SECURE SYNOPSIS: 27 January 2017
NOTE: Please remember that following ‘answers’ are NOT ‘model answers’. They are NOT synopsis too if we go by definition of the term. What we are providing is content that both meets demand of the question and at the same time gives you extra points in the form of background information.
General Studies – 1;
Topic: Conservation; Environmental pollution; Changes to critical geographical features
Mr Trump doesn’t accept the scientific evidence that climate change is real. Trump wants to dismantle the Paris Agreement that sets targets to reverse the worst effects of global warming, which nearly 200 countries agreed to last December. Further Donald Trump has threatened to pull out of all international climate treaties, dismantle the US Environmental Protection Agency.
- The present high proportion of Green House Gases is majorly due to emission by industrially advanced countries. Thus it is their moral responsibility to take more burden in mitigating the impact of climate change and reducing further emission. However the withdrawal of USA from international agreement would seriously hamper the progress of such initiatives.
- Moreover the other developed countries that have to bear greater responsibility for minimizing GHG emission may shy away from their responsibilities. This would set wrong precedent in international arena and leave the process of dealing with climate change without vigor and energy.
- The green climate fund of about $100 billion for supporting the developing countries effort to fight climate change and to mitigate the consequences of it would be badly hit in the absence of US contribution.
- His stance to remove environment related obligation in order to boost fossil fuel industry may obstruct the USA’s quest to develop renewable energy resources.
- In November 2014, Mr. Obama announced a new target to cut greenhouse gas emissions 26-28% below 2005 levels by 2025. Among other measures taken in 2015, the U.S. had finalised the clean power plan to reduce carbon dioxide emissions from the power sector to 32% below 2005 levels by 2030. With the average global temperature already reaching 0.8°C above pre-industrial levels, there are fears that further delay will have long-term repercussions that would be near impossible to mitigate. With the current and proposed policies by the U.S. already inadequate to meet the Paris target, any negative deviation from the plan will have implications for the entire world.
The growing impacts of climate change are extremely serious and urgent. It is catastrophic that the person at the helm of the world’s largest economy is ignoring that science requires immediate action, and is willing to spin a ludicrous fairytale about the whole thing being a fiendish foreign conspiracy. Thus the global players will have to reconsider the action plans to fight climate change in case USA under Mr Trump shreds all their responsibilities.
General Studies – 2
Topic: Indian Constitution- historical underpinnings, evolution, features, amendments, significant provisions and basic structure.
2) The Supreme Court of India, in Krishna Kumar Singh v. State of Bihar , made a series of pronouncements with potentially huge implications for the future of democratic governance in the country. Critically discuss significance of these pronouncements. (200 Words)
Recently in Krishna Kumar Singh v. State of Bihar case, Supreme Court goes deeper and concludes that the failure to place an ordinance before the legislature constitutes abuse of power and a fraud on the Constitution.
Supreme Court judgements in the past-
- In Cooper case (1970), the Supreme Court held that the President’s satisfaction can be questioned in a court on the grounds of malafied.
- The Supreme Court in a D C Wadhwa case (1987) ruled that successive repromulgation of ordinances with the same text without any attempt to get the bill passed by the legislature would amount to violation of the constitution and the ordinance so promulgated is liable to be struck down.
Ordinance making power of President-
Article 123, which defines the ordinance-making power of the Union executive, states that when both Houses of Parliament are not in session, if the President is satisfied that “circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinance as the circumstances appear to him to require”.
It further provides that any ordinance shall have the same force and effect as a statute of Parliament, provided it is laid before both Houses. What’s more, the ordinance so made will “cease to operate at the expiration of six weeks from the reassembly of Parliament”, or if Parliament at any time before the conclusion of the period passes resolutions disapproving of the ordinance. In nearly identical terms, Article 213 of the Constitution places on the Governor, acting on the advice of the Council of Ministers of his State, the power to pass ordinances on subjects of State authority.
