Legislation UpdatesRules & Regulations

Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) (Amendment) Regulations, 2021

2. In the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (hereinafter referred to as the principal regulations), in regulation 5,—

(i) after sub-regulation (4), the following sub-regulation shall be inserted, namely:—

“(4A) A shareholder director shall be an individual, who satisfies the eligibility norms, including experience and qualification, as decided by the Governing Board.”;

(ii) in sub-regulation (6), for clause (b), the following clause shall be substituted, namely:—

“(b) who has expertise in the field of finance, law, economics, accountancy, valuation, management or insolvency;”;

(iii) after sub-regulation (13), the following sub-regulations shall be inserted, namely:—

“(14) A director shall disclose any order of any authority that affects his character or reputation, to the insolvency professional agency, within one week of issue of such order:

Provided that a copy of the order shall be placed forthwith on the website of the insolvency professional agency;

Provided further that such director shall forthwith cease to be a director of the insolvency professional agency where the order disqualifies him to be a director of a company.”.

3. In the principal regulations, after regulation 5B, the following regulations shall be inserted, namely:-

6. Self-evaluation.

(1) The Governing Board shall evaluate its performance in a financial year within three months of the closure of the year, in the manner decided by it.

(2) The insolvency professional agency shall publish a report on self-evaluation referred to in sub-regulation (1) on its website.

Compliance Officer.

(1) An insolvency professional agency shall designate or appoint a compliance officer who shall be responsible for ensuring compliance with the provisions of the Code and regulations, circulars, guidelines, and directions issued thereunder.

(2) The compliance officer shall, immediately and independently, report to the Board any non-compliance of the provisions referred to in sub-regulation (1).

(3) The compliance officer shall submit a compliance certificate to the Board annually, verifying that the insolvency professional agency has complied with the provisions referred to in sub-regulation (1):

Provided that the annual compliance certificate shall also be signed by the managing director of the insolvency professional agency.

The Governing Board shall appoint or remove the compliance officer only by means of a resolution passed in its meeting”


Insolvency and Bankruptcy Board of India

[Notification dt. 14-01-2021]

Case BriefsHigh Courts

Delhi High Court: The Division Bench of Manmohan and Sanjeev Narula, JJ., upheld the validity of Sections 132 and 69 of the Central Goods and Services Tax Act, 2017, and refused any interim relief to the petitioner.

Petitioners submitted that Sections 69 and 132 of the Central Goods and Services Tax Act, 2017 are unconstitutional as being provisions of criminal nature, they could have been enacted under Article 246A of the Constitution of India, 1950.

Further, the petitioners emphasized that the power to arrest and prosecute are not ancillary and/or incidental to the power to levy and collect goods and services tax.

Adding to the above submissions, it was further stated that since the power to levy Goods and Services Tax is provided under Article 246A, power in relation thereto could not be traced to Article 246 or any of entries in 7th Schedule.

In the alternative, they submitted that Entry 93 of List 1 confers jurisdiction upon the Parliament to make criminal laws only with respect to matters in List I and CGST. Therefore, according to them, Sections 69 and 132 are beyond the legislative competence of the Parliament.

In the past, many cases occurred wherein an assessee had been arrested at the initial stage of the investigation but the department had subsequently failed to establish its case in adjudication proceedings and in the process, the assessee suffered an irreparable loss on account of the arrest.

In the present cases, no Show Cause Notice had been issued to the Petitioners either under Section 73 or Section 74 of the CGST Act by the Respondents for any unpaid tax, short paid tax, or erroneous refunds or where input tax credit had been wrongly availed or utilized.

Court’s Reasoning

  • There is always a presumption in favour of the constitutionality of an enactment or any part thereof and the burden to show that there has been a clear transgression of constitutional principles is upon the person who impugns such an enactment. Further, Laws are not to be declared unconstitutional on the fanciful theory that power would be exercised in an unrealistic fashion or in a vacuum or on the ground that there is a remote possibility of abuse of power.

Bench while analyzing several aspects of the matter stated that whenever constitutionality of a provision is challenged on the ground that it infringes a fundamental right, the direct and inevitable effect/consequence of the legislation has to be taken into account.

Court referred to the decision of Supreme Court in Namit Sharma v. Union of India, (2013) 1 SCC 745.

In the decision of the Court in Maganlal Chhanganlal (P) Ltd. v. Municipal Corporation of Great Bombay, (1974) 2 SCC 402, it was held that :

“Administrative officers, no less than the courts, do not function in a vacuum. It would be extremely unreal to hold that an administrative officer would in taking proceedings for eviction of unauthorised occupants of Government property or Municipal property resort to the procedure prescribed by the two Acts in one case and to the ordinary civil court in the other. The provisions of these two Acts cannot be struck down on the fanciful theory that power would be exercised in such an unrealistic fashion. In considering whether the officers would be discriminating between one set of persons and another, one has got to take into account normal human behaviour and not behaviour which is abnormal. It is not every fancied possibility of discrimination but the real risk of discrimination that we must take into account. This is not one of those cases where discrimination is writ large on the face of the statute. Discrimination may be possible but is very improbable.”

  • Goods and Service Tax is a Unique Tax, inasmuch as the power as well as field of legislation are to be found in a Single Article, i.e. Article 246-A. Scope of Article 246-A is significantly wide as it grants the power to make all laws ‘with respect to’ Goods and Service Tax.

Unless the Constitution itself expressly prohibits legislation on the subject either absolutely or conditionally, the power of a Legislature to enact legislation within its legislative competence is plenary.

Further, Court added that there is also no conflict between the operation of Article 246A and Article 246 as a non-obstante clause has been added to Article 246A to clarify that both Parliament and the State Legislatures have simultaneous powers in relation to Goods and Services Tax.

  • This Court is of the Prima facie opinion that the ‘Pith and Substance’ of the CGST Act is on a topic, upon which the parliament has power to legislate as the power to arrest and prosecute are ancillary and/or incidental to the power to levy collect goods and service tax.

When a law is challenged on the ground of being ultra vires to the powers of the legislature, the true character of the legislation as a whole has to be ascertained.

Bench opined that when a law dealing with a subject in one list is also touching on a subject in another list, what has to be ascertained. If on examination of the statute, it is found that the legislation is in substance on a matter assigned to the legislature enacting that statute, then it must be held valid, in its entirety even though it may trench upon matters beyond its competence. Incidental encroachment is not prohibited.

In light of the discussion of the above point, Court prima facie opined that the pith and substance of the CGST Act is on a topic, upon which the Parliament has power to legislate as the power to arrest and prosecute are ancillary and/or incidental to the power to levy and collect GST. 

  • Even if it is assumed that power to make offence in relation to evasion of GST is not to be found under Article 246A, then the same can be traced to Entry I of List III. The term ‘Criminal Law’ used in the aforesaid entry is significantly wide and includes all criminal laws except the exclusions.

Supreme Court’s decision in Kartar Singh v. State of Punjab, (1994) 3 SCC 569, has emphasized that the language used in the aforesaid entry is couched in very wide terms and the scope of the term ‘criminal law’ has been enlarged to include any matter that could be criminal in nature.

In view of the above, High Court prima facie opined that even if Sections 69 and 132 of the Act could not have been enacted in pursuance to power under Article 246A, they could have been enacted under Entry 1 of List III, as laying down of a crime and providing for its punishment is ‘criminal law’.

  • This Court, at the interim stage, cannot ignore the view taken by the Gujarat High Court with regard to application of Chapter XII CrPC to the CGST Act.

In Gujarat High Court’s decision in Vimal Yashwantgiri Goswami v. State of Gujarat, R/Special Civil Application No. 13679 of 2019, it was held as under:

♦ When any person is arrested by the authorised officer, in exercise of his powers under Section 69 of the CGST Act, the authorised officer effecting the arrest is not obliged in law to comply with the provisions of Sections 154 to 157 of the Code of Criminal Procedure, 1973. The authorised officer, after arresting such person, has to inform that person of the grounds for such arrest, and the person arrested will have to be taken to a Magistrate without unnecessary delay, if the offences are cognizable and non-bailable.

However, the provisions of Sections 154 to 157 of the Code will have no application at that point of time. Otherwise, Section 69 (3) provides for granting bail as the provision does not confer upon the GST officers, the powers of the officer in charge of a police station in respect of the investigation and report. Instead of defining the power to grant bail in detail, saying as to what they should do or what they should not do, the short and expedient way of referring to the powers of another officer when placed in somewhat similar circumstances, has been adopted. By its language, the sub-section (3) does not equate the officers of the GST with an officer in charge of a police station, nor does it make him one by implication. It only, therefore, means that he has got the powers as defined in the Code of Criminal Procedure for the purpose of releasing such person on bail or otherwise. This does not necessarily mean that a person alleged to have committed a non-cognizable and bailable offence cannot be arrested without a warrant issued by the Magistrate.

♦ The authorised officer exercising power to arrest under section 69 of the CGST Act, is not a Police Officer and, therefore, is not obliged in law to register FIR against the person arrested in respect of an offence under Sections 132 of the CGST Act.

♦ An authorised Officer is a ‘proper officer’ for the purposes of the CGST Act. As the authorised Officers are not Police Officers, the statements made before them in the course of inquiry are not inadmissible under Section 25 of the Evidence Act.

♦ Power to arrest a person by an authorized officer is statutory in character and should not be interfered with Section 69 of the CGST Act does not contemplate any magisterial intervention.

  • In view of the Supreme Court Judgment in Directorate of Enforcement v. Deepak Mahajan and the aforesaid Gujarat High Court Judgment, the arguments that prejudice is caused to the petitioners as they are not able to avail protection under Article 20(3) of the Constitution and/or the provisions of CrPC do not apply even when CGST Act is silent, are untenable in law.

Judicial Scrutiny

 When any person is arrested under Section 132(5) of the CGST Act, the said person has to be informed of the grounds of arrest and must necessarily be produced before a Magistrate under Section 69 (2) within a period of 24 hours.

 The above-stated would ensure judicial scrutiny over the acts of executive and it cannot be termed as unreasonable and/or excessive.

 Adding to its analysis, the Court stated that just because the CGST Act provides for both adjudications of civil liability and criminal prosecution doesn’t mean that the said Act is unfair or unreasonable.

  • Court prima facie finds force in the submission of the ASG that the Central Tax Officers are empowered to conduct intelligence-based enforcement action against taxpayers assigned to State Tax Administration under Section 6 of the CGST Act.
  • What emerges at the prima facie stage is that it is the case of the respondents that a tax collection mechanism has been converted into a disbursement mechanism as if it were a subsidy scheme.

To conclude the Court held that what emerges at the prima facie stage is that it is the case of the respondents that a tax collection mechanism has been converted into a disbursement mechanism as if it were a subsidy scheme.

Hence, in view of the serious allegations, the Court expressed that it is not inclined to interfere with the investigation at the present stage and that too in writ proceedings. At the same time, innocent persons cannot be arrested or harassed. Consequently, the applications for interim protection are dismissed with liberty to the parties to avail the statutory remedies.

