Issuance of Shares and Transfer Pricing: An Analysis of Vodafone India Services Pvt. Ltd. v. Union of India & Ors – Part II

In the last post we saw that issuance of shares cannot be subjected to transfer pricing provisions of Income Tax Act. Continuing from this, in this post I will discuss hypothetical stimulation of arguments on merits of the Vodafone judgement. In this regard, two issues are discussed viz. first, whether Revenue was right in making the addition of notional interest by treating the addition on the subscription of the shares as deemed loan. Second, whether the Discounted Cash Flow (DCF) is the most appropriate method for the valuation of the shares or Net Asset Value (NAV).

Before doing so, it is notified that relying on Vodafone judgement, a Mumbai High Court bench of justices M S Sanklecha and SC Gupte on a petition filed by Shell India Markets upheld that issuance of share does not generate ‘income’. It is anticipated that Revenue is likely to approach Supreme Court. In this context, the arguments on merits become significant as even if SC overrules Shell India, revenue would not be able to impose notional interest.

Whether Revenue was right in making the addition of notional interest by treating the addition on the subscription of the shares as deemed loan.

An adjustment for the notional interest by re-characterization of equity into debt (as done in the present case) is referred to as “secondary adjustment” in the parlance of Transfer Pricing. Secondary adjustment creates a constructive transaction such as constructive loan, constructive dividend, constructive equity distribution etc.

With respect to applicability of secondary adjustment principles, the OECD has clarified in its commentary on Article 9 of the model treaty convention that sovereign countries can opt for secondary adjustments, if permissible under their domestic tax laws. Following this view, Canada, Korea, South Africa, 9 EU members (Austria, Bulgaria, Denmark, Germany, France, Luxemburg, Netherlands, Slovenia and Spain) have incorporated such provision in their respective taxing statute.

Currently, India does not have any express or specific provision for inflicting the secondary adjustment in Transfer Pricing rules and therefore the TPO/AO cannot impose notional interest by treating alleged unpaid money as loan. This view was recently confirmed by Mumbai ITAT tribunal in PMP Auto Components Pvt. Ltd. v. DCIT.[1]

However, it must be noted that re-characterization is permissible under Chapter X-A (General Anti-Avoidance Rules) of the Income Tax Act which is not in force yet. It would be interesting to see whether GAAR being a general law on tax-avoidance can capture transactions held permissible by Specific Anti-Avoidance Rule i.e. Transfer Pricing (Chapter-X).

Levy of penalty under section 271G by transfer pricing officers

Assuming the said transaction between V-India and V-Mauritius is hit by TP, the appropriate recourse of by the Assessing Officer or the Commissioner (Appeals) should have been levy of penalty under Section 271G of the Act and not secondary adjustment. [Finance (No. 2) Act, 2014 has amended section 271G to include Transfer Pricing Officer in addition to AO or Commissioner. This amendment will take effect from 1st October, 2014.]

V-India as against these penalties would have been validly arguing that arm’s length price was calculated in good faith and due diligence was taken while using NAV method for valuation of shares. With this I move on to the next issue regarding appropriate method for valuation of shares.

Whether the Discounted cash Flow is the most appropriate method for the valuation of the shares or Net Asset Value

 In case of long-term investment in the 100% subsidiary (as opposed to investment for capital gains), the valuation should be future prospective earning on the capital and should not be based on the present net worth of the subsidiary. This contention was accepted by the Mumbai ITAT tribunal in PMP Auto Components Pvt. Ltd. v. DCIT.[2] In this respect the Revenue was correct in applying DCF method as opposed to NAV. However, DCF method is surrounded by the clouds of legal uncertainty as it works on too many unruly economic assumptions. Consequently, it's vires may be challenged on the basis of arbitrary exercise of power.

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[1] [TS-263-ITAT-2014(Mum)-TP]

[2] Id.

Towards Gender Equity: Striking Down the Bias Against Women Make- Up Artists

 Charu Khurana & Others v. Union of India &Others

Charu Khurana & Others v. Union of India & Others

 Writ Petition (Civil) No.78 of 2013

“The days of yore when women were treated as fragile, feeble, dependent and subordinate to men, should have been a matter of history, but it has not been so, as it seems.”[1]

Background of the Case

The petitioner in the present case is a trained make- up artist and hair dresser, who had sought a membership card for the same, which was refused by the respondent no. 5, i.e., the Association on the grounds that no female make- up artist has ever been issued a membership card. The respondent stated that females are given membership card for hair dressing only, whereas the job of make- up artists is reserved for males.