Misuse of ordinance-
In practice, however, ordinances have scarcely been used as a purely exceptional measure. Most recently, the Central executive had issued an ordinance in 2014, which it subsequently repromulgated three times without approval, to overturn significant benefits guaranteed by the land acquisition law enacted by Parliament in 2013. Their aim clearly was to bypass the democratic requirements of argument and deliberation, and to overcome numerical shortcomings that they faced in the Rajya Sabha. What the government was doing, therefore, was to use its ordinance-making power as virtually an alternative tool of legislation. It was a similar abuse of power that had been placed before the Supreme Court for its examination in Krishna Kumar Singh.
- The judgment widens the scope of judicial review of ordinances. The court can go into whether the President or Governor had any material to arrive at the satisfaction that an ordinance was necessary and to examine whether there was any oblique motive.
- The court recognized the power to make ordinances has been abused to subvert the democratic process. A failure of a legislature to confirm an ordinance, therefore, in the court’s ruling, was fatal both to the validity of the law, and also, unless public interest otherwise demanded, to the rights and liabilities that may have accrued from such a law.
- The court’s verdict has to be seen as placing a vital check on what has until now been a power rampantly abused by the executive. Inconvenient as legislative debate and deliberation can be, the legislature constitutes a critical foundation of our democracy.
- The judgement upholds the democratic legitimacy of the parliamentary institution that requires any law is to be deliberated before it passed by legislatures.
- It upholds the principle ofSeparation of powers that has been the base of Indian polity and ensures that the legislative powers of the executive are not misused.
- The present judgement is in line with previous judgements given in Cooper case (1970) and D C Wadhwa case (1987).
The founders’ aim was always to impose a separation of power between the three recognised wings of government. In this arrangement, the legislature (Parliament at the Centre, and the Assemblies and the Councils in the States) is tasked with the primary job of making laws; the executive’s role is to administer the country by enforcing these laws; and the judiciary interprets the laws, sees if they are being followed, and, where required, reviews them to ensure that they are constitutionally compliant. The executive’s power to issue ordinances, therefore, goes against this general grain of command; for it acts neither as a check nor as a balance on the authority exercised by the other branches of government.
Topic: Important International institutions, agencies and fora- their structure, mandate;
Recently three nations, Russia, Iran and Turkey held talks in the Kazakhstan’s capital Astana to find amicable solution to the Syrian crisis. The Syrian government and the armed opposition sat together for the first time in six years. A Syrian opposition delegation and representatives of Bashar al-Assad’s government discussed how to extend a previously negotiated ceasefire. The formal title of the Astana talks is International Meeting on Syrian Settlement. Astana was chosen to host the talks because the Kazakh government is considered neutral by all parties.
Significance of the recently concluded talks-
- Astana talks resulted into setting up a trilateral monitoring body to enforce the ceasefire that came into effect last month. However the final stature of the body is yet to be finalized.
- The 3 nations will use their influence in pushing other countries and groups to accord to the ceasefire.
- Both the Syrian government and the Syrian opposition forces did not signed the final accord with the opposition party claiming to bring up another draft in the nest meeting at Geneva.
- Both Russia and Turkey have adhered in their effort to reach a peace deal but the Syrian government is still skeptical about the intentions of Iran.
- The Iranians are adamant in their demand for other foreign countries to leave the region.
- Turkey on the other hand sees the new body as a source to push Russia to conclude ceasefire between Syrian government and Iran as Moscow has good relations with both of them. Thus Russia is acting as a moderator in the conflict.
- Russia has proposed future constitution for Syria, including a path to new governing system, a referendum and elections to the opposition outfit.
- Also an agreement was reached to separate the involvement of IS from the various parties and thereby raise a combined strike the violent extremist group.
- Previous ceasefire agreements have failed because of a lack of trust and differences over UN resolutions on distributing aid and on a political transition in Syria. Nevertheless, the joint statement urges the international community to support a political process.
The war has seen millions of human causalities and also loss of huge economy of all the countries involved. With the likely withdrawal of USA, the war would no longer be a power struggle between US and Russia and thereby a conclusive peace deal will be easier to be agreed upon by the nations.
Topic: Important aspects of governance, transparency and accountability
4) Breaking the banker-borrower nexus is just as critical for safeguarding public money as is acting against corrupt administrators. In the light of wilful defaulting and involvement of some bankers in facilitating huge loans without due diligence, critically examine how should government proceed to safeguard public money and act against corrupt bankers, businessmen and administrators. (200 Words)
Some of the recent cases of willful defaulters (mostly corporates) have ignited the debate how government should deal with the banker-borrower nexus. On one hand government is encouraging officers to take fearless decisions and on the other hand officers are found to be involving in wrong acts to which government must treat sternly.