It is settled law that though the powers of constitutional courts are wide and discretionary, yet there exist certain fetters in the exercise of such powers.

 In the Supreme Court decision of Hema Mishra v. State of U.P., (2014) 4 SCC 453, it was held that despite the fact that provision regarding pre-arrest bail, had been specifically omitted in Uttar Pradesh, the power under writ jurisdiction is to be exercised extremely sparingly.

Court’s view in the instant case is that the allegation that a tax collection mechanism has been converted into a disbursement mechanism most certainly requires investigation.

Bench stated that it has no doubt that the trial court, while considering the bail or remand or cancellation of bail application, ‘will separate the wheat from the chaff’ and will ensure that no innocent person against whom baseless allegations have been made is remanded to police/judicial custody.

Hence, the observations made herein are prima facie and shall not prejudice either of the parties at the stage of final arguments of the present writ petitions or in the proceedings for interim protection. [Dhruv Krishan Maggu v. Union of India, WP (C) No. 5454 of 2020, decided on 08-01-2021]

Op EdsOP. ED.

Introduction

The Prevention of Money-Laundering Act, 2002[1] (PMLA) is a pro-active legislation keen on curbing money-laundering and bringing violators to justice. Such a legislation is definitely the need of the hour considering the number of scams this country has seen in its past and a strong law securing the 4 walls of justice for offenders is welcomed by the people at large. However, off-late, criminal law practitioners (defense lawyers) have found it challenging to deal with PMLA for the fact that the 4 ends securing the 4 walls of ‘presumed’ justice is far too airtight even for genuine non-offenders to escape its clutches, if caught by sheer happenstance. This article deals with one such scenario.

PMLA punishes an individual for the offence of money-laundering under Sections 3 and 4 which read as follows:

3. Offence of money-laundering.— Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the [proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering. 

[Explanation. – For the removal of doubts, it is hereby clarified that,

(i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely,

(a) concealment; or

(b) possession; or

(c) acquisition; or

(d) use; or

(e) projecting as untainted property; or

(f) claiming as untainted property, in any manner whatsoever;

 (ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever].

  1. Punishment for money-laundering.— Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine:

Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words which may extend to seven years, the words which may extend to ten years had been substituted.

On a bare reading of these two provisions, any money that is construed to be ‘proceeds of crime’ is liable to be punished under PMLA. ‘Proceeds of crime’ is defined under Section 2(1)(u) as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence[2]. It is my contention that an offence under the PMLA cannot be a stand-alone offence, as an offence is required to be committed (under the Schedule) for the monies/properties to be deemed ‘proceeds of crime’. Without commission of a crime, there exists no proceeds from crime.

The Karnataka High Court in K. Sowbaghya v. Union of India[3] has observed that:

having regard to the meaning attributed to ‘proceeds of crime’ under PMLA, whereby crime contemplated is the alleged scheduled offence, the ‘proceeds of crime’ contemplated under Sections 3 and 4 are clearly and inextricably linked to the scheduled offence and it is not possible to envision an offence under PMLA as a stand-alone offence without the guilt of the offender in the scheduled offence being established.

Therefore, on a logical reasoning of the said proposition, only if an offence under the Schedule to PMLA is committed, then the question of proceeds of crime arises.

Coming to the thesis or central question for discussion in this article, there are various offences under various statutes that have been adduced as scheduled offences under the PMLA, and for the major part of the Schedule, I have no quarrel with the intention of the legislature. For example, an offence under Section 25 of the Arms Act (which is a scheduled offence under the PMLA) punishes the individual who possesses or sells unlicensed arms and ammunition. The PMLA, rightly so, punishes the individual for the proceeds he/she has made or property acquired through such possession or sale. Taking another example, certain offences under the Penal Code, 1860 such as Sections 364-A (kidnapping for ransom), 384 to 389 (extortion), 392 to 402 (robbery and dacoity) etc are also scheduled offences under the PMLA. Similar to the previous example, IPC punishes the accused for the offences of kidnapping, extortion or robbery/dacoity whereas the PMLA punishes the accused for the money made or property acquired from the commission of such crimes.

The problem arises when considering offences under the Prevention of Corruption Act, 1988[4] (the PC Act), particularly Section 13. Offences under Section 13 (criminal misconduct by a public servant), also a scheduled offence under PMLA, punishes a public servant for receiving illegal gratification by using his/her public office, misappropriating property or owning/possessing property worth beyond known sources of income or illicit enrichment of wealth (general overview). Contrary to the argument that the PC Act only punishes a person for being corrupt or misusing his public office and PMLA punishes the monies made or properties acquired from such misconduct, I argue that the PC Act collectively performs the functions of the PMLA as well.

The object of PMLA is to prevent money-laundering and to provide for confiscation of property derived from money-laundering. Therefore, the function of PMLA is to seize/confiscate the properties so enjoyed by individuals who have acquired such property by commission of one or more offences which can be acted upon under the Act, apart from punishment for holding such property. The PC Act on the other hand, not only punishes an individual for being corrupt and holding tainted property, it also takes away any property/money derived from such abuse of power/criminal misconduct for the same reason that such property was acquired through illegal means.

The Supreme Court while dealing with a case under the PC Act in Yogendra Kumar Jaiswal v. State of Bihar[5] held that:

If a person acquires property by means which are not legally approved, the State would be perfectly justified to deprive such person of the enjoyment of such ill-gotten wealth. There is a public interest in ensuring that persons who cannot establish that they have legitimate sources to acquire the assets held by them, do not enjoy such wealth.  Such a deprivation would certainly be consistent with the requirement of Articles 300-A and 14 of the Constitution which prevent the State from arbitrarily depriving a person of his property.

When the PC Act inclusively curbs and confiscates “proceeds of crime”, would prosecution for the same under PMLA not amount to double jeopardy?

Provisions of the PC Act examined

An analysis of Section 13 of the PC Act will shed further light on this theory. Section 13 reads as follows:

13. Criminal Misconduct by a Public Servant. [(1) A public servant is said to commit the offence of criminal misconduct,

(a) if he dishonestly or fraudulently misappropriates or otherwise converts for his own use any property entrusted to him or any property under his control as a public servant or allows any other person so to do; or

(b) if he intentionally enriches himself illicitly during the period of his office.

Explanation 1.- A person shall be presumed to have intentionally enriched himself illicitly if he or any person on his behalf, is in possession of or has, at any time during the period of his office, been in possession of pecuniary resources or property disproportionate to his known sources of income which the public servant cannot satisfactorily account for.

Explanation 2.- The expression known sources of income means income received from any lawful sources.]

(2) Any public servant who commits criminal misconduct shall be punishable with imprisonment for a term which shall be not less than [four years] but which may extend to [ten years] and shall also be liable to fine.[6]

Most cases pending or newly charged are predominantly under the provisions prior to the 2018 amendment due to the check period and hence, emphasis will also be placed on Sections 13(1)(a) to (e), as they were, prior to the amendment. However, the following explanation would be squarely applicable to Section 13 as it is subsequent to the amendment also.

Provision

(Before Amendment)

Key Word/Phrase
13(1)(a) Gratification other than legal remuneration
13(1)(b) Valuable thing
13(1)(c) Misappropriates property entrusted to him or under his control
13(1)(d) Valuable thing or pecuniary advantage
13(1)(e) Pecuniary resources or property disproportionate to known sources of income
(After amendment) Key Word/Phrase
13(1)(a) Misappropriates property entrusted to him or under his control
13(1)(b) Intentionally enriches himself illicitly

All these provisions have a key word or a phrase within which the alleged actions have to fit into for them to be charged with one of the above offences (all of which are scheduled offences under PMLA). At this point, it is also pertinent to examine the definition of ‘property’ as under Section 2(1)(v) of PMLA:

(v) “property” means any property or asset of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located;

Explanation.– For the removal of doubts, it is hereby clarified that the term “property” includes property of any kind used in the commission of an offence under this Act or any of the scheduled offences;”

A bare reading of this definition would show that all keywords/phrases for making one liable under Section 13 of the PC Act also (on interpretation) fall under the definition of Section 2(1)(v) of PMLA. Apart from jail time, the objective of Sections 3 and 4 of PMLA are to confiscate any property that is construed to be from proceeds of crime as the person holding the said property has not obtained and enjoyed them through legal means. This, in its very essence is what Section 13 is also trying to accomplish. The Oxford English Dictionary defines the word “pecuniary” as “of or in money”, thereby making construction of the term ‘pecuniary advantage’ to also fall under the definition of property under Section 2(1)(v) of PMLA. This comparison is only to show that cumulatively, Section 13 of the PC Act and Sections 3 and 4 of PMLA are trying to achieve the same goal and have the same objectives. Therefore, initiating action against an individual under both the provisions of law for the same offence or transaction, would amount to double jeopardy.

It is agreed as stated by the Andhra Pradesh High Court in B. Rama Raju v. Union of India[7] that punishment under Sections 3 and 4 of PMLA are distinct proceedings from Section 5 which is attachment of property and subsequent confiscation. However, in a PC Act case, the trial court (CBI Court in most jurisdictions) passes an order of attachment of tainted property or property under presumption that it is through illegal gratifications during the pendency of trial. This is where Section 5 of PMLA comes in conflict with the proceedings already pending before the trial court. Once the properties are already attached and since the PMLA also permits an order of attachment under Section 5, the Enforcement Directorate making an application to transfer all properties from CBI to ED is prima facie posing a direct threat to the investigation conducted by CBI.[8] Both the agencies are looking into the same properties for offences committed and further, only if an offence is established by CBI can it be treated as ‘proceeds of crime’ by ED.

The Supreme Court in Kanhaiyalal v. D.R. Banaji[9] had held that:

 “If a court has exercised its power to appoint a receiver of a certain property, it has done so with a view to preserving the property for the benefit of the rightful owner as judicially determined. If other courts or tribunals of coordinate or exclusive jurisdiction were to permit proceedings to go independently of the court which was placed the custody of the property in the hands of the receiver, there was a likelihood of confusion in the administration of justice and possible conflict of jurisdiction.

Even though the observations made therein were in a civil case, the same principles are to be applied to criminal cases also, as attachment of property in these matters are quasi civil in nature. If the Enforcement Directorate were to interfere with pending proceedings conducted by CBI, then there would arise a conflict of jurisdiction since both are on the basis of the same offence and properties possessed therein.

The most essential ingredient for an offence under Section 3 of PMLA is the existence of property that is deemed to be a proceed of crime and Section 13 of the PC Act, quintessentially performs the twin function by making the accused public servant liable for abusing his/her office, possessing such property as well as confiscating the said property since it is a proceed of a ‘crime’ committed by the public servant. To makes things more convincing, punishment under Section 13(2) of the PC Act is much more severe than Section 4 of PMLA, thereby justifying its twin purpose.

