policy. India is a developing 3rd world country having very poor resource management system. So because of rapid industrialization, globalization not only the environmental hazards has been occurring in India but also outside India. Without any assessment giant industries are growing on and they are polluting the environment totally and destroying the bio diversity of India. We can give few examples of destruction of bio diversity-the excavation of mineral reserves in bauxite

And coalmine areas in Madhya Pradesh bring in its wake large scale destruction of forest and destruction of ecological balance, there is great decline of boi diversity and rare flora and fauna in Punchmari hill area, air quality and thermal environmental changes in various industrial zone, beside this we can give example of “Narmada Bachao Andolan”. Though urbanization gives shelter to the people and develops world economy and provides an important roles in countries economic development, their disturbing climate, creating substantial source of pollution and destroying the bio diversity.

Ecosystem – Communities of plants and animals, together with the physical characteristics of their environment (e.g. geology, soil and climate) interlink together as an ecological system, or ‘ecosystem’. Ecosystem diversity is more difficult to measure because there are rarely clear boundaries between different ecosystems and they grade into one another. However, if consistent criteria are chosen to define the limits of an ecosystem, then their number and distribution can also be measured.

Estimates of global species diversity vary enormously because it is so difficult to guess how many species there may be in less well explored habitats such as untouched rain forest. Rain forest areas which have been sampled have shown such amazing biodiversity (nineteen trees sampled in Panama were found to contain 1,200 different beetle species alone!) that the mind boggles over how many species there might remain to be discovered in unexplored rain forest areas and microhabitats.

Global species estimates range from 2 million to 100 million species. Ten million is probably nearer the mark. Only 1.4 million species have been named. Of these, approximately 250,000 are plants and 750,000 are insects. New species are continually being discovered every year. The number of species present in little-known ecosystems such as the soil beneath our feet and the deep sea can only be guessed at. It has been estimated that the deep sea floor may contain as many as a million un described new species. To put it simply, we really have absolutely no idea how many species there are!

Losses of Bio diversity

The loss of species in tropical ecosystems such as the rain forests, is extremely well-publicised and of great concern. However, equally worrying is the loss of habitat and species closer to home in Britain. This is arguably on a comparable scale, given the much smaller area involved.

Predictions and estimates of future species losses abound. One such estimate calculates that a quarter of all species on earth are likely to be extinct, or on the way to extinction within 30 years. Another predicts that within 100 years, three quarters of all species will either be extinct, or in populations so small that they can be described as “the living dead”.

It must be emphasised that these are only predictions. Most predictions are based on computer models and as such, need to be taken with a very generous pinch of salt. For a start, we really have no idea how many species there are on which to base our initial premise. There are also so many variables involved that it is almost impossible to predict what will happen with any degree of accuracy. Some species actually benefit from human activities, while many others are adversely affected. Nevertheless, it is indisputable that if the human population continues to soar, then the ever increasing competition with wildlife for space and resources will ensure that habitats and their constituent species will lose out.

It is difficult to appreciate the scale of human population increases over the last two centuries. Despite the horrendous combined mortality rates of two World Wars, Hitler, Stalin, major flu pandemics and Aids, there has been no dampening effect on rising population levels. In 1950, the world population was 2.4 billion. Just over 50 years later, the world population has almost tripled, reaching 6.5 billion.

In the UK alone, the population increases by the equivalent of a new city every year. Corresponding demands for a higher standard of living for all, further exacerbates the problem. It has been estimated that if everyone in the world lived at the UK standard of living (and why should people elsewhere be denied this right) then we would either need another three worlds to supply the necessary resources or alternatively, would need to reduce the world population to 2 billion.

The only possible conclusion is that unless human populations are substantially reduced, it is inevitable that biodiversity will suffer further major losses.

Law Act for the Bio Diversity.

1. (1) This Act may be called the Biological Diversity Act, 2002.

(2) It extends to the whole of India.

(3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint: Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

2. In this Act, unless the context otherwise requires:-

(a) “benefit claimers” means the conservers of biological resources, their by products, creators and holders of knowledge and information relating to the use of such biological resources, innovations and practices associated with such use and application;

(b) “biological diversity” means the variability among living organisms from all sources and the ecological complexes of which they are part and includes diversity within species or between species and of eco-systems;

(c) “biological resources” means plants, animals and micro-organisms or parts thereof, their genetic material and by-products (excluding value added products) with actual or potential use or value, but does not include human genetic material;

(d) “bio-survey and bio-utilisation” means survey or collection of species, sub-species, genes, components and extracts of biological resource for any purpose and includes characterization, inventorisation and bioassay;

(e) “Chairperson” means the Chairperson of the national Biodiversity Authority or, as the case may be, of the State Biodiversity Board;

(f) “commercial utilization” means end uses of biological resources for commercial utilization such as drugs, industrial enzymes, food flavours, fragrance, cosmetics, emulsifiers, oleoresins, colours, extracts and genes used for improving crops and livestock through genetic intervention, but does not include conventional breeding or traditional practices in use in any agriculture, horticulture, poultry, dairy farming, animal husbandry or bee keeping;

(g) “fair and equitable sharing” means sharing of benefits as determined by the National Biodiversity Authority under section 21;

(h) “local bodies” means Panchayats and Municipalities, by whatever name called, within the meaning of clause (1) article 243B and clause (1) of article 243Q of the Constitution and in the absence of any Panchayats or Municipalities, institutions of self-government constituted under any other provision of the Constitution or any Central Act or State Act;

(i) “member” means a member of the National Biodiversity Authority or a State Biodiversity Board and includes the Chairperson;

(j) “National Biodiversity Authority” means the National Biodiversity Authority established under section 8;

(k) “prescribed” means prescribed by rules made under this Act;

(l) “regulations” means regulations made under this Act;

Conclusion

This Article accepts as a given that biological diversity is a desirable goal. This Article also accepts, and bypasses, the need for multiple approaches to diversity, including gap analysis, dispersion corridors, zoning restrictions, tax incentives, transferable development rights, acquisition programs

India’s biotechnology regulatory system

In the last 50 years, biotechnology has become a tool for enhancing economic growth and to revolutionize food security. However given that GMO (genetically modified organisms) are not naturally occurring organisms and have been tempered by human beings, there is a possibility that the GMO may effect the environment adversely either in the short term or in the long term. Indeed there have been many instances where adverse effects have been documented. It therefore becomes imperative to establish a regulatory authority to conduct appropriate tests both before introduction of the GMO to the environment as well as after its introduction by way of monitoring to ensure that there is no significant impact on the environment. Also given that GMO can become a tool of great destruction in the wrong hands such as in case of bio-terrorism, the regulatory authority also has a very sensitive role to play in the defence of a nation. To that extent, it is crucial for a nation’s regulatory system to have a series of transparent and well documented checks and balances by way of evaluating and monitoring the effect of the GMO on the environment (biotic and a biotic aspects of the eco system). This article seeks to examine if the Indian regulatory system have fulfilled these requirements.

ADVANTAGES OF GM FOODS:-

* Pest resistance

*Disease resistance

*Herbicide tolerance

*Cold tolerance

*Drought tolerance/salinity tolerance Nutrition

Environmental hazards:-

•Unintended harm to other organisms Laboratory study proved that pollen from B.t. corn caused high mortality rates in monarch butterfly caterpillars. Monarch caterpillars consume milkweed plants, not corn, but the fear is that if pollen from B.t. corn is blown by the wind onto milkweed plants in neighboring fields, the caterpillars could eat the pollen and perish. Unfortunately, B.t. toxins kill many species of insect larvae indiscriminately; it is not possible to design a B.t. toxin that would only kill crop-damaging pests and remain harmless to all other insects.

• Reduced effectiveness of pesticides Just as some populations of mosquitoes developed resistance to the now-banned pesticide DDT, many people are concerned that insects will become resistant to B.t. or other crops that have been genetically-modified to produce their own pesticides.

• Gene transfer to non-target species Another concern is that crop plants engineered for herbicide tolerance and weeds will cross-breed, resulting in the transfer of the herbicide resistance genes from the crops into the weeds. These ”superweeds” would then be herbicide tolerant as well. Other introduced genes may cross over into non-modified crops planted next to GM crops. The possibility of interbreeding is shown by the defense of farmers against lawsuits filed by Monsanto. The company has filed patent infringement lawsuits against farmers who may have harvested GM crops. Monsanto claims that the farmers obtained Monsanto-licensed GM seeds from an unknown source and did not pay royalties to Monsanto. The farmers claim that their unmodified crops were cross-pollinated from someone else’s GM crops planted a field or two away.