The present post is restricted in dealing with the gender discrimination part of the judgment, while the Court had also discussed the domicile requirement in securing the membership card.

Establishing Writ Jurisdiction over the Association

While the association was not a ‘state’ under the terms of Article 12, the Court nevertheless looked into the validity of the bye- laws of the Association which were certified by the Registrar of Trade Unions in exercise of the Statutory power under the Trade Unions Act 1926. (Read this link to gather the flaws in this reasoning of the Court and the adverse implications of it)

I. Submission of the Association Defending Non- Granting of Membership Card to Female Make- up Artists

The Association justified their stance on the ground that if the female members were given membership card for make- up artists also, then, it would become impossible for the male members to get work, as there is a human tendency to employ female make- up artists if they are available. In the association’s view they have sought to give equal opportunity by reserving the field of hair- dressing for females only, while allotting membership cards for make- up to males only.

II. Challenges Posed Against the Association’s Stance with respect to Discrimination on the Basis of Gender

(a)   There is no reasonable justification for the classification of not allowing women to be make- up artists,

(b)  Unless membership cards are issued, women would not be engaged as make-up artist and thus causing a hazard in earning their livelihood.

Consequently, it is contended on behalf of the petitioners that there is a violation of their rights under Articles 14, 15, 19 (1) (g) and 21 of the Constitution of India.

III. Relevant Provisions

Ø  Trade Union (TU) Act 1926

§  Section 21. Any person who has attained the age of fifteen years may be a member of a registered Trade Union subject to any rules of the Trade Union to the contrary, and may, subject as aforesaid, enjoy all the rights of a member and execute all instruments and give all acquittances necessary to be executed or given under the rules:

Ø  Bye- Laws of the Association with Registration No. 1871

§  Clause 4. Membership: Membership of the Association shall comprise of Make-up men, Costume men, and Hair Dressers who were admitted as members by the Association & who continue to be members and all those who shall be admitted hereafter under clauses 6 & 7 of the constitution of the Association including the membership in Family Relief fund, provided he/she agrees & abide by the rules & sub-rules that may form by the Association from time to time.

§  Clause 6. Admission of New Members: Any person desiring to become the member of the Association who has attained the age of majority of 18 and who possess a good moral character shall send an application in prescribed form and duly recommended by two members with its prescribed fees. A. Applicant should have been a resident of Maharashtra at least for 5 years; B. Son or Daughter of members who have completed 15 years of membership shall be eligible to be enrolled as members of the Association, provided they fulfil other conditions relating to age and domicile status of 5 years in the State of Maharashtra.

IV. Judgment Holding the Stance of the Association Wrong

IVa. For Violating the Main Statute

The Court held that the Clause 4 violates the § 21 of the TU Act on the ground that the Act does not distinguish between men and women.

IVb. For Violating the Constitutional Norms

The Court here firstly held that the Right to livelihood of the women artists is getting adversely affected since it intervenes with her capacity to earn her livelihood, consequently it is breaching Article 21 of the Constitution.

Then, by using principles of gender equity and justice as envisaged in:

(i)             International Conventions (incorporated or adopted through judicial interpretation in cases like Vishaka v. State of Rajasthan),

(ii)           directive principles of state policy (these principles have been used by the Supreme Court to interpret the Fundamental Rights) under Article 39 (a) where the state should try that men and women have an equal right to an adequate means of livelihood, and Article 38 where the State should strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life, along with Article 37 which imposes an obligation on the State to apply these principles in making laws,

(iii)          fundamental duties where a collective responsibility is imposed on the State (through interpretation by the Court) to develop a scientific temper, thereby, provide opportunities to people and not to curtail it,

the Court held that there is a violation of the constitutional mandate and consequently quashed the clause 4 of the bye- laws.