Double Jeopardy explained

The concept of double jeopardy has been known to mankind from time immemorial. Dating back to 355 BC in Athens, Greece, the law forbids the same man to be tried twice on the same issue. Double jeopardy or non bis in idem is a procedural defense that prevents a person from being tried again on the same or similar charges following a valid conviction or acquittal. The principle of double jeopardy in India existed prior to the drafting and enforcement of the Constitution. It was first enacted in Section 403(1) of the Criminal Procedure Code, 1898 which is now Section 300 of the amended Criminal Procedure Code, 1973. A partial protection against double jeopardy is a Fundamental Right guaranteed under Article 20 (2) of the Constitution of India, which states “No person shall be prosecuted and punished for the same offence more than once”.

In Thomas Dana v. State of Punjab[10], a Constitutional Bench of 5 Judges laid down 3 requirements for double jeopardy i.e. prosecution, punishment and same offence. If these 3 are complied with, then the protection under Article 20(2) is guaranteed.

Section 300 of the Code of Criminal Procedure also protects a person from being tried again where he/she has already been tried and acquitted/convicted for the same offence. Section 26 of the General Clauses Act states that:

 “Where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments, but shall not be liable to be punished twice for the same offence.

This is further enumerated by the Supreme Court in Manipur Administration v. Thokchom Bira Singh[11], that for Article 20(2) and Section 26 of the General Clauses Act to act as a bar for second prosecution and its consequential punishment thereunder, it must be for the same offence that is, an offence whose ingredients are the same. Applying the principles of Section 26 of the General Clauses Act, Article 20(2) and the above decision of the  Supreme Court to the present question at hand, it can be stated that since the offence for which PMLA is invoked is essentially the same offence as under the PC Act, the above provisions will get attracted. Therefore, ingredients, occurrences and circumstances are the same for an offence under Section 13 of the PC Act and Sections 3 and 4 of PMLA (including evidence, both oral and documentary) i.e. money/properties acquired through commission of an offence, it is to be concluded that prosecution under PMLA is a second trial for the same offence when the PC Act proceedings are pending or have attained finality.

Conclusions

I have, in this article, tried to give an outline that prima facie, Section 13 of the PC Act and Sections 3 and 4 of PMLA do not harmoniously gel with each other. On the one hand, only if the primary or scheduled crime is made out can a prosecution under PMLA be maintainable (there are certain lines of thought which state, offence under PMLA is stand-alone and is not dependent on any other offence being proved/committed) and on the other hand, even on the existence of an offence under Section 13 of PC Act, the PC Act is a self-sufficient Act which punishes the accused for both abusing the position of being a public servant, as well as having acquired or being in possession of illegal gratification or property that is either misappropriated or disproportionate to known sources of income. Hence, a subsequent action under  PMLA is nothing but a violation of the constitutionally protected fundamental right against double jeopardy. In concluding remarks, it would be pertinent to note that the Schedule to PMLA is to be revisited and pros and cons are to be considered by the Courts having jurisdiction as to whether the provisions of the PC Act (not restricted to Section 13) are to be considered scheduled offences under PMLA.


*Advocate, Madras High Court

[1] Prevention of Money Laundering Act, 2002

[2]Indian Bank v. Government of India, 2012 SCC Online Mad 2526  

[3] 2016 SCC Online Kar 282

[4] Prevention of Corruption Act, 1988

[5](2016) 3 SCC 183

[6]Prior to the 2018 amendment, Section 13(1) reads as follows;

  1. Criminal misconduct by a public servant.—(1) A public servant is said to commit the offence of criminal misconduct,—

(a) if he habitually accepts or obtains or agrees to accept or attempts to obtain from any person for himself or for any other person any gratification other than legal remuneration as a motive or reward such as is mentioned in section 7; or

(b) if he habitually accepts or obtains or agrees to accept or attempts to obtain for himself or for any other person, any valuable thing without consideration or for a consideration which he knows to be inadequate from any person whom he knows to have been, or to be, or to be likely to be concerned in any proceeding or business transacted or about to be transacted by him, or having any connection with the official functions of himself or of any public servant to whom he is subordinate, or from any person whom he knows to be interested in or related to the person so concerned; or

(c) if he dishonestly or fraudulently misappropriates or otherwise converts for his own use any property entrusted to him or under his control as a public servant or allows any other person so to do; or

(d) if he,—

(i) by corrupt or illegal means, obtains for himself or for any other person any valuable thing

or pecuniary advantage; or

(ii) by abusing his position as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage; or

(iii) while holding office as a public servant, obtains for any person any valuable thing or pecuniary advantage without any public interest; or

(e) if he or any person on his behalf, is in possession or has, at any time during the period of his office, been in possession for which the public servant cannot satisfactorily account, of pecuniary resources or property disproportionate to his known sources of income.

Explanation.—For the purposes of this section, “known sources of income” means income received from any lawful source and such receipt has been intimated in accordance with the provisions of any law, rules or orders for the time being applicable to a public servant.

[7] 2011 SCC OnLine AP 152

[8] I take this stand being fully aware of the fact that Section 18-A of the PC Act, pursuant to the 2018 amendment, has paved way and given priority to provisions of PMLA (with respect to attachment) over the Criminal Law (Amendment) Ordinance, 1944 under provisions of which attachment and confiscation are usually made under the PC Act. This bereft of the fact that if attachment in PMLA takes precedence over the PC Act, then the whole idea of establishing proceeds of crime would become null as the procedure for trial are different under both Acts and trial under PMLA is much more accelerated due to its narrow scope for the offence of proceeds of crime.

[9] 1959 SCR 333

[10] 1959 Supp (1) SCR 274

[11] (1964) 7 SCR 123 

Legislation UpdatesStatutes/Bills/Ordinances

Jammu and Kashmir Reorganisation (Amendment) Ordinance, 2021

President promulgates Jammu and Kashmir Reorganisation (Amendment) Ordinance, 2021.

Amendment of Section 13

In Section 13 of the Jammu and Kashmir Reorganisation Act, 2019, after the words “in article 239A”, the words “or any other article containing reference to elected members of the Legislative Assembly of the State” shall be inserted.

Amendment of Section 88

Section 88 (2) to (6), the following sub-sections shall be substituted:

“(2) The members of the Indian Service, Indian Police Service and Indian Forest Service for the existing cadre of Jammu and Kashmir, shall be borne and become part of the Arunachal Pradesh, Goa, Mizoram and Union territories cadre, and all future allocations of All India Services Officers for the Union territory of Jammu and Kashmir and UT of Ladakh shall be made to Arunachal Pradesh, Goa, Mizoram and Union territories cadre for which necessary modifications may be made in corresponding cadre allocation rules by the Central Government.

(3) The officers so borne or allocated on Arunachal, Goa, Mizoram and Union territories cadre shall function in accordance with rules framed by the Central Government.


Ministry of Law and Justice

[Ordinance dt. 07-01-2020]

Op EdsOP. ED.

Background and Introduction

The Karnataka Government promulgated the Karnataka Land Reforms (Amendment) Ordinance, 2020 [hereinafter ‘the Ordinance’] in July 2020[1] whereby Sections 79-A, 79-B and 79-C of the Karnataka Land Reforms Act, 1961[2] were omitted thereby permitting non-agriculturists to purchase agricultural land without any limitations under law. Considering that agricultural land was significantly cheaper than land within a metropolitan city, purchasing land outside the city becomes more economically viable in comparison to purchasing property within the city. The lifting of these restrictions could result in a spurt of residential dwellings outside the city in the form of high-rise apartments, villas, etc., Bangalore is witness to a trend where people living in the city are choosing to relocate to the city’s outskirts and surrounding rural areas. This rapid counter-urbanisation is attributable to various factors such as high urban population density, overcrowding, rise in pollution and establishment of prominent schools outside the city. This article seeks to address a legal vacuum that exists regarding utilisation of agricultural land for the purposes of residence in the form of farm houses. However, construction of any sort on land that has been converted from an agricultural land use to non-agricultural land use is not within the ambit of this write-up.

Present Legal Position

Development of layouts, high-rises and other residential buildings is regulated by Local Planning Authorities constituted under the Karnataka Town and Country Planning Act, 1961[3]. The Local Planning Authorities promulgate various comprehensive development plans and regulations under the Act. The zoning regulations are fairly comprehensive in classification of land use, building regulations and other construction codes. Further, Section 76-M contains an overriding clause that is reproduced as under:

76-M. Effect of other Laws—(1) Save as provided in this Act, the provisions of this Act and the rules, regulations and bye-laws made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law.

(2) Notwithstanding anything contained in any such other law,-

 (a) when permission for development in respect of any land has been obtained under this Act, such development shall not be deemed to be unlawfully undertaken or carried out by reason only of the fact that permission, approval or sanction required under such other law for such development has not been obtained;

(b) when permission for such development has not been obtained under this Act, such development shall not be deemed to be lawfully undertaken or carried out by reason only of the fact that permission, approval or sanction required under such other law for such development has been obtained.

The effect of the above section was therefore that no other legislation could prevail over the provisions, rules, bye-laws and regulations formulated under the Karnataka Town and Country Planning Act, 1961. Therefore, the Comprehensive Development Plans promulgated by the Local Planning Authorities would prevail over any other enactments promulgated by the Legislature.

Additionally, the modalities and procedure regarding grant of sanctioned plans, building licence permits are also governed by the local municipal bodies under the Karnataka Municipal Corporations Act, 1977[4], the Karnataka Municipalities Act, 1964[5] in urban areas and the Karnataka Panchayat Raj Act, 1993[6] in areas falling under Gram Panchayats. These local bodies are free to promulgate their own bye-laws and rules regarding the procedure for grant of sanctioned plans/license permits. However, the local bodies cannot promulgate any rules or regulations that run afoul of the zoning regulations and comprehensive development plan issued by the Local Planning Authorities. This position was clarified by the Karnataka High Court in Yashodha Rao v. Bruhat Bangalore Mahanagara Palike[7] viz.

 “11. At the outset, to determine which of the Regulations is applicable it is to be noticed that the Bye-laws, 2003 relied on by the learned counsel for the petitioner would indicate that the same was framed on 24-4-2004, keeping in view the earlier Zoning Regulations which was published with the approval of the State Government on 5-1-1995 under the provisions of the KTCP Act. The said Bye-law came into force in supersession of the Bye-laws, 1983. These aspects would indicate that the Bye-law to be framed by the Mahanagara Palike is dependent on the Master Plan which would be prepared by the BDA which is the Planning Authority in the instant case. On approval of the Revised Master Plan, the Bye-laws would have to be framed in conformity with the Revised Master Plan. Presently, though the Revised Master Plan, 2015 and the Zoning Regulations, 2007 has come into force with the approval of the State Government on 25-6-2007, the Mahanagara Palike has not yet framed the Bye-laws in conformity with the same. Though that is the position, the Mahanagara Palike cannot continue to approve the construction plan under the Bye-laws, 2003 itself insofar as the specifications as it would be contrary to the Master Plan and Regulations prepared by the Planning Authority which has the jurisdiction to plan and specify regarding the development and constructions in the area. That has to be regulated and implemented by the Local Authority i.e. the BBMP in the instant case.”