Human health risks:-

• Allergenicity Many children in the US and Europe have developed life-threatening allergies to peanuts and other foods. There is a possibility that introducing a gene into a plant may create a new allergen or cause an allergic reaction in susceptible individuals. A proposal to incorporate a gene from Brazil nuts into soybeans was abandoned because of the fear of causing unexpected allergic reactions.

• Unknown effects on human health There is a growing concern that introducing foreign genes into food plants may have an unexpected and negative impact on human health.

GM foods regulated and the government’s role in this process:-

Governments around the world are hard at work to establish a regulatory process to monitor the effects of and approve new varieties of GM plants. In Japan, the Ministry of Health and Welfare has announced that health testing of GM foods will be mandatory as of April 2001. Currently, testing of GM foods is voluntary. Japanese supermarkets are offering both GM foods and unmodified foods, and customers are beginning to show a strong preference for unmodified fruits and vegetables.

India’s government has not yet announced a policy on GM foods because no GM crops are grown in India and no products are commercially available in supermarkets yet.India is, however, very supportive of transgenic plant research. It is highly likely that India will decide that the benefits of GM foods outweigh the risks because Indian agriculture will need to adopt drastic new measures to counteract the country’s endemic poverty and feed its exploding population.

Some states in Brazil have banned GM crops entirely, and the Brazilian Institute for the Defense of Consumers, in collaboration with Greenpeace, has filed suit to prevent the importation of GM crops,. Brazilian farmers, however, have resorted to smuggling GM soybean seeds into the country because they fear economic harm if they are unable to compete in the global marketplace with other grain-exporting countries.

In Europe, anti-GM food protestors have been especially active. In response to the public outcry, Europe now requires mandatory food labeling of GM foods in stores, and the European Commission (EC) has established a 1% threshold for contamination of unmodified foods with GM food products.In the United States, the EPA Environmental Protection Agency evaluates GM plants for environmental safety, the USDA United States Department of Agriculture evaluates whether the plant is safe to grow, and the FDA U S Food and Drug Administration the regulatory process in United States, is confused because these three different government agencies that have jurisdiction over GM foods.

Regulation of GM foods in india:-

GM foods are regulated under the following statute:-

The Food Safety and Standards Authority under the Food Safety and Standards Act, 2006 (FSSA, 2006).

Product safety, efficacy, clinical trials and market authorization of recombinant drugs are regulated by the Drug Controller General of India (DCGI) under the authority of the Drugs and Cosmetics Rules 1945 (Rules

,• Rules for the Manufacture, Use, Import, Export and Storage of Hazardous Microorganisms/Genetically Engineered Organisms or Cells, 1989 issued underEnvironment (Protection) Act, 1986

• Drugs and Cosmetics Rules (8th Amendment), 1988• Plant Quarantine (Regulation for Import into India) Order 2003

• Seeds Bill, 2004

Department of Biotechnology (DBT) under the National Biotechnology Strategy has drafted The Biotechnology Regulatory Authority of India bill 2009 which provide the provision for the establishment of National Biotechnology Regulatory Authority. NBRA.

The National Biotechnology Regulatory Authority. NBRA shall perform the following duties:-

• To provide objective, scientific information on potential environmental risks and benefits oftransgenic fish for scrutiny by the scientific community and the public;

• To help identify any potential risks that may be associated with introducing GM foods;

• To assess the strengths and weaknesses of current regulations and guidelines in India, compile and analyze international approaches to regulating GM foods, and provide recommendations toimprove the risk assessment framework for GM foods;

• To evaluate if additional scientific capacity may need to be developed within the NBRA to support future safety assessments of GM foods

.• Ensure that the processes and criteria for risk assessment and risk management are easily accessible so that product developers, stakeholders, and the public can be confident that the biotechnology regulatory system is both credible and predictable.

• Be responsible for notifying the public of all applications for field and clinical trials and the commercial release of GMOs and of all regulatory decisions that are made.

• Develop public outreach programs to inform the public about the mandate and programs of theNBRA.

• Coordinate stakeholder consultations, opportunities for public participation in the regulatory system, and will be the primary point of contact for public, media or other enquiries to the NBRA.

Conclusion:-

Genetically-modified foods have the potential to solve many of the world’s hunger and malnutrition problems, and to help protect and preserve the environment by increasing yield and reducing reliance upon chemical pesticides and herbicides. Yet there are many challenges ahead for governments, especially in the areas of safety testing, regulation, international policy and food labeling. Many people feel that genetic engineering is the inevitable wave of the future and that we cannot afford to ignore a technology that has such enormous potential benefits. However, we must proceed with caution to avoid causing unintended harm to human health and the environment as a result of our enthusiasm for this powerful technology.

Human Rights Education in India

“All human beings are born free and equal in dignity and rights”. So stated Article 1 of the Universal Declaration of Human Rights in 1948. This is what the Indians have been preaching since times immemorial as it has become the immemorial customs of our nation .Human Rights are a fundamental value. There is a long Indian tradition of standing up for the weak against abuse by the strong. Upholding human rights values in every aspect is firmly in our tradition. The ”Great Mauryan emperor Ashoka the great renounced the path of violence after the massacre in the war of Kalinga ” The ”Great Moghul,” Akbar the Great granted religious minorities legal status in his realm, One of the most influential was Mahatma Gandhi’s movement to free his native India from British rule. It is the core of our Constitution and the heart of our national interest today. But the values that we stand for – freedom, human rights, the rule of law – are all universal values. Given the choice, people all over the world want them. But it is regretting that India who was once looked up by whole world as the pioneer of these values is now groveling in lowly dust of atrocities and human rights abuse. Human rights abuse is sadly a reality in Indian society, it is not just an affront to the values of tolerance, freedom and justice that underpin our society. It is also a tragic waste of human potential.

The Need for Human rights Education

The importance of human rights education hardly requires any over emphasis. It has a crucial role in preventing human rights violations from occurring.

The United Nations proclaimed that human rights education is “training, dissemination and information efforts aimed at the building of a universal culture of human rights through imparting knowledge and skills and the moulding of attitudes”. These efforts are designed to strengthen respect for human rights and fundamental freedoms, facilitate the full development of human personality, sense of dignity, promote understanding, respect, gender equality and friendship to enable all persons to participate effectively in a free society, and further activities for maintenance of peace.

Human rights education, training and public information are, therefore, necessary and essential for the promotion and achievement of stable and harmonious relations among the communities and for fostering mutual understanding, tolerance and peace. Through the learning of human rights as a way of life, fundamental change could be brought about to eradicate poverty, ignorance, prejudices, and discrimination based on sex, caste, religion, and disability and other status amongst the people.

Human rights Education in India

It may be said that in India that the content of human rights education is not different to what was taught by way of religion, be it Hinduism, Buddhism, Christianity or Islam. There is lot of truth in that statement. The quintessence of human rights is also the basic essence of all religions, Love, compassion, loving kindness are the same. However, while teaching religions we confined the obligations arising from these doctrines only to their followers. Human rights could bring in a universal aspect to moral and ethical education. And we in our divided societies are in great need of this On the other hand in the context of rapid secularization we could still retain a basic common ground for respect for each other. We could still be our brothers’ keepers and withstand value systems which only promote selfish ways of life.

Indian textbooks barely mention human rights. Indirect references to human rights are included in the Directive Principles of the Constitution of India and in civics and history textbooks. Most universities in India do not offer human rights education, although some have three-month to one-year postgraduate courses on human rights. Section 12(h) of the Protection of Human Rights Act, 1993, requires the Commission ”to spread human rights literacy among various sections of society and promote awareness .The National Human Rights Commission of India and many NGOs have launched a countrywide public information campaign for human rights. It aims to make everyone more conscious of human rights and fundamental freedoms, and better equipped to stand up for them. At the same time, the campaign spreads knowledge of the means which exist at the international and national levels to promote and protect human rights and fundamental freedoms.

CONCLUSION

Any education to be effective needs to be contextualized too. Thus it is not enough to teach abstract principles of human rights taken from United Nations’ documents or our Constitutions. Our historical context as nation as well as local contexts need to be reflected in human rights education. The contextualizing of human rights is essential for nurturing of peace. Creative reflections on local situations from a human rights perspective would help the schools greatly, to become the societies’ most important peace makers. Some say that we Indians should have less rights than people living in Western countries. They say, the human rights concepts are Western. Only people who have all the rights could say this to people who have much less rights. We keep masses of humanity without rights and condemn the growing consciousness of rights as a Western one. This would mean that to be Indian one has to put up with one’s bondage, one must remain submissive, one must eat less and work more. Is that what our women, and our children need to believe. Is that what our workers and peasants need to believe while multinational companies with the help of our elite take away the fruit of their labours, and the fruit of our lands. The relativist theory, though couched in nationalist terms is not nationalist at all. It work for the benefit of big companies Western or otherwise.