V. Analyses

Firstly, the part where the Court finds the impugned provision violative of § 21 of the main Act itself, it is submitted is completely erroneous. The Court opined that § 21 does not contemplate any difference between men and women when it states 'any person above the age of 15 yrs may become a member', therefore, the impugned provision is violative of the main Act. The problem is that § 21 itself allows for a subjecting clause, when it allows the Society to make Rules. § 21 states that 'any person above the age of 15 yrs may become a member of a Registered Society subject to any rules of the Trade Union to the contrary...'. Clearly, § 21 itself allowed for such leeway to Rule making authority.
In my opinion the Court though reached a right outcome, however, it could have struck down the provision simply on the basis of violating Article 14 and 15 of the Constitution of India, once it was comfortable in its reasoning that the associations' rules are amenable to be tested at the Threshold of Fundamental Rights. Instead of citing numerous precedents on Right to life including right to livelihood, quoting International Conventions unnecessarily, the Court could have by employing the Reasonable Classification test, reached the same conclusion, on a rather (in my opinion) better legally and logically sound reasoning.

The test of reasonable classification as employed in the case of State of West Bengal v. Anwar Ali Sarkar,[2] provides for a three- step checking mechanism to justify any differential treatment. In order to justify any such treatment, firstly, it has to be shown that there is a classification done on some intelligent and reasonable grounds, secondly, such classification should be done with a view to achieve an object and lastly, the classification should have a nexus with the object.

In the present case, the object seems to be to provide livelihood for men. But the classification between men and women on the ground that women if allowed to become make- up artists would lead to deprivation of men from such employment on account of some notion of human tendency. The very reading of the basis of this classification is enough for one to see the unreasonability involved in the stand of the Association. The job of a make- up artist does not entail that only women are suitable at it or better than men. There is no empirical data to justify this classification.

Therefore, such stance of the Association clearly falls foul of the equal protection of the law under Article 14 of the Constitution. As it can be seen, the Court could have held the Association’s conduct to be unconstitutional on this ground only (apart from holding the bye- laws to be violative of the main Act itself), rather than going into the sexual harassment of women or right to livelihood of women or fundamental duties unwarrantedly.

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[1] Deepak Mishra, J. in the present case.

[2] AIR 1952 SC 75.

Issuance of Shares and Transfer Pricing: An Analysis of Vodafone India Services Pvt. Ltd. v. Union of India & Ors – Part I

In this post, I will discuss judgement of High Court of Bombay in the case of Vodafone India Services Pvt. Ltd. v. Union of India & Ors[1] wherein it ruled that transaction of issuance of shares cannot be subjected to Transfer Pricing (TP) provisions of Income Tax Act. The judgement is important for Nokia, Shell India, WNS and 24 other companies who have the similar dispute with the Revenue.

It is important to state that High Court restricted its judgement to jurisdictional issue and did not go into merits of the case. In the next post, I will deal with hypothetical stimulation of arguments on merits of the case. In this regard, two issues will be discussed viz. first, whether Revenue was right in making the addition of notional interest by treating the addition on the subscription of the shares as deemed loan. Second, whether the Discounted Cash Flow (DCF) is the most appropriate method for the valuation of the shares or Net Asset Value (NAV).

Coming back to discussion on the judgement.

Facts of the Case

In August 2008, Vodafone India Services Private Limited (V-India), a wholly owned subsidiary of Mauritian entity Vodafone Tele-Services (India) Holdings Ltd. (V-Mauritius), issued 289,224 equity shares of face value of Rs. 10 each (applying NAV) at a premium of Rs. 8,591 per share to its holding company. On the issuance of these shares, V-India received a total consideration of Rs.246.38 crores from its holding company.

According to Assessing Officer (AO) and Transfer Pricing Officer (TPO) ought to have valued each equity share at Rs.53,775/- (applying DCF) and on that basis shortfall in premium to the extent of Rs.45,256/- per share resulted into total shortfall of Rs.1308.91 crores.

Both the AO and the TPO on application of the Transfer Pricing provisions in Chapter X of the Income Tax Act, 1961 held that this amount of Rs.1308.91 crores is income. Further, as a consequence of the above, this amount of Rs.1308.91 crores was treated as deemed loan given by the V-India to its holding company and notional interest thereon was charged to tax as interest income.

Vodafone India challenged the jurisdiction of AO or TPO under Article 226 of the Constitution.

Issue

Whether AO or TPO has jurisdiction to apply Transfer Pricing provisions in the present case. The answer to this issue boiled down to the question whether share subscription generates any income under Section 92 of the Income Tax Act.

V-India’s Arguments

    1.  ‘Income’ as under Section 92 must be interpreted as per Section 2(24)

To tax a receipt, requirement of Section 2(24) which defines income must be satisfied. The term ‘income’ as noted in Section 92 cannot be interpreted in isolation of Section 2(24).