The Karnataka High Court also upheld the supremacy of the Zoning Regulations under the Karnataka Town and Country Planning, 1961 against any other provisions in Dhammangi Developers Pvt. Ltd.  v.  Additional Director (Town Planning), Bruhat Bangalore Mahanagara Palike[8], the Court held as under:

 13. As rightly contended by the counsel for the petitioner, as per Section 76-M of the Karnataka Town and Country Planning Act, 1961, the provisions of the Act and the rules, regulations and bye-laws made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law. The Revised Master Plan, 2015, and the Zoning of Land use and Regulations are the result of the power exercised by the State Government under the provisions of the Karnataka Town and Country Planning Act, 1961. Therefore, Section 76-M gives precedence to these regulations. Even if there are other regulations framed by the State Government or even if there are building bye-laws of the BBMP defining high rise building as height of 15 m  and above requiring clearance of Director of Fire Services, without impinging on the rules and regulations framed in exercise of the powers conferred under the Karnataka Town and Country Planning Act, 1961, the same can be enforced. It is also necessary to notice here that as per Section 505 of the Karnataka Municipal Corporations Act, 1976, the Corporation or its authorities are precluded from doing anything against the provisions contained in the Karnataka Town and Country Planning Act, 1961, and the Regulations framed therein. In the light of the above, the inescapable conclusion is, that while the petitioner is required to abide by all the fire safety measures that can be incorporated in the building constructed by him and the portion to be constructed by seeking necessary permission by the BBMP, he cannot be asked to follow such measures which may render impossible any additional construction by the petitioner. This is because at the time he obtained permission, there was no such rigor and the permission was granted after following the rules and regulations applicable at that time.”

 As on the date of this article, many local authorities have not promulgated any bye-laws governing the grant of building licence and continue to utilise the provisions of the Zoning Regulations issued by the Local Planning Authorities. Although the zoning regulations are comprehensive regarding residential, industrial, commercial and public buildings, the regulations promulgated by the Local Planning Authorities do not adequately address constructions under the classification of ‘farm houses’.

In 2015, Local Planning Authorities in Karnataka promulgated similar zoning regulations for their respective zones. Most of these regulations only stipulate that a farm house shall be limited to 200 sq m  or 250 sq m in size depending on the total extent of land holding. The only other condition common to the zoning regulations is that the farm house shall be utilised by the farmer for his dwelling and shall not be utilised for any commercial purpose. It would be fair to assume that any person erecting a farm house would do so in a significantly large parcel of land and the stringent requirements governing buildings within city limits would be unnecessary and therefore, the zoning regulations are reasonably silent on additional rules regarding erection of farm houses.

Change in the legal position viz. legislative amendments

However, when the legal position stood as detailed above, the Karnataka Government promulgated the Karnataka Land Revenue (Amendment) Act, 2015[9] which amended Section 95-A of the Karnataka Land Revenue Act, 1961[10] which governed uses of agricultural land and inserted the following explanation;:

“… Provided that the farm building or farm house so erected shall not be more than ten percent of his holding subject to maximum of such extend of land as maybe prescribed.

Explanation. – For the purpose of this sub-section “Farm Buildings” or “farm house” means a house attached to a farm and constructed in a portion of an agricultural land, used for the residence of the agriculturist or used for the purpose of keeping agricultural equipments and tethering cattle. The house shall be used by farmer for his own use and it shall not be let out for commercial activities to any individual or agency.”

The above amendment came into effect from 13th August, 2015 and in essence superseded the limitations of 200/250 sq m that was stipulated in the Zoning Regulations. The amendment would indicate that an ‘agriculturist/farmer’ can erect a farm building or structure that can be up to ten per cent of the size of the land held by him. This could theoretically mean that a farmer who owns ten acres of land could erect a building that is 43,000 sq  ft  without falling foul of the zoning regulations.

Thereafter, the Urban Development Department of Karnataka Government also promulgated a draft ‘Common Zonal Regulations, 2017’ that sought to replace all other zoning regulations formulated by the Local Planning Authorities. The draft common zoning regulations reduced the permissible construction area of a farm house to 100/150 sq m.[11] However, the said draft regulations were stayed by an order of the Karnataka High Court and the matter is presently pending before the High Court of Karnataka.[12]

Analysis of judicial pronouncements vis-à-vis the change in law

The Karnataka High Court considered the effect of the 2015 amendment to the Karnataka Land Revenue Act, 1961 in G.S. Siddaraju v. State of Karnataka[13] and held as under:

“11. It is thus clear that an agriculturist can erect building in his agricultural land for its more convenient use or better cultivation, provided such farm building or farm house so erected is not more than 10% of his holding subject to maximum of such extent of land as may be prescribed. No rule prescribing any maximum extent of land on which such building can be erected is brought to the notice of the Court. Therefore, the proviso which says that the farm building or farm house so erected shall not be more than 10% of his holding has to be kept in mind while examining whether the house constructed is in the nature of a farm house or it loses its characteristic feature of a farm house. In other words, if the farmer has got 10 acres of land, he cannot be found fault with for putting up construction utilising a bigger area in his agricultural land, say up to 1 acre provided he uses such construction for his own residence for the purpose of agricultural operations, tethering of cattle or for storing agricultural implements or products including for residence of himself and his family members, his servants and dependents.

*                                          *                                             *

  1. Merely because the construction put up is a bigger one, it cannot be held that the construction loses the characteristic of a farm building unless it falls within the mischief of proviso to sub-section (1) of Section 95 of the Act which states that such farm building or farm house erected shall not be more than 10% of his holding or that it does not satisfy the explanation appended to sub-section (1) of Section 95 of the Act which states that farm building or a farm house means a house attached to a farm and construction made in a portion of agricultural land, used for the residence of the agriculturist or used for the purpose of keeping agricultural equipments and tethering cattle or that the house shall be used by farmer for his own use and shall not be let out for commercial activities to any individual or agency.”

An analysis of this judgment demonstrates that the Court has applied the provisions of the Karnataka Land Revenue Act, 1961 enabling construction of farm houses to the extent of ten per cent of the land holding, even though the said provisions were in conflict with the zoning regulations that limited the size of construction of farm houses to only 200/250 sq m. In G.S. Siddaraju[14], the Karnataka High Court did not dwell into a discussion or analysis of the overruling clause that can be found in Section 76-M of the Karnataka Town and Country Planning Act, 1961. These judicial pronouncements therefore lead to a question as to whether Section 76-M of the Karnataka Town and Country Planning Act, 1961 operated only till the time when such provision was inserted or whether the provision continues to accord superiority to any and all further enactments promulgated by the Legislature after the dated on which Section 76-M was inserted into the Karnataka Town and Country Planning Act, 1961. The scope of operation of Section 76-M was considered by the Karnataka High Court in 1976 in  H.G. Kulkarni v.  Assistant Commissioner, Belgaum[15] wherein the Court observed:

17. We now turn to the only remaining contention of the petitioner, which has been outlined earlier. This contention turns on the over-riding effect given to the provisions of the Mysore (now Karnataka) Town and Country Planning Act, 1961 by Section 76-M therein, the relevant portion whereof reads:

“Effect of other Laws—(1) Save as provided in this Act, the provisions of this Act and the rules, regulations and bye-laws made thereunder shall have effect notwithstanding anything inconsistent herewith contained in any other law.

(2) *                           *                               *”

                                                                                            (emphasis supplied)

A similar provision is also to be found in the Act with which we are here concerned. It is Section 47 which reads:

“Effect of provisions inconsistent with other laws.—The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law.”

                                                                                     (emphasis supplied)

  1. The question is which of the above two provisions should prevail. The relevant principle governing the effect to be given to two such conflicting provisions has been stated in Craics on Statute Law, Sixth Edn. at p. 349, thus:

“….And it appears to be a constitutional necessity as well as an established rule of construction that the last utterances of the legislature should prevail over earlier statutes inconsistent with it;….”

  1. Viewed in the light of the above principle, it would be clear that the provisions of Section 47 of the Act must be given overriding effect vis- à-vis the provisions of the Karnataka Town and Country Planning Act, as the former Act being of the year 1966, was later than the other Act which was of the year 1961. But it was faintly suggested that when the legislature enacted Section 76-M of the Town and Country Planning Act, it had intended that it should have effect over all future legislation also. This contention is without substance as a legislature cannot impose fetters on itself in regard to the exercise of its legislative power in future, and even if it does, it would not be binding on it. Hence all the contentions fail.”

Therefore, the law regarding interpretation of statutes is clear to the extent that the last iteration of the legislature should prevail over earlier statutes that are inconsistent with it.

However, this position and the judgment in H.G. Kulkarni[16] was not directly considered by the Karnataka High Court whilst pronouncing the judgment in Dhammangi Developers Pvt.  Ltd.[17] since no direct conflict with Section 76-M of the Karnataka Town and Country Planning Act emerged. In Dhammangi Developers[18], the Court observed that on the basis of the facts in that case, since the regulations under the Fire Force Act, 1964 were made applicable only after the sanctioned plan was granted to the petitioner, Section 76-M would prevail over any further regulation. It could therefore be construed that Section 76-M would prevail over any inconsistencies to the zoning regulations. However, principles of statutory interpretation indicate that a later enactment must take precedence over any previous enactments in the event of any direct conflict. It is therefore a logical conclusion that a farm house can be constructed without any regulations subject to the total area being within ten per cent of the total land holdings.

Conclusions and ground realities

The evolution of the law in this regard reveals an unresolved conflict between the provisions of the Town and Country Planning Act, 1961 and the Karnataka Land Revenue Act, 1961. The zoning regulations framed thereunder do not adequately regulate any constructions on farm lands. Since the limitation on non-agriculturists purchasing farmlands has been lifted through the Karnataka Land Reforms (Amendment) Ordinance, 2020, the instances of farm lands being utilised to erect large structures will increase, resulting in disproportionate growth outside the city. The legal vacuum thus created will also have a detrimental effect of fertile agricultural lands being utilised to erect large residential structures. The Gram Panchayats governing the rural areas on the outskirts of the city do not have any formal mechanism where a building permit is granted for construction of a farm house. The Gram Panchayats generally issue a NOC on the basis of a simple sketch provided for construction of farm house. History reveals that when land use is unregulated, the citizens seek to construct buildings on every inch of usable space without having any regard to the use of land, environmental factor and other ramifications of large constructions. The situation requires immediate legislative correction in the form of specific regulations to address constructions on unconverted agricultural land and any such regulation must endeavour the misuse of agricultural lands in a nation that is primarily agricultural.