Recovery of dues by banks

Recovery of dues by Banks
Recovery of dues by Banks

1.         Introduction:

Most of the companies and us approach Banks and Financial Institutions for loans. The reason for the loan may differ from person to person and company to company. All Banks should function in accordance with the guidelines/norms issued by the Banker’s Bank ‘The Reserve Bank of India’. Subject to the lending norms of Reserve Bank of India, the Banks and Financial Institutions sanction loans for different purposes. Though, the Banks and Financial Institutions can lend money even without security, normally, the Banks and Financial Institutions insist for security for the repayment of loan. The fixed assets, receivables etc. can be securities acceptable to the Banks and Financial Institutions for sanctioning the loans. The loan entitlements, the procedure for sanctioning the loan, the security issues etc., are exclusively governed by the guidelines/norms issued by the Reserve Bank of India. Again, loan, being an agreement or understanding between the Bank and the borrower, the general laws like Law of Contract, Transfer of Property Act, Specific Relief Act, Specific Performance etc., are applicable to all banking transactions depending upon the nature of transaction. The prime objective of Bank is to receive deposits and use those deposits efficiently so as to make money. The Banks will also render certain specific services on behalf of its customers. The Reserve Bank of India will issue guidelines and norms considering the policy of the Government too. Exercising control over flow of money from Banks and Financial Institutions, the Reserve Bank of India promotes the balanced growth. The Reserve Bank of India can contain inflation through certain measures and it is a financial measure to contain inflation as everybody knows.
When a borrower fails to repay the money to the Bank, what the Bank can do for recovering the loan is to file a civil suit earlier. We all know the issue of delay in rendering justice in traditional civil courts and with the inevitable delay, the Banks could not recover its dues effectively and it resulted in liquidity problems. Bank pays interest to the deposit holders; however, the Banks could not make money by using the deposits as the recovery gets delayed frequently. This led the government to appoint various committees for financial sector reforms. The concentration was on effective recovery by the Banks and Financial Institutions apart from other things.

It may be interesting and worthwhile to examine how the laws of the land have undergone changes to suit the current requirement of the banking and finance industry to protect the money lent by them and the consequent financial exposure undertaken by them.

Historically, in India the remedy available to lenders has been to file an ordinary money suit for recovery against the defaulting borrower for the outstanding amounts or to file a summary suit as provided for under Order 37 of Code of Civil Procedure 1908. Both these options have been time consuming. Another option available to the lender was to apply for foreclosure of mortgage, where borrower or guarantor had provided security by way of mortgage, in respect of outstanding towards the lender. Foreclosure and money suits have proved to be a long drawn battle in the court, consuming several years in litigation, owing to the delay on account of various reasons. The Indian courts, lower courts as well as high courts, were saddled with cases filed by the domestic banks, foreign banks and financial institutions. The delay in the disposal of such cases was deplorable.

The economic meltdown, being faced by the western world and the consequent retardation, has raised alarms for everyone connected with the financial world and India is no exception. India has a plethora of legislations, which govern and regulate the laws relating to recovery of money by the lenders. It may be important to note that although at a nascent stage, various judicial reforms have been carried out from time to time, which have controlled the burgeoning non-performing assets (NPAs) with the lenders. All these reasons lead to the banks and financial institutions to opt method, which makes the harassment of the customer, through their recovery agents. The Supreme Court, while emphasising that banks and other financial institutions cannot resort to muscle power for recovery of their loans, strongly expressed its intent of “putting an end” to this practice.

“…Banks have right to recover loans, but only through legal means,” the Bench comprising Justices A R Lakshmanan and Altamas Kabir made it clear, as it asked for the guidelines issued by Reserve Bank of India and Indian Bank Association on the issue of recovery of loans by defaulters[1].

The Bench was hearing an appeal filed by India’s largest private bank, ICICI, against an Allahabad High Court order, rejecting its plea to quash the criminal cases registered by the Uttar Pradesh Government against the managing director and other top officials for allegedly using criminal force against a loan defaulter. The case was registered at the instance of the High Court there on a complainant from an owner that the bank had sent musclemen to seize the vehicle for non-payment of loan instalments.[2]

In the case of ICICI Bank v. Shanti Devi Sharma & Others[3] a Bench of the Supreme Court comprising Dalveer Bhandari, J. and Tarun Chatterjee, J. warned ICICI (on May 15, 2008) against the use of musclemen to recover loans.[4]

The Supreme Court went on to remind financial institutions that they are bound by law. The recovery of loans or seizure of vehicles can only be done through legal means; we live in a civilized country and are governed by the rule of law.

In this case, the Supreme Court’s decision says, Mrs Sharma has alleged that her son, Rahul Dev Sharma, aged 34, committed suicide as a result of the manner in which ICICI Bank’s recovery agents had repossessed his motorcycle. In an FIR, she alleged that on October 16, 2005 at about 1.00 p.m., two recovery agents (referred to as ‘goons’) forcibly entered her son’s bedroom and started harassing and humiliating him for loan payments that were overdue on his two wheeler and on his personal loan. They repossessed the bike in the presence of his friends who ridiculed him for having lost it.

Therefore, it is strongly felt that judicial reforms are required to ensure that the rights of the Banks and Financial Institutions (FIs), popularly referred to as “lenders”, lending money to the corporates and individuals, are adequately protected.

 

2.         Judicial Reforms in Banking and Financial Sector:

Since the courts were overburdened with the money suits, inter alia, impacting the lender in a very serious way, it was deemed necessary to carry out changes in the law to support the lender in recovering the outstanding from delinquent borrowers.

The Committee on Financial Systems, headed by Shri M Narasimhan, had considered the setting up of the “special tribunals” with special powers for adjudication and speedy recovery of such matters as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realised without delay.

In 1981, a committee under the Chairmanship of Shri T Tiwari had examined the legal and other difficulties faced by banks and financial institutions and suggested remedial measures including changes in law. The Tiwari Committee had also suggested setting up of special tribunals for recovery of dues of the banks and financial institutions by following a summary procedure.

Consequently, the Recovery of Debts Due to Banks and Financial Institutions Act 1993 in short DRT Act was passed.  The DRT Act definitely eased the pressures on the courts at an all India level and the Debt Recovery Tribunals (DRT) is today deemed to be effective tribunals to redress the grievances of the lenders.

The rationale behind the Act is contained in the Tiwari Committee Report, which stated:

“The civil courts are burdened with diverse types of cases. Recovery of dues due to Banks and Financial Institutions is not given any priority by the civil courts. The Banks and Financial Institutions like any other litigants have to go through a process of pursuing the cases for recovery through civil courts for unduly long periods.”

 

3.         Constitutional validity of the RDDBFI Act, 1993:

After 9 years of evolution of the Act was challenged for its constitutional validity in Union of India & Another v. Delhi Bar Ass. & Others[5].

The Constitutional validity of the Act was challenged on grounds of unreasonableness & that it violates Article 14 of the Constitution and that the same is beyond the legislative competence of the Parliament.

The validity of the Act was firstly challenged before the Delhi High Court in Delhi Bar Ass. & Others v. UOI & Another[6]. The Delhi High Court held that the DRT could be constituted by the Parliament even though it was not within the purview of Articles 323A and 323B of the Constitution of India and that the expression ‘administration of justice ‘ as appearing in List IIA of the Seventh Schedule to the Constitution includes Tribunals as well as ‘administration of justice’; the impugned Act was unconstitutional as it erodes the independence of the judiciary and was irrational, discriminatory, unreasonable, arbitrary and was hit by Art 14 of the constitution. It also quashed the appointment of the Presiding Officer of the Tribunal. The aforesaid conclusions were on the basis that the Act in particular, section 17 did not have a provision for a counter claim as provided in the Code of Civil Procedure, 1908 and was irrational and arbitrary. The Act lowered the authority of the High Courts on the basis of the pecuniary jurisdiction and eroded the independence of the judiciary since the jurisdiction of the civil courts had been truncated and vested in the Tribunal.

The court referred to DK Abdul Khader v. Union of India[7] where it was held that a Tribunal could not be constituted for any matter not specified in Art 323A & 323B of the Constitution.