    2.  Capital Receipt is not taxable except expressly provided

Capital receipts cannot be brought to tax unless specifically/expressly brought to tax by the Act. It is well settled that capital receipts do not come within the ambit of the word 'Income' under the Act, save when so expressly provided as in the case of Section 2(24)(vi) of the Act. This brings capital gains chargeable under Section 45 of the Act, to tax within the meaning of the word ‘Income’.

    3.   Present transaction does not attract Section 45

Section 45 is applicable in case of transfer of property. However, issuance of shares is creation of property.

   4. Section 56(2)(viib) is not attracted

Definition of ‘Income’ in Section 2(24)(xvi) of the Act includes in its scope amounts received arising or accruing within the provisions of Section 56(2)(viib) of the Act. However, reliance in the present case cannot be placed as it is applicable only with respect to issue of shares to a resident.

Further, Section 56(2)(viib) taxes consideration received in excess of fair market value the shares and not the alleged short-fall in the issue price of equity shares.

    5.   Sub-section (c) and (e) of Explanation (i) to Section 92B is not attracted

Explanation (i)(c) to Section 92B of the Act only states that capital financing transaction such as borrowing money and/or lending money to AE would be an International Transaction. However, what is brought to tax is not the quantum of amount lent and/or borrowed but the impact on Income due to such lending or borrowing. This impact is found in either under reporting/over reporting the interest paid/interest received etc., Similarly, Explanation (i)(e) to Section 92B of the Act, which covers business restructuring would only have application if said restructuring/reorganizing impacts income.

    6. Section 92(2) is not attracted

Section 92(2) deals with costs or expenditure allocated or apportioned between two or more Associated Enterprises. Section 92(2) only ensures that profits are not understated nor losses over stated by disclosing higher cost or expenditure, then the benefit received.

    7.  Assumption that short-fall money could have been invested and thereby generated income is not sustainable

Revenue’s Arguments

    1.  Subject matter of tax is cost incurred by V-India in passing of benefit to V-Mauritius

The subject matter for meaning of income under Chapter X is not share premium but is the cost incurred by V-India in passing on a benefit to its holding company by issue of shares at a premium less than arm’s length price. The accruing benefit to V-Mauritius here is its valuation in the international market by taking undervalued shares of V-India., by increasing the real net worth of the V-Mauritius.

    2.   Reading 92 with its corresponding provision in 1922 Act implies that profit which one would have normally made but did not make because of one’s close association with a non-resident are to be taxed [Mazagaon Dock Ltd. v. CIT, (1958) 34 ITR 368].

    3. Total income includes prospective income

‘Any income’ in Section 92(1) is not restricted to actual income. It includes income which could accrue by premium not received by V-India.

   4.  Charging Section is inherent in Chapter-X, therefore ‘income’ as in Section 92 has different connotations then income as in Section 2(24).

    5. Passing of benefit is covered under Section 56(1)

Even if there is no separate head of income under Section 14 of the Act in respect of International Transaction, such passing on of benefit by the Petitioner to its holding company would fall under the head ‘Income’ from other sources under Section 56(1) of the Act.

    6. ‘Income’ for TP provisions must be given broad interpretation

Charging provision (§ 4) creates charge in respect of the total Income. In the Scope of total income, Section 5 include all Income from whatever source which is received or accrues or arises or deemed to be received, accrued or arisen would be a part of the total Income. Thus, income is to be interpreted in a broad context.

Decision

The Court found based on the interpretation of section 2(24) of the IT Act that “income will not in its normal meaning include capital receipts unless it is so specified, as in Section 2(23)(vi) of the Act.” An issue of shares is a transaction on the capital account, the premium cannot be treated as income. The Court drew a contrast with Section 56(2)(viib) of the Act where a capital transaction is deemed by legal fiction to amount to income. However, that provision applies only to premium received from a resident and that too where that premium is in excess of the fair market value of the shares. Further, Section 56(2)(viib) governs an actual receipt of the excess of amount, whereas in the present case there is only an imputed amount of the difference without any actual receipt. Thus, issuance of share in international transaction does not find its place in any charging provision of the statute.