*Advocate, GDroit, Advocates, Bangalore. Author can be reached at gautamaditya@gdroit.com

[1] The Karnataka Land Reforms (Amendment) Ordinance, 2020; (Karnataka Ordinance No. 13 of 2020)

[2] The Karnataka Land Reforms Act, 1961 (Karnataka Act No. 10 of 1962)

[3] The Karnataka Town and Country Planning Act, 1961 (Karnataka Act No. 11 of 1963)

[4] The Karnataka Municipal Corporations Act, 1977( Karnataka Act No. 14 of 1977)

[5] The Karnataka Municipalities Act, 1964 (Karnataka Act No. 22 of 1964)

[6] The Karnataka Panchayat Raj Act, 1993 (Karnataka Act No. 14 of 1993)

[7]Yashodha Rao v. Bruhat Bangalore Mahanagara Palike, 2012 SCC OnLine Kar 8891

[8]Dhammangi Developers Pvt. Ltd. v. Additional Director (Town Planning), Bruhat Bangalore Mahanagara Palike; 2012 SCC OnLine Kar 9081

[9] The Karnataka Land Revenue (Amendment Act), 2015( Karnataka Act No. 31 of 2015)

[10] The Karnataka Land Revenue Act, 1964 (Karnataka Act No. 12 of 1964)

[11] Regulation 3.1.8(a)(G) of the Common Zonal Regulations for all Local Planning Areas, 2017 available at http://www.dtcp.gov.in/sites/dtcp.gov.in/files/pdfs/czr_draft_gazettee_notification.pdf

[12] Citizens Action Forum v. The State of Karnataka, WP No. 38165 of 2017, order dated 7-9-2020

[13]G.S. Siddaraju v. State of Karnataka; 2016 SCC OnLine Kar 8430

[14]Ibid

[15]H.G. Kulkarni v.  Assistant Commissioner, Belgaum, 1976 SCC OnLine Kar 15

[16]Ibid

[17]Id. at Note 8

[18] Id.

Legislation UpdatesNotifications

Central Government hereby declares that whole of the State of Nagaland to be ‘disturbed area’ for a period of six months with effect from 30-12-2020 for the purpose of Armed Forces (Special Powers) Act, 1958.

Read the notification, here: NOTIFICATION.


Ministry of Home Affairs

[Notification dt. 30-12-2020]

Legislation UpdatesNotifications

S.O. 4638(E)— In exercise of the powers conferred by Section 10A of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby notifies further period of three months from the 25-12-2020, for the purposes of the said section.


Ministry of Corporate Affairs

[Notification dt. 22-12-2020]

Legislation UpdatesNotifications

S.O. 4646(E).—In exercise of the powers conferred by Section 1 (2) of the Companies (Amendment) Act, 2020 (29 of 2020), the Central Government hereby appoints the 21-12-2020 as the date on which the following provisions of the said Act shall come into force, namely:-

S. No. Sections
1. Section 1;

 

2 Section 3;

 

3 Sections 6 to 10 (both inclusive);

 

4 Sections 12 to 17 (both inclusive);

 

5 Clauses (a) and (b) of section 18;

 

6 Sections 19 to 21 (both inclusive);

 

7 Clause (i) of section 22;

 

8 Section 24;

 

9 Section 26;

 

10 Sections 28 to 31 (both inclusive);

 

11 Sections 33 to 39 (both inclusive);

 

12 Sections 41 to 44 (both inclusive);

 

13 Sections 46 to 51 (both inclusive);

 

14 Section 54;

 

15 Section 57;

 

16 Section 61; and

 

17 Section 63.

 


Ministry of Corporate Affairs

[Notification dt. 21-12-2020]

Legislation UpdatesNotifications

Central Government exercising the powers conferred by sub-section (3) of Section 1 of the Code of Wages, 2019 read with Section 14 of the General Clauses Act, 1897 appoints the date of publication of this notification in the Official Gazette as the date on which the following provisions of the said Code shall come into force, namely:-

SI. No. Provisions of the Code
1. sub-sections (1), (2), (3), (10) and (11) of section 42 (to the extent they relate to the Central Advisory Board);
2. clauses (s) and (t) of sub-section (2) of section 67 (to the extent they relate to the Central Advisory Board);
3. Section 69 [to the extent it relates to Sections 7 and 9 (to the extent they relate to the Central Government) and section 8 of the Minimum Wages Act, 1948 (11 of 1948)].

Read the Gazette here:  223800


Ministry of Labour and Employment

[Notification dt. 18-12-2020]


Also Read:

Centre notifies draft Code on Wages (Central) Rules, 2020 and invites objection and suggestions

Code on Wages Bill, 2019 received President’s assent — The Code on Wages, 2019 to be enacted

Rajya Sabha Passes The Code on Wages Bill, 2019

Lok Sabha Passes the Code on Wages Bill, 2019

Cabinet approves Code on Wages Bill

Legislation UpdatesStatutes/Bills/Ordinances

Ministry of Ports, Shipping and Waterways has circulated a draft of Indian Ports Bill 2020 for public consultation which will repeal and replace the Indian Ports Act, 1908 (Act No. 15 of 1908)

The draft Indian Ports Bill, 2020, seeks to, inter alia, enable the structured growth and sustainable development of ports to attract investments in the Port sector for optimum utilisation of the Indian Coastline effective administration and management of ports. The proposed Bill will provide measures to facilitate conservation of ports, taking into account the prevalent situation with respect to the high number of non-operational ports. It shall further ensure greater investment in the Indian maritime and ports sector through the creation of improved, comprehensive regulatory frameworks for the creation of new ports and management of existing ports.

The Bill also seeks to, inter alia, create an enabling environment for the growth and sustained development of the ports sector in India through the following broad methods:

  1. Constitution of Maritime Port Regulatory Authority
  2. Formulation of the National Port policy and National Port plan in consultation with Coastal State Governments, State Maritime Boards and other stakeholders.
  3. Formulation of specialised Adjudicatory Tribunals namely Maritime Ports Tribunal and Maritime Ports Appellate Tribunal to curb any anti-competitive practises in the port sector and act as a speedy and affordable grievance redressal mechanism.

The up-to-date provisions of the proposed Bill would ensure safety, security, pollution control, performance standards and sustainability of Ports. The Bill ensures that all up-to-date conventions /protocols to which India is a party, are also suitably incorporated. This will promote marine safety and security in the true sense. The Bill will fill up the gaps for achieving scientific development of Ports and Port Network.

The Bill seeks to provide increased opportunities for public and private investments in the Indian maritime and ports sector by way of removing barriers to entry, simplifying processes and establishment of agencies and bodies to plan and enable the growth of the ports sector. Enhancing “Ease of Doing Business’, it will provide greater impetus to a self-reliant domestic investment climate in the maritime sector, towards Atamanirbhar Bharat initiatives of the Government.

Minister of State (I/C)Ministry of Ports, Shipping and Waterways, Shri Mansukh Mandaviya, said, “We are working on the creation of a National Port Grid. This Bill will be a game-changer in the Indian maritime sector especially for bringing more investments. the bill will bolster structured growth and sustained development of Ports and ensure achieving this objective on a fast track basis. Consequently, it will result in revolutionary maritime reforms transmuting the Indian maritime set-up entirely in the times to come.”

The draft of Indian Ports Bill 2020 is issued for public consultation for seeking the feedback and suggestions. This can be accessed on the link http://shipmin.gov.in/sites/default/files/IPAbill.pdf and suggestions can be sent to sagar.mala@nic.in by 24 December 2020.


Ministry of Ports, Shipping and Waterways

[Press Release dt. 11-12-2020]

[Source: PIB]

Legislation UpdatesRules & Regulations

Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2020

The Central Government makes the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2020, to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.

In the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, in rule 6, in clause (a), after the third proviso, the following proviso shall be inserted, namely:-

Provided also that a Multilateral Bank or Fund, of which India is a member, shall not be treated as an entity of a particular country nor shall any country be treated as the beneficial owner of the investments of such Bank or Fund in India

In Schedule 1 of the rules,  for the Defence sector, Centre notifies that the Defence Industry subject to Industrial license under the Industries (Development and Regulation) Act, 1951 and Manufacturing of small arms and ammunition under the Arms Act, 1959, the Sectoral Cap will be 100% and Entry Route in case of Automatic up to 74% and Government route beyond 74% wherever it is likely to result in access to modern technology or for other reasons to be recorded.

Read the detailed notification, here: NOTIFICATION


Ministry of Finance

[Notification dt. 08-12-2020]

Legislation UpdatesNotifications

Ministry of Road Transport and Highways has invited suggestions and comments from the public and all stakeholders on the proposed amendment to the Central Motor Vehicles Rules, 1989 to facilitate the owner of the vehicle for nominating a person (Nominee in RC). The draft notification GSR 739 (E) dated 26th November 2020 has been published by the Ministry.

Nomination facility is proposed to be incorporated at the time of registration of the vehicles. This would help the motor vehicle to be registered/transferred in the name of the nominee, in case of the death of the owner of the vehicle. The process is otherwise cumbersome and non-uniform across the country.

The amendments proposed in the Central Motor Vehicles Rule, 1989 are as under:-

(a) Rule 47. Application for registration of motor vehicles:- An additional clause is proposed to be inserted wherein “proof of identity of nominee, if any” to enable the owner to nominate anyone to be the legal heir of the vehicle in case of death.

(b) Rule 55. Transfer of ownership:- In sub-rule (2), it has been proposed that an additional clause may be inserted wherein “proof of identity of nominee, if any” to enable the owner to nominate anyone to be the legal heir of the vehicle in case of death.

(c) Rule 56. Transfer of ownership in case of death:- (i) In sub-rule (2), which is regarding the process to transfer the vehicle to the legal heir in case there is no nominee has been specified by the registered owner, it is proposed that An additional clause may be inserted wherein “proof of identity of nominee, if any” to enable the owner to nominate a nominee.

(d) A new sub-rule for insertion wherein it has been proposed that in the case where the nominee is already specified, the vehicle will be transferred in the name of nominee and nominee will have to upload the death certificate on the portal to inform the registering authority and apply for a new certificate of registration in his name through the portal which will be faceless if Aadhaar authentication is chosen by the nominee. For Change in Nominee in Contingency, it is proposed the possibility of change in nominee in case of any contingency arising out of special circumstances viz., divorce, division of property, transfer of assets without sale may be arrived at with an agreed Standard Operating Procedure (SOP) for such nomination, which may be done by such owners.

(e) Rule 57. Transfer of ownership in case vehicle is purchased in public auction:- In sub-rule (1) which is regarding the application for registration of motor vehicles, An additional clause may be inserted wherein “proof of identity of the nominee, if any” to enable the owner to nominate anyone to be the legal heir of the vehicle in case of death.

(f)  Amendment of FORM 20, Form 23 A, 24, 30, 31 and 32 has also been proposed for amendment to include details of the nominee and the declaration from the registered owner for entering the details of the nominee.

Certificates/orders issued by SDM/DM/Tribunals/ Courts may also be used for facilitating this citizen-friendly service and such window would be made available in the proposed amendment.

Objections and suggestions to these draft rules, if any, may be sent to the Joint Secretary (MVL), email: director-morth@gov.in, Ministry of Road Transport and Highways, Transport Bhawan, Parliament Street, New Delhi-110 001 within 30 days of date of notification.