3.1.      Finding of the Supreme Court:

It was held by the SC that “While Articles 323A and 323B specifically enable the legislature to enact laws for the establishment of tribunals, in relation to the matters specified therein, the powers of the Parliament to enact a law constituting a tribunal like a banking tribunal is not taken away” It was further specified that the recovery of dues is an essential function of any banking institution. In exercise of its legislative powers relating to banking, parliament can provide the mechanism by which monies due to banks and financial institutions can be recovered.

The preamble to the Act states “… for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto’ this would squarely fall within the ambit of entry 45 of List I of the Constitution.

The Supreme Court disagreed with the view taken by the Delhi High Court that the provisions of the Act are in any way arbitrary or bad in law. In fact it held that the Act has been amended and whatever lacunae or infirmities existed have now been removed by the amending Act with the framing of more rules.

The view taken by the Delhi High Court was that the Act eroded the independence of the judiciary since the jurisdiction of the civil courts had been truncated and vested in the Tribunal. The SC held that the decision of the Delhi High Court proceeds on the assumption that it is an absolute right of anyone to demand that a civil court adjudicate his dispute. Where Arts 323A &323B contemplate establishment of Tribunals and this does not erode the independence of the judiciary, there is no reason to presume that the banking tribunals and the appellate tribunals so constituted would deny justice to the defendants or that the independence of the judiciary would stand eroded.

All these issues came before various courts after the introduction of the Act nine years ago. Now, almost all issues have come to rest and the Act is all set to take its vengeance on defaulters of loans and debts owed to banks and financial institutions.

 

4.         Problems in the DRT Act, 1993 leads to the passing of SARFAESI Act, 2002:

With the enactment of the DRT Act, the banking sector expected that most of the NPAs would be easy to recover, as against the conventional system of recovery of loan through civil courts, where considerable time, money and efforts were required to recover debt. However, in spite of DRT Act, on account of non-realisation of the NPAs, the Banks and Financial Institutions were facing problems relating to liquidity and asset liability mismatch, since their assets were blocked for considerable time in unproductive asset. There was no legal provision for facilitating securitisation of financial assets, and banks had no power to take possession of securities created in their favour in order to secure the facilities. Despite constituting special Tribunals like Debt Recovery Tribunals under RDDBFI Act, 1993, the Banks could not recover its dues to the extent expected. This led to further reforms in the process and curtailing the delay in adjudication.
Despite constituting special Tribunals like Debt Recovery Tribunals under RDDBFI Act, 1993, the Banks could not recover its dues to the extent expected. This led to further reforms in the process and curtailing the delay in adjudication.

In furtherance of financial reforms and extending the object of RDDBFI Act, 1993, the Government has enacted The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The SARFAESI Act, 2002 is to curtail the delay in the process of adjudication between the Banks and its borrowers. The question of recovery by the Banks and Financial Institutions will arise when the borrowers commit default in repaying the debt. When there is default, then, the Banks will categorize the account as Non-performing Asset in accordance with the norms prescribed by the Reserve Bank of India.

Therefore, to improve the health of the economy as well as the banking sector, stimulus was required to be given in the form of legal provisions, empowering banks with more powers to recover the assets blocked in Non-performing Assets.

 

5.         Background of the SARFAESI Act, 2002:

The pre-eminent problem faced by Banks and Financial Institutions is that of increasing bad debts euphemized as Non-performing Assets (NPAs).

To look in the prevailing problem and bring out suggestions three committees set up, namely, the Narasimham Committee I, Narasimham Committee II, and the Andhyarujina Committee.

Narsimham Committee I was constituted in 1991, it then mentions that according to the international practice, an asset is treated as non-performing when the interest is overdue for at least two quarters. Income of interest is considered as such, only when it is received and not on the accrual basis[8]. The Committee suggested that the same should be followed by the banks and financial institutions in India and advance is to be shown as Non-perfoming Asset where the interest remains due for more than 180 days.

Narasimham Committee II submitted its report in April, 1998 and recommend that banking industry should switch over to international practices with regard to recognized income by introducing a 90 days norm.

Andhyarujina Committee was constituted under the chairmanship of Sri T.R. Andhyarujina, former Solicitor General of India, in February 1999 to formulate specific proposals for giving effect to the suggestions made by the Narasimham Committee. The Committee submitted its report in May 2000, which cast the way for the passing of the present SARFAESI Act, 2002, the main recommendation of the Committee is as follows:

  1. Banks must vest with power of taking possession and sale of securities

without the intervention of the court as regards mortgaged properties;

b. The existing Recovery of Debts Due to Banks and Financial Institutions

Act, 1993 should be amended to make its provisions more effective; and

c. Amendment should also be made in the Contract Act, 1872 by making

provision of giving more time to Banks and Financial Institutions to  enforce their claims under Guarantee.

 

6.         Objects of the SARFAESI Act, 2002:

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in short “SARFAESI Act” was enacted with the objective of regulating securitization and reconstruction of financial assets and enforcement of security interest created in favour of secured creditors.

The Act provides for three alternative methods for recovery of NPAs:

(a) securitisation;

(b) asset reconstruction; and

(c) enforcement of security without intervention of court.

More recently, the current Minister for Law and Justice Mr. Veerappa Moily has made statements assuring that the pendency in the courts will be checked and that the average time spent on litigation pending in the courts will be brought down.  He has also indicated setting up of commercial courts to speed up the disposal of commercial disputes. It is also heartening to note that in the Budget 2010-2011 speech, the Finance Minister indicated towards carrying out further judicial reforms in the interest of the financial world.

 

7.         Applicability of the SARFAESI Act, 2002:

The provision of the Act, 2002 is applicable only if the amount of the NPA loan account exceed Rupees One Lakhs; and

NPA loan account is more than twenty percentage of the principal and interest.

NPAs should be backed by securities charged to the banks by way of hypothecation, mortgage or assignment and the secured assets are not hit by the provision of the section 60 of the Code of Civil Procedure, 1908.

The secured asset must not be a lien on any goods, money, or security given by or under the Indian Contract Act, 1872 or the Sales of Goods Act, 1930 or under any other law for the time being in force; a pledge of movable within the meaning of section 172 the Indian Contract Act, 1872; security in aircraft/shipping vessels under section 3 of the Merchant Shipping Act, 1958; conditional sale, hire purchase, or lease where no security interest has been created; right of unpaid seller under section 47 of the Sale of Goods Act, 1930; property exempted under section 60 of the Code of Civil Procedure, 1908; security interest of any financial asset not exceeding one lakh rupees; security interest in agricultural land; case in which amount is less than twenty percent of the principal amount and interest thereon[9].

 

8.         Securitisation: Meaning.

The concept of securitisation has been adopted more recently from the American financial system and has been described as processing of acquiring financial asset and packaging the same for investments by several investors. The term ‘securitisation’ has not been defined as such, but has been used in certain rules, regulations and notifications. In the recently enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the Securitisation Act”) the term securitisation has been defined as “a mechanism for acquisition of financial assets by any securitisation company or reconstruction company from any originator, whether by raising of funds by such securitisation company or reconstruction company from qualified institutional buyers by issue of security receipts representing undivided interests in such financial assets or otherwise”[10].

In Mardia Chemicals Ltd., v. Union of India[11] Supreme Court held that the practice of securitization of debts is in vogue all over the world. That is to say a measure of replenishing the funds by recourse to the secondary market. There are organizations who undertake exercise of securitization. Such organizations take over the financial assets and in turn issue securities.

Simply to say that, securitization is system to convert securities into cash, yet it is different from transfer of negotiable instruments or actionable claims as current in every day practice in the commercial field.

 

9.         Reconstruction of the Financial Assets:

The second concept contemplated under the SARFAESI Act, 2002 is reconstruction of financial assets, defined as “assets reconstruction”, which means acquisition by any securitization company or reconstruction company of any rights or interest of any bank or financial institution in any financial assistance for the purpose of realization of such financial assistance[12].

The concept of ‘financial assistance’ denotes any loan or advance granted or any debentures or bonds subscribed or any guarantee given or letters of credit established or any other credit facility extended by any bank or financial institution[13].

Thus, asset can be acquired only:

a. for the purpose of realization of the financial assistance; and

b. when the borrower is in default;

but not otherwise.

 

10.       Difference between RDDBFI Act, 1993 and SARFAESI Act, 2002:

The main difference between RDDBFI Act, 1993 and SARFAESI Act, 2002 is as follows:
10.1. The RDDBFI Act, 1993 enables the Bank to approach the Tribunals when the debt exceeds the prescribed limit i.e. Rupees Ten Lakhs.