Court rejected argument of Revenue that for the purposes of TP provisions ‘income’ should be interpreted in isolation of Section 2(24). It held that even income arising from international transaction must satisfy the test of 'income under the Act and must find its home in one of the heads of income in the charging provisions viz. Sections 4, 5, 15, 22, 28, 45, 56. Further, Chapter-X of the Act is a machinery provision to arrive at the arm’s length price of a transaction, it does not have any specific head of income.

Analysis

To be very precise, investor-friendly, legal certainty, adherence to plain and strict interpretation, rejection of object and purpose of the statute are the ornaments of the judgements. The Court appropriately reiterated that in a taxing statute it is not possible to assume any intention or purpose of the statute more that what is stated by the black letter. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Further, treating issuance of shares as income without backing of any express provision would have amounted to filling the casus omissus which is impermissible.

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[1] 2014 SCC OnLine Bom 1496.

Opinion: Law Breakers becoming Law Makers: Role of the Apex Court in producing Accountable Public Representatives

 An ‘Utopian’ India: FREE & FAIR Elections

“If the people who are elected are capable and men of character and integrity, then they would be able to make the best even of a defective Constitution. If they are lacking in these, the Constitution cannot help the country. After all, a Constitution like a machine is a lifeless thing. It acquires life because of the men who control it and operate it, and India needs today nothing more than a set of honest men who will have the interest of the country before them…”[1]

Strange though it may seem, the words of Dr. Rajendra Prasad still holds true. Representative government reflects the path on which our constitution framers wanted us to tread. People, who were considered the ultimate sovereign were supposed to choose the candidates through a system of voting that would ensure that only the most worthy candidate would be elevated to the pedestal of a law maker. In fact, the Apex Court has in very clear terms held that our country being a Sovereign Democratic Republic is unquestionably a part of the basic structure of the Constitution.[2]

In order to ensure free and fair elections, the Parliament enacted the Representation of the People Act, 1951 which inter alia provides qualifications and disqualifications for membership of Parliament and State Legislatures. The rationale for such legislations is to create a systematic framework conducive to free and fair election.[3] The title of the paper might seem amusing to many, but please be informed that the Supreme Court bested me in terms of reaching the above conclusion.

In K Prabhakaran v. P. Jayarajan,[4] the court stated that those who break the law should not make the law. The court went on further to state that persons with criminal background do pollute the process of election as they do not have many a holds barred (emphasis). To quote Dr. Prasad again, he opined that a law giver needs to be a man of character.[5]

Amusing Trends

Despite the best intention of the Constitution framers, the link between criminals and politics remained ever existent. There was interesting change in the 70’s when instead of politicians having suspected links to crime syndicates, as the case was earlier, it was persons with extensive criminal backgrounds who began entering politics.[6] The problem had become so endemic that criminals were seeking direct path to power by becoming minister, legislators etc. According to the Association for Democratic Reforms, 18% of the candidates contesting either National or state elections have criminal cases against them. In half of the above cases, the charges were of serious nature that includes murder, attempt to murder, rape etc.[7] In the previous Lok Sabha (i.e. 2009 - 2014), 30% of the sitting MPs have criminal cases pending against them.[8] The situation is similar across states with 31% of the sitting MLAs with pending cases.

From the startling figures, it is clear that criminals forms a integral part of today’s polity. For reasons of their muscle power, cash stock, and a obeying cadre, a criminal may stand a better stand to procure a ticket, even win an election, vis-à-vis a candidate coming from a clean background.

Existing Legal Framework & Policy Paralysis

From a legal vantage point, the entry of criminals into public life is restricted by prescribing certain disqualifications which results in not allowing a person to contest an election or holding public office. Articles 102 and 191 of the Constitution of India lay down the situation in which a person will be disqualified from being chosen as or for being a member of the Parliament, or a state legislature/council respectively. The grounds includes scenarios like the person holding an office of profit, if he is of unsound mind, insolvent and if he is disqualified under any law made by the Parliament. In furtherance of the above, the Parliament passed the Representation of the People Act, 1951 (‘ROPA’) which prescribes further qualifications for qualification and disqualification.

Section 8 of the ROPA specifies offences as a result of which a person is disqualified from being elected as a member or continuing as a member of the Legislative Assembly. Offences include certain electoral offences, offences under the Foreign Exchange Regulation Act, 1973, the Narcotics Drugs Act etc. Section 8(3) further specifies such disqualification will operate from the date of conviction and continues for a further period of 6 years from date of release.