The steps to be taken by government to safeguard public money-
- The banking officials while advancing high loans should be made to follow standard procedures. Transparency of the loan disbursing process must be ensured. Many cases have been unveiled where officials were found to be flouting the norms for vested interests.
- Official advancing high amount of loans must be made accountable so that they do not deviate from right process.
- Proper follow up after disbursal: An alternative loan monitoring system should be developed. Send an external audit party independent of borrower to check stock and debtors on regular intervals. Adverse audit reports leads to hiding malpractices so audit process must be strengthened.
- The technicalities related to ‘No Objection’ certificate to be strengthened to reduce repeated defaulters. The list of willful defaulters must be updated regularly.
- Banks should install IT based credit analysis techniques which can be reviewed and checked easily.
- Asset Quality Reviews (AQR) to be done quarterly to check the NPA status, payment track records.
- Banks should be allowed to liquidate properties of willful defaulters in quick time to realize public money.
How government should act against corrupt bankers?
- Bankers should be made accountable and should be liable for punishment if they found to be disbursing loans without due diligence.
- Bankers to provided loan review statements to public about NPAs and willful defaulters.
- Continuous process review of credit analysis to be submitted
How government should act against corrupt Businessmen-
- Name of willful defaulters, NPA and other stressed assets to be shared with all banks.
- Tainted businessmen to be banned from capital markets and banking sector till name is cleared.
- Quicker resolution of DRT cases.
- Businessmen should be made liable to face penal charges in cases of willful defaulting.
How government should act against corrupt Administrators-
- Prevention of Corruption Act to include cases of abetting corrupt bankers and businessmen.
- Civil Servants to declare assets including source of assets to check corruption.
- Accepting 2nd ARC recommendations including amending Article 311 to make civil servants more accountable.
Without wise and effective use of public money, the banking sector would become vulnerable to the external and internal shocks. Also public faith in banking would reduce hampering the process of financial inclusion. Thus government should make banking officials, administrators and borrowers accountable to public and to law.
Topic: Dispute redressal mechanisms and institutions
5) The bankruptcy and insolvency code, which received the Parliament’s nod in May 2016, has a wide ambit under its jurisdiction including individuals, companies, limited liability partnerships, partnership firms and other legal entities. Can this code be effectively implemented in India? What challenges does it face? Critically examine. (200 Words)
As a demonstration of India’s combined political will, the much awaited and debated Insolvency and Bankruptcy Code, 2016 (Code) was passed by the Upper House of the Parliament on 11 May 2016 (shortly after being passed by the Lower House on 5 May 2016). The Code has been enacted at a very critical time for the Indian economy when the domestic banking industry is struggling to cope with a welter of bad loans and eagerly looking for a legal framework to manage stress situations in a time bound and efficacious manner. The Code is aimed at addressing the concerns of both domestic and foreign creditors by creating a level playing field, and ensuring greater certainty around the bankruptcy process. This is expected to encourage cross border financing and unsecured lending to local borrowers, thereby reducing the pressure on credit institutions in India.
Once the Code receives the assent of the President of India and is notified, the country will have a new legal regime that primarily enables time-bound restructuring and bankruptcy of debtors. As such, the Code is a landmark piece of legislation establishing a robust legal framework which brings about a much overdue reform that is aimed at creating necessary procedures for swift resolution of insolvency and bankruptcy in India. It attempts at bringing the Indian statutory regime at par with some of the most legally advanced jurisdictions of the world.
Some of the primary objectives with which the Code has been conceptualized are:
- to consolidate the laws relating to insolvency, reorganization and liquidation/ bankruptcy of all persons, including companies, individuals, partnership firms and Limited Liability Partnerships (LLPs) under one statutory umbrella and amending relevant laws;
- time bound resolution of defaults and seamless implementation of liquidation/ bankruptcy and maximizing asset value;
- to encourage resolution as means of first resort for recovery;
- creating infrastructure which can eradicate inefficiencies involved in bankruptcy process by introducing National Company Law Tribunal (NCLT), Insolvency Resolution Professional Agencies (IPAs), Insolvency Professionals (IPs) and Information Utilities (IUs).