Ministry of Road Transport & Highways

[Press Release dt. 27-11-2020]

Hot Off The PressNews

Editors Guild of India urges Chief Minister of Kerala to withdraw disturbing amendment to Kerala Police Act 118 A immediately, which provides for up to three years of punishment for publication of material with an intention to intimidate, insult, or defame any person through social media.

Although Government has placed the amendment on hold until discussed by the state assembly and has given an assurance to Kerala High Court that the state police will no take any adverse actions, but the ordinance is still in force and has the potential for grave misuse and should be withdrawn forthwith.

The amendment to the Kerala Police Act would deeply hurt the cause of free speech and freedom of press as it gives unbridled powers to the police to target political opposition and the press in the name of monitoring content on social media.

Editor Guil reiterates immediate withdrawal of this section 118 A of the Police Act.


Editors Guild of India

[Press Release dt. 24-11-2020]

COVID 19Legislation UpdatesNotifications

Central Government directs that the National Institute of Biologicals, Noida shall along with existing functions perform the function of Central Drugs Laboratory as an additional facility in respect of COVID-19 vaccine and the functions of the Director in respect of COVID-19 vaccine shall be exercised by the Director of the said Institute.

What does the Notification states?

S.O. 4206(E)— Whereas, there has been an outbreak of COVID-19 pandemic in India and worldwide;

Whereas, the Central Government is satisfied that making available suitable COVID-19 vaccines is essential to meet the requirements of emergency arising due to the pandemic COVID-19 and, therefore, in public interest, it is necessary and expedient to regulate the testing of COVID-19 vaccine for prevention and management of COVID-19 infection;

Whereas, the Central Government, in consultation with the Drugs Controller (India), is of the considered view that the supply of COVID-19 vaccine must not get affected and the vaccine must remain available to the public;

Now, therefore, in the exercise of the powers conferred by sections 6 and 26B read with section 33P of the Drugs and Cosmetics Act, 1940 (23 of 1940) and rule 3 of the Drugs and Cosmetics Rules, 1945, the Central Government, hereby directs that the National Institute of Biologicals, Noida, in addition to its existing functions shall perform the function of Central Drugs Laboratory as an additional facility in respect of COVID-19 vaccine and the functions of the Director in respect of COVID-19 vaccine shall be exercised by the Director of the said Institute.

2. In case of any inconsistency between this notification and any rule made under the said Act, the provisions of this notification shall prevail over such rule in public interest so as to meet the requirements of emergency which have arisen due to COVID-19 pandemic.

3. This order shall come into force on the date of its publication in the Official Gazette.

4. The notification shall remain into force for a period upto 30th November, 2021.

NOTIFICATION


Ministry of Health and Family Welfare

[Notification dt. 24-11-2019]

Legislation UpdatesStatutes/Bills/Ordinances

Kerala Police (Amendment) Ordinance, 2020

Governor of Kerala, Arif Mohammed Khan promulgates an ordinance to further amend the Kerala Police Act, 2011.

Following are the amendments introduced:

3. Amendment of Section 118—In the principal Act, after section 118, the following section shall be inserted, namely:—

“118 A. Punishment for making, expressing, publishing or disseminating any matter which is threatening, abusive, humiliating or defamatory.─Whoever makes, expresses, publishes or disseminates through any kind of mode of communication, any matter or subject for threatening, abusing, humiliating or defaming a person or class of persons, knowing it to be false and that causes injury to the mind, reputation or property of such person or class of persons or any other person in whom they have interest shall on conviction, be punished with imprisonment for a term which may extend to three years or with fine which may extend to ten thousand rupees or with both.”.

4. Amendment of Section 125.—In sub-section (1) of section 125 of the principal Act, after the figures and symbol “118,” the figures, letter and symbol “118A,” shall be inserted.


Kerala Gazette

Ordinance No. 79 of 2020

Legislation UpdatesStatutes/Bills/Ordinances

Haryana State Employment of Local Candidates Bill, 2020

The above stated Bill provides seventy-five per cent employment of local candidates by the employer in the State of Haryana and fore matter connected therewith.

Reason for introducing the Bill:

To provide reservation to the local candidates of Haryana in private employment under various Companies, Societies, Trusts, Limited Liability Partnerships Firms, Partnership Firm etc. situated in Haryana for a period of ten years, the Government of Haryana has proposed a Bill named as “The Haryana State Employment of Local Candidates, Bill, 2020.”

The influx of a large number of migrants competing for low-paid jobs places a significant impact on local infrastructure and housing and leads to proliferation of slums. This has led to environmental and health issues which has been acutely felt in the urban areas of Haryana affecting the quality of living and livelihood. Therefore, giving preference to local candidates in low-paid jobs is socially, economically and environmentally desirable and any such preference would be in the interests of the general public.

With the enactment of the present Bill, in the interest of public at large, the State is also going to encourage all the private employers in Haryana to boost local employment. The Bill will provide tremendous benefits to the private employers directly or indirectly through the qualified and trained local workforce. Availability of suitable workforce locally would enhance the efficiency of Industry as the workforce is one of the major components for the development of any industrial organization/factory.

Salient Features of the Bill:

  1. To provide at least 75% of employment to the local candidates in various Companies, Societies, Trusts, Limited Liability Partnerships Firms, Partnership Firm etc. situated in the State of Haryana.
  2. To provide training to eligible local candidates where qualified or suitable candidates are not available.

Read the notification here: The Haryana State Employment Of Local Candidates Bill, 2020


Haryana Government

[Notification dt. 31-10-2020]

Op EdsOP. ED.

Parliament of India enacted the Insolvency and Bankruptcy Code, 2016[1] (“the Code”) to consolidate laws relating to insolvency and bankruptcy in India and provide an effective legal framework for timely resolution of the companies. The Code provided Financial Creditors and Operational Creditors with the right to initiate the Corporate Insolvency Resolution Process (“CIRP”), against a Corporate Debtor under Sections 7 and 9 respectively.

I.  Allottees as Financial Creditors – a step forward

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018[2] (“the IBC Amendment, 2018”) included the allottees of real estate projects as financial creditors under the Code. Hereafter, the allottees could apply to initiate the CIRP against the Corporate Debtors (“real estate developer”) alike other financial creditors i.e. banks and financial institutions. The Supreme Court of India in Pioneer Urban Land and Infrastructure Ltd. v. Union of India[3]  (“Pioneer”) upheld the constitutional validity of the inclusion of allottees as financial creditors [“allottee(s)”] on 09.08.2019. The Court also categorically refused reading into any limitation like pre-requisite minimum threshold in terms of numbers or otherwise on the right of allottees to approach the Tribunal and trigger the resolution process.[4] Thus, an allottee of a real estate project was given a right to initiate the CIRP like other financial creditors “either by itself or jointly with other financial creditors” against a real estate developer on the occurrence of a default under Section 7 of the Code.

II. The legislative retraction – a limitation imposed

However, first, the President of India promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019[5] (“the Ordinance”) on 28.12.2019 as a stop-gap arrangement to limit the accessibility of individual allottees or to the Tribunal if a minimum threshold limit is not met. Section 3 of the Ordinance amended Section 7 of the Code by adding three provisos. The second proviso placed a condition on the allottees of at least being 100 or 10% of the total number of allottees, whichever is less, in the “same real estate project” to apply for initiation of the CIRP. Moreover, the third proviso directed the applicants of the pending applications which have yet not been admitted by the Tribunal shall be modified in conformity of the abovesaid minimum threshold within a period of one month i.e. by 28.01.2020, failing which such applications shall be automatically deemed as withdrawn.

The Ordinance was approved by Parliament on 13.03.2020 vide the enactment of the Insolvency and Bankruptcy Code (Amendment) Act, 2020[6] (“the IBC Amendment, 2020”) with identical provisions. Like the Ordinance, the IBC Amendment, 2020 has imposed pre-requisite minimum threshold for allottees of real estate project to approach the Tribunal under Section 7 of the Code vide an identical Section 3. In a writ petition titled Manish Kumar v. Union of India[7] , the provision has been challenged as violative of Article 14 of the Constitution of India. Primarily, the amendment has been challenged on the ground of being class legislation without any reasonable differentia and its retrospective application as manifestly arbitrary. The Court ordered status quo on 13.01.2020.[8]

With this background, the present article first, examines the wholesome effect of the condition imposed on allottee who was earlier given the right to apply for initiation of the CIRP individually, like other Financial Creditors. Second, the authors aver that the amendment in Section 7 vide the second and third provisos was uncalled for in light of the existing mechanism under the Code and the alternatives which were available with the legislature. Last, the authors suggest the possible middle way available now with the Court in pending writ petition.

 III. Repairing effect of the second and third provisos to Section 3 of the IBC Amendment, 2020

The abovesaid limitation on the allottees of a real estate project is placed as a consequence of several apprehensions and after-effects of inclusion of allottees under Section 7 at par with other financial creditors. Their inclusion as financial creditor was followed with a surge in applications against the real estate developers before the Tribunal. Numerous independent applications were filed by allottees against the same real estate developers. Nearly, all the real estate companies[9] found themselves in hot water before the Tribunal as Corporate Debtors for defaults committed in timely completion of the projects and handover of timely possessions. This brought the real estate developers on their tenterhooks and they raised concerns of being entangled in malicious applications by multiple allottees which have severely affected their regular working. It was also argued that the Code has been used as a “debt recovery mechanism” instead of reviving such a corporate entity.

The Preamble of the Ordinance, the recent Standing Committee Report[10], or the IBC Amendment, 2020 does not state any specific reason to amend Section 7 of the Code. However, considering the abovesaid circumstances, the amendment can be inferred to have been brought in principally to cure two ills. First, all the allottees of the same project can be clubbed before-hand for efficiency in the hearings before the Tribunal and resolution process. Second, the legislature intends to bar applications by individual allottees who with the provided liberty and access to the Tribunal, could single-handedly topple down the existence of the real estate developer maliciously, despite, the entity being a going-concern and in the hands of good management. This would consequentially revive and also keep the real estate industry alive to the market needs.

Thus, the legislature amended Section 7 to alleviate the anxiety and troubles of the real estate developers. The amendment attempts to alleviate the miseries of the real estate developers due to multiple applications and keep the real estate sector alive and responsive to their needs in the development of the country. The amendment has been welcomed by the real estate developers who had been brought before the Tribunal maliciously or on minor defaults with the sole purpose of refund, instead of a revival of the entity.

 IV. Impairing effect of the second and third provisos to Section 3 of the Ordinance

In contrast to the above said, the amendment has, however, impaired the right of the allottees who will now be not able to approach the Tribunal individually and independently or jointly, unlike other financial creditors and operational creditors, if the required minimum threshold is not met. The legislature has imposed minimum thresholds of 100 or 10% with retrospective applicability on the allottees who were included as financial creditors seeing their contribution in the projects and their condition of suffering for years.