Failure to furnish information as per the affidavits in the Conduct of Election Rules, 1961 attracts penalty under Section 125A of the ROPA. However, the sentence under S. 125A is only imprisonment for 6 months and offence is not listed under Section 8 as a disqualification. Hence, it seems evident that the current framework has failed to produce the desired results.

The issue of electoral reforms and accountability of the candidates has been a subject of many a committee and commissions. The 170^th Law Commission report recommended the addition of Section 8B in the ROPA which included certain offences in which a framing of charge was sufficient to disqualify a person from further elections.[9] The National Commission to Review the Working of the Constitution maintained that once charges related to certain crimes have been framed by a court against a person, he should not be permitted to contest elections unless cleared and a permanent bar in cases of conviction on certain heinous offences. Further, they have also added that political parties who are seen to abetting criminalisation should face de-recognition and other actions.[10] Recently, the Justice Verma Committee report on the Amendments to Criminal Law (2013) had suggested an amendment in the ROPA which entailed a disqualification in case a competent court takes cognisance of certain offences.[11]

It is evident from the series of such reports that a need was felt to change the law, yet the legislature has remain paralysed in order to bring about a change. In fact, as the former Prime Minister of India Mr. Atal Bihari Vajpayee stated that coalitions are run on a common minimum programme - the collation for criminalisation in politics spreads pan both the houses of the parliament and aims to protect such unscrupulous elements. One cannot find an ideological difference in any of the parties regarding the above. How else will you explain the ordinance which was brought forth by the UPA-II in order to nullify the judgment of Lily Thomas which treated convicted member of parliament/state legislature in the same breath as any other prospective candidate? The only organ of the State which has been responsive to such changes is the Judiciary, albeit in its own controlled mandate. There have been instances where the Apex Court has gone over board (CEC v. Jan Chaukidar[12], discussed later) but by and large, such intervention has produced fruitful results.

The Bogey of Electoral Reforms Decisions

The judiciary has in its own limited way has tried to respond to the issues of the day and has delivered landmark judgments in order to reform the electoral process. The author relies on the 244^th Law Commission Report to identify three areas in which the decisions have made substantial impact.

1.      Increasing transparency in the electoral process

A couple of cases in the early part of the 21^st century (Association for Democratic Reforms[13] & People’s Union for Civil Liberties[14]) have helped in increasing transparency into the electoral process. In the former case, the Court held that it is the fundamental right of the electors to know the antecedents of the candidates who are contesting for public offices. Such right was considered to be a silent facet of the freedom of speech and expression guaranteed under Article 19(1)(a) of the Constitution of India. Information includes details inter alia details of past convictions/acquittal, quantum of punishment and whether the candidate is accused in any pending case. In the latter judgment, the Court struck down an amendment to the ROPA which sought to limit the operation of the earlier order in the ADR case. The Court concluded that the amendment violated the fundamental rights of the voter and hindered free and fair elections which form a part of the basic structure.

2.      Accountability of the Elected Representatives

At the same time, the Court has also ensured that representatives of the people holding public office should be held accountable. The Apex Court in Lily Thomas[15]declared Section 8(4) of the ROPA as unconstitutional which treated elected representatives separately from prospective candidates. Earlier, an elected representative could file an appeal within three months of the judgment and extend the disqualification which is entailed under Section 8 till the time the appeal was decided. The Court concluded that such differential treatment has not been envisaged under the Constitution keeping in mind Article 102 and 191. A second judgment delivered in the same year[16] declared a provision of Conduct of Election Rules, 1961 unconstitutional which required mandatory disclosure of a person’s identity in case he intends to register a no-vote. The secrecy of identity of the voter stays at the heart of free democratic society so as to ensure that the elector votes without any fear of retribution. Pursuant to the decision, the electors are entitled to express their displeasure at the conduct of the candidate’s thereby increasing accountability of public representatives to perform meaningful task.