10.2. Under RDDBFI Act, 1993, the Debt Recovery Tribunal will adjudicate the amount due and passes the final award.

10.3. The SAFAESI Act, 2002 provides a procedure wherein the bank or financial institution itself will adjudicate the debt. Only after adjudication by the bank or financial institution, the borrower is given right to prefer an appeal to the Tribunal under SARFAESI Act, 2002.

10.4. The Banks or Financial Institutions can invoke the provisions of SAFAESI Act, 2002 only in respect of secured assets and it should comes under the definition of NPA and the amount of due must exceed Rupees One Lakhs NPA loan account is more than twenty percentage of the principal and interest and not all loan.

In Garlon Polylab Industries Ltd. v. State Bank of India[14] it has been held by the Allahabad High Court that SARFAESI Act, 2002 being a special act overrides provisions of Recovery of Debts Due to Banks and Financial Acts, 1993 or any other Act of Parliament or State Legislature pertaining to the field it covers.

 

11.       Procedure to invoke remedy under SARFAESI Act, 2002:

11.1     Resolution of disputes through Arbitration or reconciliation:

Where any disputes relating to securitization or reconstruction or non-payment of any amount due including interest arises amongst any or the parties, namely, the bank, or financial institution, or securitization company or reconstruction company or qualified institutional buyer, such dispute shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996, as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and the provisions of that Act shall apply accordingly [15].

Under the SARFAESI Act, 2002, an exhaustive procedure has been laid down under the SARFAESI Act, 2002 along with rules defining the manner in which banks may exercise against the delinquent borrower to enforce the security interest in the asset.

11.2.    Classification of account as Non-performing Asset (NPA):

Invocation of Act for enforcement of security is triggered by classification of the account as “Non-performing Asset” by the Banks and Financial Institutions referred to as the secured creditors. In terms of the present Reserve Bank of India guidelines, in case any amount, which is due and payable by the borrower and has not, been paid for more than ninety days, the said account can be classified as NPA.

Further, the secured creditor can take over the management of the business of borrower, where substantial part of the business of the borrower is held as security for the debt.

In case any financial asset has been financed by more than one secured creditor, the notice can be issued only with the consent of secured assets representing not less than three-fourth in value of the amount outstanding.

11.3.    Power to take possession under section 13 of SARFAESI Act, 2002:

The procedure to take possession is as follows:

11.3.1. Upon classification of account of the secured creditor as non-performing asset, who defaults in the payment of secured debt or any installment thereof, the Bank or Financial Institution gives a prior notice to the defaulting borrower including the mortgagors and guarantors under section 13(2) calling upon them to pay the entire due amount within a period of sixty days[16].

11.3.2. The notice referred under section 13(2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower[17].

11.3.3.  Under section 13(3A) the borrower who receives the notice under section 13(2), may make the representation or send his objections to the authorised officer of the bank within the said time limit.

11.3.4. The authorized officer of the bank/secured creditor shall consider such representation or objections and if after considering such representation or objection secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall within one week from the date of its receipt of such representation or objection the reasons for non-acceptance it, to the borrower[18]. This enables the Bank to correct itself if it is wrong in the process of adjudication. Before this exercise is done and the borrower has been suitably replied to, the secured creditors cannot take possession of the secured asset and management of business of the borrower.

11.3.5.  In case the payment is not made by the borrower in full within the stipulated 60 days time period mentioned in the notice under section 13(2), the secured creditor may take one or more recourse mentioned in under section 13(4) namely,

i. To take possession of the secured assets of the borrower including the   right to transfer by way of lease, assignment or sale for releasing the secured asset. When it comes to taking possession of the property, there are two things like taking symbolic possession and taking actual possession[19].

ii. To take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for releasing the secured asset[20].

iii. Appoint the manager, to manage the secured asset whose possession has  been taken[21].

iii. Requiring money from any person who has acquired any of the secured assets from the borrower and from whom any money is due to the borrower, to pay to the secured creditor, by notice in writing[22].

11.3.6.  If the secured creditor obtains the possession of the secured asset or take over the management under section 13(4), it shall vest in the transferee all rights in or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset[23].

11.3.7.  The sale proceed shall, in the absence of any contract to the contrary, be held by the secured creditor in trust, to be applied, firstly, in the payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money received shall be paid to the person entitled thereto in accordance with his rights and interests[24].

11.3.8.  If the borrower paid or tendered the dues with all costs, charges and expenses to the secured creditors then secured creditor shall not sold or transferred the secured asset[25].

11.3.9.  If the dues are not fully satisfied from the sale proceeds of the secured assets, the secured creditor may file an application before the Debt Recovery Tribunal (DRT) having jurisdiction or competent court, as the case may be for the recovery of the balance amount from the borrower(s)/guarantor(s)[26].

11.4.    Application for assistance:

Where the possession of any secured asset is required to be taken by the secured creditor or if secured asset is required to be sold or transferred by the secured creditor, the secured creditor may for the very same purpose request in writing to the jurisdictional Chief Metropolitan Magistrate or District Magistrate to take the possession thereof. Such Magistrate may thereupon take possession of such asset and forward the same to the secured creditor. And may use or cause to be use such force as may, in his opinion, be necessary[27].

In Apex Electricals Ltd. v ICICI Bank Ltd[28] it has been held by the Gujarat High Court, that the rights of the bank under sub section (1), (2), (3) and (4) of section 13 cannot be read as creating a lawless situation, but should and must be preserved by maintaining rule of law and not allowing the disturbances of law and order situation. And such rights of secured creditor cannot be read as giving authority or power to the secured creditor to apply force of muscle power for taking measure under section 13(4) of the Act, and for such situation where muscle power required secured creditor resort of the provisions of section 14 of the present Act.

11.5.    Right to appeal:

Any person aggrieved on account of any measure taken under section 13(4) by the secured creditor may make an application, along with requisite fees, to the Debt Recovery Tribunal within forty five days from the date on which such measures has been taken[29].

If the Debt Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that the measures under section 13(4) are in contravention of the provision of the Act, it may declare the same invalid and restore the possession of the secured asset to the borrower[30].

And if the Debt Recovery Tribunal finds the measures taken by the secured creditor under section 13(4) in conformity with the provision of this Act, it may allow the secured creditor to proceed with the measure taken by him[31].

Aforesaid application must be disposed off as expeditiously as possible within sixty days from the date of such application. However, it may extend such period for reasons to be recorded in writing, for four months from the date of the making of the application[32].

In case the borrower is the resident of the State of Jammu and Kashmir, the application under section 17 shall be made to the Court of District Judge in that State having jurisdiction over the borrower[33].

11.6.    Remedy under section 17 of the SARFAESI Act, 2002 bars writ petition:

In V. Sriramulu v Karur Vyasa Bank Ltd[34] it has been held that proceeding under section 13(4) doest not perform any public duty and is not amenable to a writ petition of mandamus and the person aggrieved has the liberty to file an application under section 17 of the SARFAESI Act, 2002.

In Barak Valley Tea Co. v. Union of India[35] it has been held that any person aggrieved with an action under section 13(4), may invoke remedy under section 17 and this statutory remedy cannot be bypassed by invoking the writ petition.

11.7.    Appeal to Appellate Tribunal:

Any person aggrieved by an order of the Debt Recovery Tribunal passed under section 17 may prefer an appeal, along with requisite fees, to the Appellate Tribunal within thirty days from the date of the receipt of the order of the Debt Recovery Tribunal.

The appellant is bound to deposit fifty percent of the amount of the debt due from him, as claimed by the secured creditors or determined by the Debt Recovery Tribunal, which ever is less. However Tribunal may reduce such amount to not less than twenty five percent of the debt referred above.

In case the borrower is the resident of the State of Jammu and Kashmir, the appeal shall lie to the High Court having jurisdiction over the matter[36].

While it all appears to be simple, there is lot of criticism on this SARFAESI Act, 2002.

The criticism is that it is being misused by the Banks and Financial Institutions. In the course, we had to consider the following aspects:

It is pertinent to note that strong checks and balances have been put in place to ensure that there is no abuse of powers vested in the lenders.

 

12.       Important case laws under SARFAESI Act, 2002:

The Supreme Court of India and several high courts have delivered important judgments on various contentious issues, which arise under SARFAESI Act, 2002. Some of the issues and judgments are briefly discussed as under:

In Mardia Chemicals Ltd v. Union of India[37] laid down a strong foundation for the enforcement of SARFAESI Act, 2002. The Supreme Court upheld the validity of the Act, thereby putting an end to a large number of pending and expected litigation on the vies of the Act throughout the country. The Hon’ble Supreme Court observed that though a loan transaction may have a character of private contract, yet the question of great importance behind such transactions, as a whole having far reaching effect on the economy of the country, cannot be ignored when financing is through banks and financial institutions, utilising the money of people in general.  Therefore, where public interest is involved to such a large extent, and it may become necessary to achieve an object, which serves the public purpose, individual rights may have to give way.  Public interest has always been considered to be above the private interest. Even if few borrowers are affected by the enactment, it would not impinge upon validity of the Act, which otherwise serves larger interest.