- Unified Legislation
The Code is a comprehensive piece of legislation addressing insolvency/ bankruptcy issues pertaining not just to companies, LLPs (and other limited liability entities); but also to individuals and partnerships. The Code also attempts to streamline the multifarious legislations which are currently in operation in India in this area and bring all relevant provisions under one common umbrella. In order to cover bankruptcy of individuals, the Code will repeal the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920. Additionally, the Code will amend 11 statutes including, inter alia, the Companies Act, 2013 (Companies Act) Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (SICA), Limited Liability Partnership Act, 2008 (LLP Act), Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI).
- Code Mandated Infrastructure
- Insolvency Regulator
The Code seeks to establish an Insolvency and Bankruptcy Board of India (Board) which will function as the regulator for all matters pertaining to insolvency and bankruptcy. The Board will exercise a range of legislative, administrative and quasi-judicial functions. Some of the primary functions of the Board will include regulating entry, registration and exit of IPAs, IPs and IUs in the field of insolvency resolution, setting out eligibility requirements for such entities, making model bye laws for IPAs, setting out regulatory standards for IPs, specifying the manner in which IUs can collect and store data, and generally acting as the regulator overseeing the resolution process in the manner specified under the Code.
- Insolvency Adjudicating Authority
The Code specifies 2 different adjudicating authorities (the Adjudicating Authority) which will exercise judicial control over the insolvency process as well as the liquidation process.
In case of companies, LLPs and other limited liability entities (which may be specified by the Central Government from time to time), the NCLT shall be acting as the Adjudicating Authority. All appeals from NCLT shall lie with the appellate authority, i.e. the National Company Law Appellate Tribunal (NCLAT).
In case of individuals and partnerships, the Adjudicating Authority would be the Debt Recovery Tribunal (DRT) with the Debt Recovery Appellate Tribunal (DRAT) continuing to be the appellate tribunal even for insolvency/ bankruptcy matters. The Supreme Court of India shall have appellate jurisdiction over NCLAT and DRAT.
- Insolvency Professionals
Under the Code, IPs will be the licensed quasi-administrators who will carry out on ground supervision of resolution process, manage affairs and assets of the debtor during the process, receive and finalise resolution plans with the committee of creditors (COCs) and carry out the liquidation/bankruptcy of the debtor if the trigger for liquidation/bankruptcy (as set out below) gets activated.
- Insolvency Professional Agencies
The IPAs will admit IPs, prepare model of code of conduct, establish performance standards for IPs, redress customer grievances against the IPs and act as a disciplinary body for all IPs registered with them.
- Information Utilities
One of the dilatory factors plaguing the existing winding up proceedings has been the time taken by the courts in deciding whether a debt exists or not. In order to address this issue in an objective way, the Code seeks to put in place a robust infrastructure of IUs with an aim to have such information readily available for an Adjudicating Authority to rely upon. IUs are expected to collect, classify, store and distribute all possible relevant data pertaining to the debtors to/from companies and financial and operational creditors of a debtor, including but not limited to the data on financial defaults. However, the specific nature of data required to be managed by IUs will be clarified only when the rules under the Code will be notified.
IMPLEMENTATION CHALLENGES AND SOLUTIONS:-
- Operational Issues
- Infrastructure Requirements: The Code proposes the establishment of the Board and NCLT, which if the government is able to set up even within a year will be laudable, considering the manpower/ facilities these institutions will require to perform their respective functions and the expertise and training they will need to do justice to the aims of the Code.
- Quality Professionals: Successful implementation of the Code will require a huge force of trained and skilled insolvency professionals. A strong focus and a well-defined plan will be needed to develop a large pool of insolvency professionals and an institutional structure which will produce, certify and regulate them. Such insolvency professionals will not only need to understand the nuances of restructuring/ liquidation but must also be capable of carrying out the affairs of the company during the process. This process will definitely take a substantial amount of time, resources and expertise. Moreover, effort will be needed to ensure that such professionals are available across the entire country and not just for high profile cases in financial hubs.