Apart from the objections to the constitutional validity, the amendment in Section 7 gives rise to several anomalies which will need redressal by the Court or legislature in future.  The amendment also gives rise to several severe consequential hardships and inconvenience to the allottees, particularly due to its retrospective applicability.  These can be noted as follows:

i. Anomalies due to the amendment

First, as aforesaid the pending applications had to be “modified” within a period of one month. If a party fails to comply with the second proviso to Section 3 of the IBC Amendment, 2020, the application will be deemed withdrawn. But the legislature has not explained what is meant by the term “modified[11] used in the third proviso to Section 3 of the Ordinance and the IBC Amendment, 2020. Does it merely mean amending the application wherein a party avers to having the requisite numbers along with a list of such allottees or does it mean that all the allottees whose applications are pending before the Tribunal or allottees who intend to apply shall be consolidated under one umbrella application pending before the Tribunal and thereafter be proceeded collectively?

Second, the amendment does not state whether the required strength of 100 or 10% of the total number of allottees, whichever is less, is mandated to be required only at the stage of initiating the proceedings or whether the strength needs to be continued and maintained all through. What will be the consequence if one or some allottees settle with the real estate developer and the requisite numbers then fall short subsequently? The Courts while interpreting Section 241 of the Companies Act, 2013 which provides a similar threshold for initiation of the proceedings of operation and mismanagement has held that the validity of petitions must be judged as they were at the time of its presentation. The legislature could have clarified this under the Code right from the inception and avert any such anomalies. Moreover, this may also give rise to mischiefs by several developers who may settle out of court with one or more allottees to make the proceedings infructuous.

Third, it would be interesting to see, if the said 10% criteria can include an allottee who may have defaulted in making payments to the developer considering the delay and default on part of the developer, can form part of the 10% group or not. To draw a parallel with the shareholders of a company filing under Section 241 of the Companies Act, 2013, a member is disqualified to file whose calls are in arrears or whose shares are partly paid-up or who is a holder of a share warrant.

Last, Section 245 of the Companies Act, 2013 or Section 12(1)(c) of the Consumer Protection Act, 1986 delineate the procedure and conditions for a class action. However, the Code or the amendment does not provide any contours for a class action before the Tribunal.

ii. Consequential hardship and inconvenience to allottees

First, it is pertinent to note that the remedies under the Code are concurrent[12]  and does not bar remedies of different natures before different forums in different parts of the country. The legislature failed to appreciate the hardship in consolidating all or some of the allottees to meet the requisite threshold from different jurisdictions. For example, Section 11 of the Consumer Protection Act, 1986 provides for the institution of complaint in a district forum at a place of business of opposite party or where the cause of action wholly or in part arose. However, Section 60 of the Insolvency and Bankruptcy Code, 2016 mandates the proceedings to be initiated only at the place where the corporate person has its registered office. Thus, the proceedings against the same real estate developer for the same project may be pending in different forums at different stages and in different jurisdictions. In such cases, bona fide applicants will fail to consolidate all allottees under one umbrella application or provide the number of pending disputes against the same real estate developer.

Second, the above hardship in consolidation is further elevated due to non-existence of any public record along with particular details of the allottees who have availed different remedies against the same project. Along with the amendment, the legislature should have brought a law which mandated the real estate developers to maintain the list of allottees of a project on a public platform. Until the real estate developers had complied with this requirement or until the time to comply expired, the right of the allottees to apply for initiating the CIRP should not have been curtailed.

Last, the legislature failed to realise that deemed withdrawal of applications filed but not admitted by the Tribunal within a period of one month will deny the applicants fruits of their already incurred litigation costs i.e. court fee and advocate fee. It will further encumber the allottees with afresh litigation costs for initiating de novo proceedings before other available forums. In many cases, the parties will have to also go through the hassles of agreeing to a common lawyer. This will be setting the clock backwards. It is pertinent to note that the Code provides summary proceedings and averting undue delay and a timely resolution was one of the prime objectives behind the enactment of the Code. However, the wholesome effect of Section 3 of the Amendment Ordinance, 2019 is contrary to the said objects of the Code.

V. Whether the second and third provisos to Section 3 of the IBC Amendment, 2020 are uncalled for?

On equating the pros and cons of the amendment in Section 7 of the Code and subsequently discussed alternatives, the authors are of the view that the amendment was uncalled for and in particular, to the extent of its applicability to pending applications. The legislature might have intended to balance the interest of the allottees and real estate developers but, there did already exist sufficient mechanism under the Code and the legislature had more feasible alternatives to address the concerns of the real estate developers.

i. Sufficient mechanism in place to check malicious applications

First, it is pertinent to note that on the admission of an application the Tribunal makes a public announcement and declares a moratorium under Section 14 of the Code. Other creditors like allottees, banks, and financial institutions can submit their claim before the Interim Resolution Applicant (“IRP”) or Resolution Applicant (“RP”). Thus, the intended clubbing and collating automatically happens with the admission of one application. After verification of their claims by the IRP or IP, they all can be part of the Committee of Creditors.

Second, the Code already provides an efficient statutory mechanism to keep a check on the apprehended mala fide applications whereby an allottee is apprehended to single-handedly topple down of the management or existence of the real estate developer despite it being a going concern. One, Section 65 of the Code already provides penalties ranging from Rs. 1 lakh to Rs. 1 crore on fraudulent or malicious initiation of proceedings. The Tribunal always has the power to impose costs on such applicants [See Navin Raheja v. Shilpa Jain[13] (Navin Raheja)]. For example,  in Ram Pal Suhag  v. Sweta Estates Pvt. Ltd.[14] the Tribunal imposed a cost of Rs. 50,000 on the frivolous application filed to arm twist the real estate developer . Two, similarly, Section 75 of the Code provides for a penalty of Rs. 1 lakh to 1 crore if the applicant under Section 7 knowingly falsely states a material fact or omits to state any material fact in the application. Three, if a real estate developer fears cessation of the Company, there are already several stages for the parties can amicably settle[15] . Merely an attempt to settle the dispute cannot be imputed with allottee being a malicious applicant or that the applicant is using the Code as “debt recovery mechanism”.

Third, the Supreme Court specifically stated that “in a Section 7 application made by an allottee, the NCLT’s ‘satisfaction’ will be with both eyes open – the NCLT will not turn a Nelson’s eye to legitimate defences by a real estate developers”.[16] Thus, the Court will not sit merely as a mere rubber stamp to allow mala fide applications. The Tribunal can always dismiss an application if the real estate developer raises viable defences.

For example, an application may be dismissed if a real estate developer proves the occurrence of force majeure, actions inactions and omissions on the part of the Government or Authority, or default in payment by the allottees, or allottee not taking possession to earn higher interest etc. Inter alia other decisions, the NCLAT in Parvesh Magoo v. IREO Grace Realtech Pvt. Ltd.[17] dismissed the application of the allottee noting the force majeure and the fact that the apartment of the allottee was ready for possession. Similarly, in Navin Raheja[18]  the NCLAT allowed the appeal against the order of the Tribunal admitting Section 7 application. The Court held that if a delay is due to force majeure it cannot be alleged that the corporate debtor defaulted in delivering the possession”.

Fourth, the Supreme Court has already held that once an application is admitted by the Tribunal “it is a proceeding in rem which, after being triggered, goes completely outside the control of the allottee who triggers it….Under the Code, he may never get a refund of the entire principal, let alone interest….[He is] always taking the risk that if no one were to come forward, corporate death must ensue and the allottee must then stand in line to receive whatever is given to him in winding up” .[19]

Thus, an allottee cannot singlehandedly liquidate a real estate developer for his refund. “If the intention of the allottees is only for the refund of money and not the possession of apartment/ flat/premises, then the ‘Corporate Debtor’ may bring it to the notice of the Adjudicating Authority”.[20] Liquidation is the last consequence where the prior steps of revival fail. Thus, an allottee cannot straightway liquidate a company to recover his debts.

Last, it must be noted that a reasonably high court fee of Rs. 25,000 also inadvertently keeps a check on the filing of bona fide applications.

ii.   Alternatives

First, the legislature could have instead, increased the costs or penalty on the malicious and fraudulent applications under Section 65 of the Code to deter malicious applicants. The legislature could have harnessed exercise of the power of the Tribunal under Section 65 to contain malicious applications, if needed.

The legislature could have attempted to define malicious applications i.e. non-disclosure of material facts in the application or non-performance or non-compliance to the material terms of the agreement including but not limited to default in payment of instalments or taking of possession. Similarly, the legislature could have enlisted some defences available to the real estate developer i.e. as aforesaid, force majeure, or default on part of the applicant. To draw a parallel with the shareholders of a company filing under Section 241 of the Companies Act, 2013, a member is disqualified to file whose calls are in arrears or whose shares are partly paid up. Thus, such allottees in default could have been restricted as being applicants under Section 7 of the Code.

Second, it is pertinent to note that Section 4 of the Code already provides the Central Government power to increase the pre-requisite of default from Rs. 1 lakh to any amount till Rs 1 crore. Thus, the Central Government could have easily increased the minimum threshold of default amount for the allottees of real estate project to approach under Section 7 of the Code i.e. Rs 10 lakh or 20 lakh for individual allottees. It must be noted that on 24.03.2020 the Government has raised the amount of default to Rs. 1 crore for all the creditors under Section 4 of the Code in view of the outbreak of Covid-19 epidemic. Similar step by the legislature for the allottees could have averted all legislative hassles and the above-discussed anomalies and hardships, arising out of Section 3 of the IBC Amendment, 2020.

Thus, given this position of law and alternatives, there was no viable reason to disable an individual allottee from applying without requisite numbers. The Tribunal already had sufficient mechanism to check mala fide applications.  Even if this pre-requisite is deemed essential to save a real estate developer from malicious applications, its retrospective application only adds to miseries of the allottees. A mere surge in applications and apprehensions of real estate developers cannot be a ground for curtailing the remedy of allottees. The legislature could have easily averted the hardships and anomalies had it adopted any of the above-suggested alternatives. Moreover, it is difficult to appreciate the mala fide intents of an allottee in an application for revival of the company wherein the applicant has invested his life savings to purchase an abode and the real estate developer has defaulted in handing over the possession. Thus, the amendment in Section 7 on the allottees of a real estate project was uncalled for, particularly with a retrospective effect.

VI. The middle way

In light of the abovesaid, it is also difficult to aver that the surge in applications has not severely affected the working of the real estate developers. The litigation costs and replies to multiple applications do severely affect the normal functioning of these companies. In such a situation where the legislature felt the existing mechanism as not sufficient to check the disruptions due to multiple applications it would have been reasonable to give the amendment a prospective application only i.e. application filed after 28.12.2019, provided it withstands the test of constitutionality under Article 14 of the Constitution of India.

Further, the legislature could state that a minimum threshold is required to be met at the time of the first hearing before the Tribunal. Moreover, the legislature needs to find a way out for an authentic public record for a list of allottees, which will avoid unnecessary protraction of this efficient and speedy resolution proceedings due to hearings on this preliminary issue of whether the application meets the minimum threshold. It must be remembered that the proceedings under the Code are summary proceedings.