In Sushil Kumar Agarwal v. Allahabad Bank[38] it has been held by the DRT that the words “without intervention of court” are more significant. If a suit had already been filed in court, there is definite intervention of court in the matter. Hence, pending its suit in the civil court, the bank cannot resort to simultaneous action under section 13(4).

In Transcore v. Union of India[39], it was held by the Supreme Court that the object of SARFAESI Act, 2002 and DRT Act, 1993 is the same, namely recovery of debts.  Conceptually, there is no inherent or implied inconsistency between the remedies provided under the two Acts and they are cumulative in nature for secured creditors.  Secured creditors are given the right to choose one or more of them. Though the DRT Act is a complete code in itself for recovery of debts and provides for various modes of recovery, it does not provide for expeditious enforcement of security interest of a non-adjudicatory process as has been provided for under the SARFAESI in order to prevent asset-liability mismatch in the balance sheet of the lender. It is for this reason that SARFAESI Act, 2002 is treated as an additional remedy, which is not inconsistent with the DRT Act, 1993. These two Acts together constitute one remedy and, therefore, the doctrine of election does not apply and banks and financial institutions are permitted to invoke one Act notwithstanding pendency of proceedings under the other Act.  Therefore, simultaneous proceedings for the recovery of debt under the DRT Act, 1993 as well as SARFAESI Act, 2002 are permissible.

In ICICI Bank v. Shanti Devi Sharma[40], while acknowledging that banks have vast powers under the Act, the Supreme Court held that the banks also have equal responsibilities and banks and financial institutions cannot adopt unfair practices for repossession of secured assets. Unfair trade practices have no place in India, which is civilised society governed by the rule of law.

In ATV Projects India Ltd. v. State of Maharashtra[41] the Division Bench of Bombay High Court held that statutory and equally efficacious remedies are available to a borrower under section 17 of the SARFAESI by filing application before the DRT against the action taken by secured creditor under section 13(4) of the Act. Therefore, a borrower cannot invoke extraordinary jurisdiction of the high court under article 226 to circumvent the legal process provided under special statute.

13.       Section 69 of the Transfer of Property Act, 1882 and section 13 of the SARFAESI Act, 2002:

Section 69 of the Transfer of Property Act, 1882, was modelled on the English Conveyancing Act, 1881 and the English Law of Property Act, 1925. Section 69 was later remodelled by amending Act 20 of 1929 drawing the principles from the English law.

Section 69 of the Transfer of Property Act, 1882 contains five sub-sections. Sub-sections (1) and (2) as detailed hereunder, deal with the circumstances under which the mortgagee’s right to exercise the power of sale without the intervention of the court arises. Sub-sections (3) and (4) respectively dwell on the title of the purchaser from the mortgagee and the manner of deployment of sale proceeds of the mortgaged property by the mortgagee, his duties and responsibilities. Sub-section (5) states that nothing in this section applies to powers conferred before the first day of July, 1882.

Basically we are concerned with the sub section (1) and (2) of section 69 of Transfer of property Act, 1882.

The power of sale, under Section 69, can be exercised only in the three cases mentioned in clauses (a), (b) and (c) of sub-section (1).

13.1.    Section 69(1)(a):

The first case in which the mortgagee can have the power to sell is mentioned in clause (a) of sub-section (1) of Section 69 of the Transfer of Property Act, 1882. It lays down the following conditions for the acquisition of the power, namely:

(1) that the mortgage must be an English mortgage, as defined in Section 58(e) of the Transfer of Property Act, 1882, and

(2) neither the mortgagor nor the mortgagee must be-

(i) a Hindu, Mohammedan or Buddhist, or

(ii) a member of any other race, sect, tribe, or class from time to time specified in this behalf by the State Government in the Official Gazette.

The power of sale is inherent in the mortgagee, if Conditions (1) and (2i) mentioned above are satisfied.

If the conditions in Section 69(1) (a) and Section 69(2) are complied with, mortgagee’s power of sale arises suo motu.

 

13.2.    Sections 69(1)(b):

The words “expressly conferred” in clauses (b) and (c) indicate that the inherent power available under clause (a) is not available under clauses (b) and (c).

To bring a case under Section 69(1) (b), it is necessary to establish that:
(i) a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage deed, and

(ii) the mortgagee is Government. This clause is applicable only where the mortgagee is the Government and does not extend to any other person. It applies both to the State Governments and the Central Government.

13.3.    Requirement of Section 69(1)(c):

Section 69(1)(c) requires that-

(i) a power of sale without the intervention of the court must have expressly been conferred on the mortgagee by the mortgage deed, and

(ii) the mortgaged property, or any part thereof, must, on the date of the execution of the mortgage deed, have been situate within the towns of Calcutta, Madras, Bombay or in any other town, or area, which the State Government may, by notification in the Official Gazette, specify in this behalf.

Therefore, it is observed that the three cases mentioned in clauses (a), (b) and (c) of sub-section (1) of Section 69 of the Transfer of Property Act are independent and mutually exclusive. Clause (a) applies only where the mortgage is an English mortgage and the parties do not belong to certain religions, or sects, etc. Clause (b) applies to cases where the mortgagee is the Government. Under clauses (a) and (b), it is not necessary that the property mortgaged should be situated in any particular place. It may be situated in any part of India. But an essential condition of clause (c) is that the mortgaged property must be situated within any of the towns or area, specified in the clause.

13.4.    Conditions for exercise of power:

Section 69(2)(a) and Section 69(2)(b) specify the conditions for exercise of the power. These conditions are imperative and cannot be varied by an agreement between the parties. The power to exercise the right of sale arises when

(i)         (a) notice in writing requiring payment of the principal money has been

served on the mortgagor, or on one of several mortgagors, and

(b) default has been made in payment of the principal money, or of part thereof, and

(c) such default has continued for three months after such service; or

(ii)               some interest under the mortgage amounting at least to five hundred rupees is

(a)    in arrear, and

(b) remains unpaid for three months after becoming due.

Conditions (i) and (ii) are in the alternative. It is sufficient if any one of them is fulfilled.
The power of sale under Section 69(1) can be exercised by the mortgagee only when the conditions under Section 69(2) are fulfilled.

No notice is necessary when default is made for the payment of interest. It is sufficient that interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after becoming due.

13.5.    Notice cannot be waived:

The notice required by Section 69(2) (a) is not only necessary but is imperative and even the period of three months cannot be curtailed by agreement of the parties.

13.6.    Secured creditor right to sell: Present Situation:

At present, an attempt has been made to change the situation by passing the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act 54 of 2002), which protects the interests of the banks and other financial institutions by providing ways to recover their amounts by selling the assets of the mortgagor. Now, section 69 of the Transfer of Property Act, 1882 lost its relevance in the present scenario.

13.7.    Section 13 of the SARFAESI, Act 2002 overrides section 69 Transfer of Property Act, 1882:

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, fondly called by bankers as Securitisation Act, has recently been enacted conferring powers on banks and financial institutions, if they are secured creditors, to realize the securities by sale etc., without intervention of court. The Act contains a provision overriding the provision of Section 69 of the Transfer of Property Act, 1882. Sub-section (1) of Section 13 of the said Act reads as under:

“13. (1) Notwithstanding anything contained in Section 69 or Section 69-A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.”

The provisions of the Act have been made applicable exclusively to banks and financial institutions as secured creditors to enforce their security interest with a view to recovering their debts. That is, if the banks and financial institutions are secured creditors having lent against securities like mortgage of immovable property, charge, hypothecation they can take over and sell such securities after giving 60 days’ notice to the borrowers so as to adjust the loan, without resort to litigation in a competent court of law. The provisions of the Act cannot be considered to have been extended to the secured creditors in general. In a nutshell, the Banks and Financial Institutions in the matter of recovery of their debts ex curia can ignore the provisions of Section 69 of the Transfer of Property Act, 1882 whereas other creditors have to file a suit in a competent court for recovery of the loan. Otherwise, Section 69 of the Transfer of Property Act, 1882 still remains on the statute and is applicable to other creditors who are not Banks and Financial Institutions. Hence the suggestion for the amendment to make the law uniform to all creditors who have lent against mortgage securities.