- Information Systems: The underlying assumption for the success of the Code is to have access to quality information. For this to materialize, robust utilities with state of the art technologies will swiftly need to be put in operation.
- Adjudication Infrastructure: By December 2015, almost 59,000 cases were pending before DRTs, which currently deal with recovery cases of only banks and certain financial institutions. This is despite a strict statutory prescription of 180 days for resolution of disputes in relation to recovery of debt. The major reason for clogging of pending cases is the multiplicity of proceedings and misuse of the remedy of appeal to DRAT and other forums. The Code does not take away this option and the order of the DRT and NCLT may be further challenged with DRAT and NCLAT, respectively. The appellate order may also be further challenged at the Supreme Court. Therefore, while the intent objective behind the Code is laudable, the sheer enormity of disputes/appeals in the country and the lack of infrastructure to support this legislative intent, will be a key challenge which will need to be overcome in order to achieve the intended speed. In addition, the already over-burdened DRTs are now being assigned with the additional responsibility of adjudicating insolvency/ bankruptcy cases of individuals (which can be initiated by all creditors or the individuals themselves). A major overhaul of DRT infrastructure both in terms of physical facilities and manpower will be needed to achieve what the Code seeks.
- Role of the Board: Instead of making the IPs and/or IPAs self-regulated, the Board has been assigned with the responsibility of regulating their performance and laying down the standards of performance. In most insolvency/ liquidation proceedings, government will be an interested party for recovery of the unpaid statutory dues of its several departments. This will make the impartial operation of insolvency professionals (whose entry and exit in the insolvency profession is regulated by the government through the Board) difficult. As such, for achieving the objectives of the Code and ensuring good governance of the IPs and/or IPAs, the minimum standards set by the Board should be further strengthened in practice with self-regulation.
- Legal Considerations
- Code yet to be effective: The Bill will become a statute upon receiving the Presidential assent. However, the Act provides that the provisions of the Act will come into effect on the date appointed by Central Government and notified in this behalf. Looking at the infrastructural requirements of the Act, it may be even possible that similar to the Companies Act, different provisions of the Bill are notified on different dates, as and when the corresponding infrastructure is implemented. In other words, before the Code is fully operational, we are likely to see a lot of teething issues which will need to be addressed.
- Interplay of Existing Laws: As outlined earlier in this note, the Code not only repeals 2 statutes, but also amends 11 other statutes such as Companies Act, SICA and SARFAESI for effectuating the provisions relating to insolvency and liquidation/ bankruptcy of all legal and natural persons under the Act. However, the interplay of provisions of the Code, the amended statutes and several other statutes (such as Negotiable Instruments Act, 1881) will be an important factor in determination of insolvency proceedings. It is imperative that the provisions of all the key legislations are synchronized in order to ensure that there are no discrepancies or overlaps with existing laws. Failure to ensure this may lead to more confusion in the short run, as far as applicability of specific laws is concerned.
- Cross Border Insolvency: Even though the Code suggests 2 mechanisms to deal with the cross border element of insolvency/liquidation, a comprehensive framework needs to be imbibed to effectively deal with this issue. Various Indian companies have assets and creditors located across different parts of the world and various foreign companies have subsidiaries in India. Issues relating to Insolvency/liquidation of Indian companies with assets located in several jurisdictions outside India and vice-versa cannot be achieved without having a mechanism like adoption of the UNCITRAL Model Law on Cross Border Insolvency. In case of bilateral agreements suggested by the Code presently, it will not only be difficult but will also take a very long time to negotiate an agreement with each country. In addition, several countries may refuse to divulge any information about the assets located in their country upon receipt of a letter envisaged under the Code. As such, while the Code recognises cross border issues, it does not specifically deal with them other than providing the legal basis for dealing with the issue down the line.
- Practical Ramifications
- Paradigm shift in approach to debt: The Code will fundamentally change the approach to debt in India across a cross-section of society, including the approach and psychology of promoters towards lenders, the way business is done and for individuals, who will all need to adapt to the new framework.