3.      Weed out corruption in public life by ensuring effective prosecution mechanisms

The final limb relates to a catena of cases where the Court has directed institutional reforms in order to weed out corruption in public life. In Vineet Narain v. Union of India,[17] the Court used the its power to lay down process for independent functioning of the CBI, a selection process for the appointment of the Director of Enforcement Directorate, granting statutory recognition to the CVC etc. It also tackled the delays that were ensuing due to the sanction required by the government to sanction the higher echelons of the civil servants by fixing a time limit of 3 months for grant of such sanctions. Further, it has introduced a concept of deemed sanction for prosecution should the extended time limit of four (4) months be not respected.[18] In order to tackle the extensive delays which are evident across the prosecutions against public representatives, especially those in power,[19] the Supreme Court in an interim order in the case of Public Interest Foundation v. Union of India[20] directed that the trial for charges under Section 8 of the ROPA shall be conducted in no case later than one year from the date of the framing of charges. Failure to adhere to the time limit will require the court to submit the report to the Chief Justice of the concerned High Court with special reasons as to why the trail could not be so completed.

The Road Ahead

Mr. C Rajagopalachari had anticipated the present state of affairs nearly 25 years before independent when he wrote: “Elections and their corruption, injustice and tyranny of wealth, and inefficiency of administration, will make a hell of life as soon as freedom is given to us…”.[21]

It is pleasantly surprising to observe the role of the judiciary in curbing criminalisation of politics whereas the branch of the state suited to such a role lays low. In the absence of any progress on electoral laws, the contribution of the judiciary is a sine-qua non for the effective conduct of free and fair elections. But there have been situations where the court has gone overboard, for instance in CEC v. Jan Chaukidar[22] the Court mistakenly considers a voter as an elector and thereby prohibited persons present in custody from contesting in elections which goes directly against the literal interpretation of the Act. Instances like such further prove that it is incumbent on the Legislature to take note of the changes and respond appropriately. The greatest irony of the latter situation is that this will lead to a scenario where the public is expecting nearly 30% of the elected representative in the Parliament[23] to act against their own interests which seems highly unlikely.

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[1] CAD, Dr. Rajendra Prasad, 26 Nob 1949, before putting the motion for passing the constitution on the floor.

[2] Indira Gandhi v. Raj Narain and others, 1975 Supp SCC 1, para 664.

[3] LCI 240th report.

[4] (2005) 1 SCC 754, para 54.

[5] Vol. XI, CAD (26 November 1949).

[6]  Milan Vaishnav, ‘The Market for Criminality: Money, Muscles and Elections in India’ (2010)

<http://casi.sas.upenn.edu/system/files/Market+for+Criminality+-+Aug+2011.pdf> accessed 14 January 2014.

[7] Association for Democratic Reforms, ‘Press Release - Ten Years of Election Watch: Comprehensive Reports on

Elections, Crime and Money’ (2013) 1, <http://adrindia.org/sites/default/files/Press%20Note%20-

%20Ten%20Years%20of%20Elections,%20Crime%20and%20Money_0.pdf> accessed 14 January, 2014

[8] 3 Association for Democratic Reforms, ‘National Level Analysis of Lok Sabha 2009 Elections’ (2009)

<http://adrindia.org/sites/default/files/0.9%20final%20report%20_%20lok%20sabha%202009.pdf> accessed 13

January, 2014.

[9] 170^th LCI Report, para 5.3

[10] NCRWC, Summary p. 507, http://lawmin.nic.in/ncrwc/finalreport/v2b1-9.htm#_ftn13

[11] Justice Verma Committee, p. 343.

[12] The Chief Election Commissioner v. Jan Chaukidar (Peoples watch) and others, 2013 (8) SCALE 487.

[13] Union of India v. Association for Democratic Reforms, (2002) 5 SCC 294.

[14] People’s Union for Civil Liberties v. Union of India, (2003) 2 SCC 549.

[15] Lily Thomas v. Union of India, (2013) 7 SCC 653.

[16] People’s Union for Civil Liberties v. Union of India, (2013) 10 SCC 1.

[17] (1998) 1 SCC 226.

[18] Subramaniam Swamy v. Manmohan Singh, (2012) 3 SCC 65.

[19] See J. Jayalalitha’s Disproportionate Assets case which was recently decided by a Special Court in Bangalore after 18 years. It was filed before a special court in Chennai in 1996.

[20] W.P. (C) 536 of 2011, Order dated 10 March 2014.

[21] Per C Rajagopalachari in Kishor Gandhi, India's Date with Destiny: Ranbir Singh Chowdhary Felicitation

Volume, 1st Ed. (Allied Publishers, 2006) 133.

[22] The Chief Election Commissioner v. Jan Chaukidar (Peoples watch) and others, 2013 (8) SCALE 487.

[23] 30% of the sitting MPs have criminal cases pending against them, ADR Survey 2013.