 

14.       Effect of SARFAESI Act, 2002 on the economy / banking sector:

The enactment of SARFAESI has been a major factor in improving the health of banks by enabling the banks to reduce their NPAs to substantially lower levels.  As per the information available with the RBI, the net NPA which stood at 7.63 per cent as in year 1998 has been reduced to 1.12 per cent by March, 2009. On account of availability of dual remedy, i.e., remedy under the SARFAESI and DRT Act, the banks and financial institutions have been able to substantially resolve the NPAs.

 

15.       Section 138 of the Negotiable Instrument Act: Boon for Banks and Financial Institutions:

Banks and Financial Institutions lend money to the borrowers, it may may secured or unsecured, but in both the cases borrowers is liable to pay the same in the form of equated monthly installments (EMIs) for which borrower is required to give post dated cheque for each installment equal to the tenure of the loan.

Before 1988 there being no effective legal provision to restrain people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them in the vent of such cheque not being honoured by their bankers and returned unpaid. Of course on dishonour of cheques there is a civil liability accrued. However in reality the processes to seek civil justice becomes notoriously dilatory and recover by way of a civil suit takes an inordinately long time. To ensure promptitude and remedy against defaulters and to ensure credibility of the holders of the negotiable instrument a criminal remedy of penalty was inserted in Negotiable Instruments Act, 1881 in form of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, which were further, modified by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002.

Chapter XVII[42] of the Negotiable Instrument Act, 1881 specifically deals with the penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts.

15.1.    Section 138 runs as dishonour of cheque for insufficiency, etc., of funds in the accounts:

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for [“a term which may extend to two year”][43], or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless-

(a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.
(b) The payee or the holder induce course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer, of the cheque, [“within thirty days”][44] of the receipt of information by him from the bank regarding the return of the cheque as unpaid, and
(c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation: For the purpose of this section, “debt or other liability” means a legally enforceable debt or other liability].

15.2.    Question of maintainability of criminal charge with a civil liability:
There is nothing in law to prevent the criminal courts from taking cognizance of the offence, merely because on the same facts, the person concerned might also be subjected to civil liability or because civil remedy is obtainable. Civil and criminal proceedings are co extensive and not exclusive[45].

15.3.    Shortcoming in Section 138 of Negotiable Instrument Act, 1881:

Though insertion of the penal provisions have helped to curtail the issue of cheque lightheartedly or in a playful manner or with a dishonest intention and the Banks and Financial Institutions are now feels more secured in receiving the payment through cheques. However there being no provision for recovery of the amount covered under the dishonoured cheque, in a case where accused is convicted under section 138 and the accused has served the sentence but, unable to deposit amount of fine, the only option left with the complainant is to file civil money recovery suit. The provisions of the Act do not permit any other alternative method of realization of the amount due to the complainant on the cheque being dishonored for any specified reason. The proper course to be adopted by the complainant in such a situation should be by filing a suit before the competent civil court, for realization/ recovery of the amount due to him for the reason of dishonoured cheque.

16.       Reserve Bank of India Guidelines for the recovery of loans:

A more comprehensive version of Guidelines was recently released on April 24, 2008. The Guidelines expressly reference the 5.5.2003 Guidelines at (ix)[46] with regard to the methods by which recovery agents collect on security interests. In addition, the April 24, 2008 Guidelines further referred paragraph 6 of the “Code of Bank’s Commitment to Customers” (BCSBI Code) pertaining to collection of dues.

RBI has expressed its concern about the number of litigations filed against the banks in the recent past for engaging recovery agents who have purportedly violated the law. In the letter accompanying its April 24th, 2008 Guidelines on Engagement of Recovery Agents, RBI stated: “In view of the rise in the number of disputes and litigations against banks for engaging recovery agents in the recent past, it is felt that the adverse publicity would result in serious reputational risk for the banking sector as a whole.” RBI has taken this issue seriously, as evidenced by the penalty that banks could face if they fail to comply with the Guidelines.

The relevant portion of the Guidelines formulated by RBI is set out as under:

Banks, as principals, are responsible for the actions of their agents. Hence, they should ensure that their agents engaged for recovery of their dues should strictly adhere to the above guidelines and instructions, including the BCSBI Code, while engaged in the process of recovery of dues.

Complaints received by Reserve Bank regarding violation of the above guidelines and adoption of abusive practices followed by banks’ recovery agents would be viewed seriously. Reserve Bank may consider imposing a ban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period. In case of persistent breach of above guidelines, Reserve Bank may consider extending the period of ban or the area of ban. Similar supervisory action could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any bank or its Directors/ Officers/ agents with regard to policy, practice and procedure related to the recovery process.

It is expected that banks would, in the normal course ensure that their employees or agents also adhere to the above guidelines during the loan recovery process.”

 

17.       Role of Lok Adalat’s in the recovery of bank dues:

The lok adalat is an effective mechanism for the settlement of banks dues. The lok adalat, as the word suggests, is organized for the “Lok” or for the people, thus aiming to the benefit of the masses and thereby strengthening the legal services.

The Legal Service Authority Act, 1987 gives a Lok Adalat a legal structure, conferring on it the power of the civil court, thereby formalizing the structure.

Preferring the lok adalat route to the time-consuming process of fighting civil cases in courts, banks have started queuing up at the State Legal Service Authority to recover bad loans.

On January 6, 2010 the Tamil Nadu State Legal Service Authority conducted an exclusive mega lok adalat for the Central Bank of India and helped the bank to dispose of 226 cases and recover a whopping Rs 11.2 crore on a single day. A total of 1,430 cases had originally been listed for hearing[47].

Lok adalats, the most popular of all alternative disputes redressal (ADR) mechanisms, are very effective in bringing about expeditious remedy because the settlements are done after mutual consultation and consent. The settlement is final, as neither of the parties can appeal against the lok adalat ruling. No court fee too needs to be paid for the exercise.

Pointing out that the Legal Services Authority Act had provisions to hear pre-litigation cases, T. Mathivanan, member-secretary of the TNSLSA, said it would reduce the burden on judicial forums, as in case of non-settlement of these disputes they would end up as civil suits in courts[48].

Therefore, now the time has ripe to grant the Lok Adalat a formal structure and to establish it as compulsory pre trial mechanism, as well as an optional settlement mechanism at any other stage of the trial, in the dispute.

 

18.       Suggestions:

18.1.    Central Registry : Need of the Hour:

The Central Government may, by notification, set up or cause to be set up  a registry to be known as Central Registry with its own seal for the purpose of registration of securitization and reconstruction of financial asset  and creation of security interest under SARFAESI Act, 2002[49].

Where the borrower is a company, there is a strong mechanism in place to verify the charges created by a company on its assets by way of searching the records of the company maintained with the concerned Registrar of Companies. However, there is no mechanism to verify such charges/encumbrances created by any individual, person, HUF, association of persons or any other entity (other than incorporated company). Therefore, it was a welcome step when the SARFAESI envisaged the establishment of a central registry for maintaining data relating to the charges created on any asset by any person.

Sections 20-26 of SARFAESI Act, 2002 relate to the concept of central registry. The Act came into force in the year 2002, but it is disappointing to note that the government has till date not notified the sections on establishing the central registry. Once the central registry is established and notified, substantial benefits will accrue to the lenders and innocent third parties. Some of these benefits are listed below:

a. Charges/encumbrances created on any asset by any unregistered entity including individuals, HUF, association of persons can be easily tracked and the information can be readily available.

b. Chances of use of false title deeds or false representations on the title of the assets can be eliminated. Accordingly, fraud on title of properties can be controlled, minimised and eliminated.

c. Due diligence on portfolio securitization can be eased out.

d. Due diligence on sale and purchase of assets/properties would become easy and transparent.

e. Gullible public and innocent buyers who are generally left in the hands of unscrupulous real estate brokers and builders can be saved and their interests protected.
f. Data on charged and encumbered properties can be made available in a transparent manner giving the industry reflection and exposure of the Lenders on such assets.

g. Once such a central registry is established the possibility of protecting the property in the nature of the title insurance on real estate properties can emerge in a big way.

As of date, the land records are not computerised in all the states and thus tracing the title to all the properties is still a complex problem. With the creation of a central registry, the lender can have a fair sense of the risk being undertaken by them to provide finance against the property, thereby making lending more easily and safely.