- Balancing Interests of Different Creditors: In any restructuring process, different creditors have varying interests which often leads to conflicts. Depending upon the nature of their debt (operational or financial) or the security of debt (secured or unsecured), each creditor may have a different strategy of recovery. Likewise, foreign creditors may have a different approach from domestic creditors. The new inter-creditor dynamics introduced by the Code will realign the existing practices of various creditor groups.
- Delaying Tactics: One of the key objectives of the Code is to have a system which curbs tactics used by debtors to delay enforcement/winding up/restructuring by ‘gaming’ the system. This is often done by restricting dissemination of correct information to the lenders and filing of frivolous appeals against the orders passed in favor of the lenders. While the Code addresses the underlying causes for such delaying tactics and seeks to put robust information systems in place, it is yet to be seen if this is sufficient in practice to prevent debtors from arm-twisting the lenders who may not see sufficient recovery from the liquidation process.
- Time bound process and restrained role of the Courts: The Code seeks to implement a time bound restructuring of the debtor while encouraging a limited the involvement of Adjudicating Authorities and other judicial remedies. No doubt the ability of Adjudicating Authorities and courts to exercise this restraint will be tested by corporate debtors.
- Third Parties Stepping-in: Based on the processes contemplated by the Code, a concern arises as to how well equipped would third party professionals and creditors directing them be, to step into the shoes of the promoters and take control of the board, especially at the beginning of the insolvency process, and run the underlying business of a defaulting debtor.
- Applicability: Unlike bankruptcy laws in the US, the Code does not envisage ‘debtor in possession’ (DIP) financing, which would effectively allow the debtor to keep control of the assets during the IRP. Rather, it follows a UK style approach where the IP controls the process during the IRP. However, in the Indian context, the Code does not allow the IP to sell assets without creditor consent, thereby making UK style administration sales or pre-packaged sales (‘pre-packs’) difficult to achieve.
The Code is a landmark piece of legislation providing a major facelift to the existing regime relating to restructuring and insolvency and bankruptcy in India. It promises to provide the one big missing piece in the existing jigsaw of laws in the form of establishing a framework for time–bound resolution for delinquent debts. India now has a bankruptcy and insolvency framework which is comparable with international standards and while this will go a long way in bringing an element of certainty and predictability to commercial transactions in the country and facilitating the ease of doing business, the litmus test for its success will be in how it is implemented. In particular, various practical, logistical and legal hurdles will need to be overcome and the coming months will be crucial with a lot resting on the nuts and bolts of the rules which are now expected to be notified under the Code
- Corporate Insolvency
- Meaning and Scope
Part I of the Code deals with corporate insolvency mechanism pertaining to limited liability entities including companies, LLPs and other limited liability entities (Corporate Insolvency) as may be notified from time to time; but does not include any financial service provider. Corporate Insolvency includes two processes within its ambit, (i) Insolvency Resolution and (ii) Liquidation.
- Strict Timelines
The Code prescribes a timeline of 180 days for the insolvency resolution process, which begins from the date the application is admitted by the NCLT. The period is subject to a single extension of 90 days in the event the Adjudicating Authority (being petitioned by a resolution passed by a vote of 75% of the COC) is satisfied that the corporate insolvency resolution process cannot be completed within the period of 180 days. This time period is also applicable to individual insolvency resolution process. During this period, the creditors and the debtor will be expected to negotiate and finalise a resolution plan (accepted by 75% of the financial creditors) and in the event they fail, the debtor is placed in liquidation and the moratorium lifted.
- Triggers for Insolvency Resolution Process (IRP)
In order to achieve quick resolution of distress, the Code prescribes certain ‘early detection’ triggers which can be activated on first signs of stress. The moment a default occurs, a financial creditor, an operational creditor or a corporate applicant may approach the Adjudicating Authority (i.e. NCLT) with an application for initiation of IRP. The procedure for these 3 group of applicants under the Code varies and are primarily as follows:
- Financial Creditors: Financial creditors are those who extend financial debt to a corporate debtor or to whom a financial debt is assigned by a financial creditor. In case of a financial creditor, the moment a financial default occurs, the financial creditor can make an application to the NCLT for initiating IRP. The financial creditor for this purpose has to submit records of default with IU or evidence of such default in case the information is not available with IU.