VII. Concluding remarks

Apart from other objections not subject of discussion in the present article i.e. the Ordinance and the amendment to Section 7 being violative of Article 14 of the Constitution, pending before the Supreme Court, the legislature has overviewed the above-noted consequent anomalies and hardships which is causing and is likely to continue causing grave injustice and hardship to the allottees of real estate project. The legislature may have intended to balance the equities of real estate developers, allottees, and the real estate market, but the legislature missed to appreciate the abovesaid anomalies and hardships caused to the already oppressed allottees and the retrospective applicability of the amendment runs it excessive.

In view of the authors, such a retraction by the legislature after recognising a right of the individual applicant dissuades faith reposed by the applicants, in the purported “beneficial legislation” like the Code. Such flickering enactments by the legislature makes applicants or litigants dissuade from such remedies, created for their benefit. The legislature should have, if deemed necessary, applied the amendment to future applications only. Additionally, the legislature could have easily avoided consequent anomalies by use of terms like “impleadment” instead of “modified”; stating that the pre-requisite criterion as, “….whichever is less, at the time of filing of the application” in the third proviso. Such legislation could contain the faith of the already oppressed allottees in such purported beneficial legislations who filed for initiation of the CIRP being mindful of the decision of the Court in Pioneer[21].


*Advocates, Supreme Court of India and High Court of Delhi

[1] The Insolvency and Bankruptcy Code, 2016

[2] The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018

[3] (2019) 8 SCC 416

[4] Ibid, paras 56-57

[5] The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019

[6] The Insolvency and Bankruptcy Code (Amendment) Act, 2020

[7] 2020 SCC OnLine SC 384

[8]Ibid.

[9] Business Today, “Real estate tops bankruptcy chart; construction, metals and textiles follow”, dated 19-2-2019

[10] Standing Committee On Finance (2019-2020), Sixth Report, The Insolvency and Bankruptcy (Second Amendment) Bill, 2019 

[11] Pareekshit Bishnoi, “IBC Ordinance, 2019: Impleadment of Allottees in a Pending Application”, IndiaCorpLaw, dated 16-3-2020 

[12] Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, para 86(ii)

[13] 2020 SCC OnLine NCLAT 46, para 33

[14] IB-1637 (ND)/2019, order dated 24-09-2019 (NCLT, New Delhi Bench), paras 5-6

[15] Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, para 14

[16]Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, para 56

[17] 2020 SCC OnLine NCLAT 421, para 15

[18] 2020 SCC OnLine NCLAT 46, para 55

[19]Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, para 39

[20] 2020 SCC OnLine NCLAT 46, paras 33-37, 45-47 and 53-55

[21]Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416

Legislation UpdatesStatutes/Bills/Ordinances

President promulgates Arbitration and Conciliation (Amendment) Ordinance, 2020

Amendment of Section 36

In Section 36 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the principal Act), in sub-section (3), after the proviso, the following shall be inserted and shall be deemed to have been inserted with effect from 23rd day of October, 2015, namely:—

“Provided further that where the Court is satisfied that a prima facie case is made out,-—

(a) that the arbitration agreement or contract which is the basis of the award; or

(b) the making of the award,

was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.”.

Explanation.— For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.

Substitution of new Section for Section 43J

For section 43J of the principal Act, the following section shall be substituted, namely:-—

Norms for accreditation of arbitrators

“43J. The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”

Omission of Eighth Schedule

The Eighth Schedule to the principal Act shall be omitted.

Read the Ordinance here: ORDINANCE


Ministry of Law and Justice

[Dt. 04-11-2020]

Case BriefsHigh Courts

Madras High Court: A Division Bench of N. Kirubakaran and B. Pugalendhi, JJ., said that a Constitutional Authority has to take a decision, if a Bill is presented for assent, as soon as possible. It was also stated that the protection under Article 361 of the Constitution has been given by the Framers of the Constitution, with hope and trust in the Appointees that they would perform their constitutional functioning promptly.

The High Court was hearing a petition seeking direction to the Governor to take a decision with regard to “The Tamil Nadu Admission to Under Graduate Courses in Medicines, Dentistry, Indian Medicine and Homeopathy on preferential basis to the Students of the Government Schools Bill, 2020” pending before him for assent. The Advocate General submitted before to the Court that the Constitutional Authority is in need of three to four weeks time to take a decision with regard to the Bill. It was noted that the said Bill was passed unanimously on 15-09-2020 and the same was sent for assent to the Constitutional Authority on the very same day, yet the same is pending for last two months.

It was noted by the Court that since the introduction of NEET Examination in the year 2017, so far only 14 students from the Government Schools got admission to the Medical Courses. On High Court’s posing a question with regard to the non-taking of a decision by the Constitutional Authority, the Advocate General referred Article 361(“Protection of President and Governors and Rajpramukhs“) of the Constitution of India and submitted that in the said Article, protection has been given that the Governor who is not answerable to any Court for exercise and performance of the powers and duties of his office or for any act done or purporting to be done by him in the exercise and performance of those powers and duties.

The Court was of the view that no doubt Article 361 gives protection to the Constitutional Authority. However, in the given circumstances, a decision has been taken, taking into consideration the future of the Government School students, who are invariably from marginalized and poor sections, as soon as possible as provided under Article 200 of the Constitution of India.

Article 200 of the Constitution of India :

200. Assent to Bills.—When a Bill has been passed by the Legislative Assembly of a State or, in the case of a State having a Legislative Council, has been passed by both Houses of the Legislature of the State, it shall be presented to the Governor and the Governor shall declare either that he assents to the Bill or that he withholds assent therefrom or that he reserves the Bill for the consideration of the President:

Provided that the Governor may, as soon as possible after the presentation to him of the Bill for assent, return the Bill if it is not a Money Bill together with a message requesting that the House or Houses will reconsider the Bill or any specified provisions thereof and, in particular, will consider the desirability of introducing any such amendments as he may recommend in his message and, when a Bill is so returned, the House or Houses shall reconsider the Bill accordingly, and if the Bill is passed again by the House or Houses with or without amendment and presented to the Governor for assent, the Governor shall not withhold assent therefrom:

Provided further that the Governor shall not assent to, but shall reserve for the consideration of the President, any Bill which in the opinion of the Governor would, if it became law, so derogate from the powers of the High Court as to endanger the position which that Court is by this Constitution designed to fill.

The High Court stated that, “A perusal of Article 200 – ‘Assent to Bills’, would reveal that the Constitutional Authority has to take a decision, if a Bill is presented for assent, as soon as possible.

It was also said that the protection under Article 361 “has been given by the Framers of the Constitution, with hope and trust in the Appointees that they would perform their constitutional functioning promptly and there would not be any situation, wherein they would be called for to give an explanation or they will be questioned by the Court of law.

In view of the above, the High Court concluded that, when the situation changes and present kind of situation arises, a different approach has to be taken by the Courts in the interest of the public. It is well-settled law that “Extraordinary situation requires extraordinary remedies”. When public interest requires, the High Court has to do its constitutional duties and to address the situation. However, the Court was of the opinion that such a situation would not arise to pass any order in the present matter. [S. Ramakrishnan v. State of T.N., 2020 SCC OnLine Mad 5207, decided on 29-10-2020]

Legislation UpdatesNotifications

Government of India has taken steps to strengthen legislative provisions to deal with incidents of sexual offences against women and girls.

Government of India has also issued various advisories to the States/ Union Territories from time-to-time emphasizing the strict actions to be taken by the police in cases of crime against women, including in cases of sexual assault which includes registration of FIR, collection of evidence for forensic examination and use of Sexual Assault Evidence Collection (SAEC) Kit, completion of investigation in sexual assault cases in two months, use of National Database on Sexual Offenders for identifying and tracking repeat sexual offenders, etc.

Criminal laws relating to sexual offences against women provide, inter-alia, for the following actions to be taken by the Police in such cases:

Zero FIR

(i) Compulsory registration of FIR in case of cognizable offence under sub-section (1) of section 154 of the Code of Criminal Procedure, 1973 (CrPC). The law also enables the police to register FIR or a “Zero FIR” (in case the crime is committed outside the jurisdiction of police station) in the event of receipt of information on commission of a cognizable offence, which includes cases of sexual assault on women.

Punishment to a Public Servant

(ii) Section 166 A(c) of the Indian Penal Code 1860 (IPC) provides for punishment to a public servant for failure to record FIR in relation to cognizable offences punishable under section 326A, Section 326B, Section 354, Section 354B, Section 370, Section 370A, Section 376, Section 376A, Section 376AB, Section 376B, Section 376C, Section 376D, Section 376DA, Section 376DB, Section 376E or Section 509 in IPC.

Police Investigation in 2 months | Rape

(iii) Section 173 of CrPC provides for completion of police investigation in relation to rape in two months. In order to facilitate the State police to monitor compliance, in this regard MHA has provided an online portal called Investigation Tracking System for Sexual Offences (ITSSO) for monitoring the same. This is available exclusively to law enforcement officers.

Registered Medical Practitioner

(iv) Section 164-A of CrPC provides that in rape/sexual assault investigation the victim shall be examined by a registered medical practitioner under consent within twenty-four hours from the time of receiving the information relating to the commission of such offence.

Dying Declaration

(v) Section 32 (1) of the Indian Evidence Act, 1872, provides that the statement, written or verbal, by a person who is dead shall be treated as relevant fact in the investigation when the statement is made by a person as to the cause of his death, or as to any of the circumstances of the transaction which resulted in his death. Hon’ble Supreme Court in its order dated 7th January 2020, in the matter of Criminal Appeal Nos. 194-195 of 2012 in the case of Purshottam Chopra & Anr. v. State (Govt. of NCT Delhi), directed that a particular statement, when being offered as dying declaration and satisfies all the requirements of judicial scrutiny, cannot be discarded merely because it has not been recorded by a Magistrate or that the police officer did not obtain attestation by any person present at the time of making of the statement.

Forensic Evidence

(vi)The Directorate of Forensic Science Services (DFSS) under the MHA has issued Guidelines for collection, preservation & transportation of forensic evidence in sexual assault cases for Investigation Officers and Medical Officers. In order to facilitate the State Police, Bureau of Police Research and Development (BPR&D) has issued Sexual Assault Evidence Collection (SAEC) Kits to every State/UT. It is necessary to use these SAEC kits in every case of sexual assault reported. MHA advisory dated 5th October 2020 in this matter may be referred. BPR&D and LNJN National Institute of Criminology and Forensic Sciences (NICFS) have been regularly conducting Training and Training of Trainers (ToT) programmes on the procedure for collection, preservation and handling of forensic evidence for Police/Prosecutors and Medical Officers respectively.

Further, MHA stated, any failure of police to adhere to the mandatory requirements may not augur well for the delivery of criminal justice in the country, especially in the context of women safety. Such lapses, if noticed, need to be investigated into and stringent action taken immediately against the officers concerned responsible for the same.

Read the Advisory here: ADVISORY


Ministry of Home and Affairs

[Advisory dt. 09-10-2020]