 

19.       Conclusion:

As we say above no law which deals with the recovery of the loan disbursed by the Banking and Financial Institutions are complete in itself, if we talk about the ordinary money recovery suit filed under the civil procedure in the Civil Court it will take a long to decide, and the laws which specifically deals with the recovery matters like Recovery of Debts Due to Banks and Financial Institutions Act 1993, it only competent to deals with the unsecured loan and for secured loan the remedy under it is not up to the mark and on the other hand the proceeding under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 deals specifically with the secured loan i.e. asset and there are lots of complications under the Act for obtaining possession without the intervention of the court and for taking peaceful and lawful possession the Banks and Financial Institutions will constrained to file an application for support before the Chief Metropolitan Magistrate or District Magistrate, which is itself a time taking process. So far as the provision of section 138 of Negotiable Instrument is concerned, it is competent only to put a defaulter behind the bars and do not provide any expeditious remedy for the recovery of the cheque amount. Thus, in all the aforesaid remedies are not complete in itself and dependent on others, which lead to the multiciplicity of the litigation and which directly or indirectly responsible of the pendency of cases in the Court of Law.

 


[1] www.indianexpress.com/…recovery…loans-only…/22687/United States visited on 25.08.10.

[2] http://www.indianexpress.com/news/no-force-recovery-of bank-loans-only-throug /22687/ posted

on 07.02.2007 visited on 25.08.10.

[3] 2008 (7) SCC532

[5] (2002) 4 SCC 275.

[6] AIR 1995 Del 323.

[7] AIR 2001 Kant 176.

[8] Mardia Chemicals Ltd. v. Union of India AIR 2004 SC 2371.

[9] Section 31 of the the SARFAESI Act, 2002.

[10] Section 2(1)(z) of the SARFAESI Act, 2002.

[11] AIR 2004 SC 2371

[12] Section 2(1)(b) of the SARFAESI Act, 2002.

[13] Section 2(1)(k) of the SARFAESI Act, 2002.

[14] 2003(3) BC 626 (AII) (DB).

[15] Section 11 of the SARFAESI Act, 2002.

[16] Section 13(2) of the SARFAESI Act, 2002.

[17] Section 13(3) of the SARFAESI Act, 2002.

[18] Section 13(3A) of the SARFAESI Act, 2002.

[19] 13(4)(a) of the SARFAESI Act, 2002.

[20] 13(4)(b) of the SARFAESI Act, 2002.

[21] 13(4)(c) of the SARFAESI Act, 2002.

[22] 13(4)(d) of the SARFAESI Act, 2002.

[23] 13(6) of the SARFAESI Act, 2002.

[24] Section 13(7) of the SARFAESI Act, 2002.

[25] Section 13(8) of the SARFAESI Act, 2002.

[26] Section 13(10) of the SARFAESI Act, 2002.

[27] Section 14 of the SARFAESI Act, 2002.

[28] 2004 (1) Bank J 613 (Guj).

[29] Section 17 of the SARFAESI Act, 2002.

[30] Section 17(3) of the SARFAESI Act, 2002.

[31] Section 13(4) of the SARFAESI Act, 2002.

[32] Section 13(5) of the SARFAESI Act, 2002.

[33] Section 17A of the SARFAESI Act, 2002.

[34] 2006(4) BC 222 (AP).

[35] 2006 (133) Comp. Cas. 937 (Gau)

[36] Section 18B of the SARFAESI Act, 2002.

[37] 2004 (4) SCC 311.

[38] 2004 (2) BC 94 (DRT, Ranchi).

[39] (2008) 1 SCC 125.

[40] (2008) 7 SCC 532.

[41] (2007) 6 Mah LJ 231 (Bom)

[42] Inserted by Act 66 of 1988, sec. 4 (w.e.f. 1-4-1989).

[43] Substituted by Act 55 0f 2002, sec. 7 for “a term which may extended to one year” (w.e.f. 6-2-2003).

[44] Substituted by Act 55 of 2002, sec. 7, for “within Fifteen days” (w.e.f. 6-2-2003).

[45] Smt.Gayathri v. Smt.Clement Mary 2003 (Karnataka).

[46] “(ix) A reference is invited to (a) Circular DBOD.Leg.No.BC.104/ 09.07.007 /2002-03 dated May 5, 2003 regarding Guidelines on Fair Practices Code for Lenders (b) Circular DBOD.No.BP. 40/ 21.04.158/ 2006-07 dated November 3, 2006 regarding outsourcing of financial services and (c) Master Circular DBOD.FSD.BC.17/ 24.01.011/2007-08 dated July 2, 2007 on Credit Card Operations.

[48] Ibid.

[49] Section 20 of the SARFAESI Act, 2002.

 

ISLAMIC BANKING – TUSSLE ENDS BETWEEN RELIGION AND ECONOMICS

Economists have proven that the wider the freedom of choice is, the higher the level of social welfare. In addition, wider choice implies greater respect for human rights. When an alternate concept such as Islamic banking is introduced, a new choice is open to the market, with obvious social and economic benefits.

Competition, not just between Islamic banks, but between Islamic banks and traditional banks would ensure a promising future to the banking industry. The future of banking in India rests upon the ability of banks to continue facing challenges with resourcefulness and creativity. Islamic banks merit an entry into the Indian financial system precisely because they have proven to face challenges with resourcefulness and creativity within the framework of social and economic justice across the world.

Contrary to assertions that there is a gap between the theory of Islamic finance and its practical implementation vis-a-vis conventional banking, the fact that Islamic finance has functioned with remarkable success the world over, suggests that such assertions should not be taken to restrain the entry of Islamic banking in India. Indeed, the Wall Street Journal has described Islamic finance as “an international quasi-parallel financial system” that stretches from “the US, Europe, Africa and the Middle East into the Indian subcontinent to the Far East.” Strangely, despite the important role India plays in the world economy, it has not allowed Islamic banking to enter its financial system. 

It is to make participative and responsive banking. Overall, while the people will gain from the introduction of Islamic banking, it should not be obligatory. The people can voluntarily choose from the different mode of financial services.

Accordingly, in the recent Judgement of Surbahmaniam Swamy vs State of Kerala, the honourable Kerala High Court held that there is no doubt that acceptance of Shariah banking will not arise only from the religious consideration but also from the fact that Shariah banking has an added facet to it i.e. interest-free banking. Thus, apart from the religious aspect, the rational aspects of Shariah banking should be highlighted to bring about its acceptance. One must look beyond the word ‘Shariah’ or ‘Islamic’ and must focus on the rational aspects of Islamic banking.

A ‘socialist, secular, democratic republic’ must always strive for inclusive growth so that the poor benefits. This is in accordance with the socialist principles in our Constitution.

The Court emphasized Islamic banking cannot be ignored on a narrow interpretation of the ‘secularism’. Certainly, including Islamic banking would only be in accordance with the principle of ‘secularism’ in our Constitution. Indeed, perceptions of Islamic banking should not be based on myths that suggest a wholly religious motive behind introducing Islamic banking.

Justice is one of the ideals on which our Constitution of India is based, and government policies strive to achieve economic justice. Islamic banking is based on equity, justice and fairness besides ensuring mobilisation in both resources and investment of the resources.

Banking runs not on identities or convictions, it runs on finance. Thus, the financial aspect must be recognized and not merely the Islamic aspect of interest-free banking. Nevertheless, the essence of the message of all religion calls for setting up norms and standard for human behaviour which extent to economic arena too. The presence of this economic commonality amongst different faiths implies that the word ‘shariah’ should be considered in pure economic and social benefits it entail and not which signify one particular faith only.

However, the court did not go into question of feasibility of Islamic banking under the supervision of Reserve bank of India. The Indian banking regulatory system does not permit the establishment of Islamic banks per-se. However, it does provide for the establishment of a variety of bank-like activities which can include Islamic-compliant transactions. Hence, the Islamic financial institutions – like interest free credit associations, interest free financial companies, and Islamic investment funds- operate as bank substitutes in the existing scheme  nbmof Non Banking Finance Companies Reserve (NBFCs) Bank Directives 1997 RBI (Amendment) Act 1997. A separate legislation can offer ample flexibility to synchronize the Shariah principals and the prevailing banking and investment laws and regulations of the jurisdiction in the current financial institutional set-up of the country.

The question that the secular government need to ask itself is, is it serious about Islamic financial system? Does government want to carry on financial transactions – considering the boost it can give to the overall economy of the country – as much as possible on Shariah principles? If the answer is yes, then it must come up with a statue which provides credibility to this alternate system of banking.

It is suggested that government should pay heed to high level committees’ reports which ironically have not been made public. If assuming purpose of the committee is not solved to know insights into how Islamic Finance is developing around the world, as well as evaluating the opportunities and challenges ahead, it should be done.

In these conditions, there is urgency to successfully implement the optimistic advancements and reforms in the banking sector to maximise the substantial prospects that lie ahead in this hitherto untapped area of Islamic finance.