- Operational Creditors: These are creditors to whom corporate debtor owes operational debt (including claims for goods and services, employment or dues to any government under any law) or to whom such debt is assigned by an operational creditor. The operational creditor may upon occurrence of a default on operational credit, serve a demand notice or invoice demanding payment on the corporate debtor. If the corporate debtor fails to make such payment within 10 (ten) days or fails to notify operational creditor of a dispute in relation to the requested payment, the operational creditor can make an application to NCLT along with demand notice/invoice and other documents as prescribed therein.
- Corporate Applicant: A Corporate applicant includes the corporate debtor (whose IRP is proposed to be initiated) or its shareholder, management personnel or employees satisfying certain criteria. A corporate applicant may file an application for IRP upon occurrence of any default and shall along with application submit its books of account and other documents to initiate the IRP.
- Transfer of Powers and Moratorium
The Code stipulates a statutory moratorium during the limited IRP period whereby no suits, proceedings, recovery or enforcement action may take place against the corporate debtor. However, the IP will be appointed as the resolution professional in terms of the procedure outlined in the Code, who will take over the management and powers of board of directors of the corporate debtor. All officers and managers of the corporate debtor are required to act on instructions of the IP and all accounts of the corporate debtor will be managed by it.
- Committee of Creditors to chart the course during IRP
The COC shall only include financial creditors as decision makers (operational creditors with more than 10% aggregate exposure have mere observer status during the COC meetings) and shall be responsible for deciding the important affairs of the company. It shall also be responsible for authorising the IP (acting as resolution professional) to take (or not to take) certain actions such as raising interim finance upto the limit specified by the committee, creating security on assets of the secured creditor, undertaking related party transactions, amending constitutional documents, change of capital structure or management of the Borrower etc. More importantly, the COC shall approve the resolution plans received by the IP. All decisions of the COC are required to be approved by a majority of 75% of the voting shares/value of the financial creditors.
In the event that:
- the COC cannot agree on a workable resolution plan within the IRP Period (i.e. 180 days extendable once by another 90 days);
- the COC decides to liquidate the company;
- the NCLT rejects the resolution plan; or
- the corporate debtor contravenes provisions of the resolution plan,
The NCLT shall:
- pass an order requiring liquidation of corporate debtor;
- make a public announcement of corporate debtor entering liquidation; and
- require a liquidation order to be sent to the registering authority of the corporate debtor (for example Registrar of Companies in case of companies incorporated under Companies Act).
The IP acting as the resolution professional shall, upon commencement of liquidation shall be appointed as the liquidator for the process, unless replaced by NCLT.
In case of liquidation, the assets of the corporate debtor will be sold and the proceeds will be distributed amongst the creditors in the following order of priority:
- cost of the insolvency resolution process and liquidation;
- secured creditors (who choose to relinquish their security enforcement rights and workmen’s dues relating to a period of 24 months preceding the liquidation commencement date);
- wages and unpaid dues of employees (other than workmen) for a period of 12 months preceding the liquidation commencement date;
- financial debts owed to unsecured creditors;
- statutory dues to be received on account of Consolidated Fund of India or Consolidated Fund of a State (relating to a period of whole or part of 2 years preceding the liquidation commencement date) and debts of secured creditors (remaining unpaid after enforcement of security);
- remaining debts and dues;
- dues of preference shareholders; and
- dues of equity shareholders or partners (as may be applicable).
- Individual Bankruptcy
- Scope and Threshold
Part III of the Code sets out the legal regime dealing with the insolvency mechanism for individuals and partnership firms and includes within its ambit, 3 processes, namely, the ‘fresh start process’, ‘the insolvency resolution process’ and ‘bankruptcy’. The threshold for applicability of Part III of the Code to individuals and partnership firms have been set at a minimum of INR 1,000. However, the Central Government may by notification increase the threshold to a minimum of INR 1,00,000.
- Fresh Start Process
An application for a fresh start process, can be made for any debt (other than secured debt, debt which has been incurred 3 months prior to the date of application for fresh start process and any ‘excluded debt’). The Code has introduced the concept of ‘excluded debt’ and ‘excluded assets’ for individuals and partnership firms under which certain debt and assets of the debtor would be exempted from the purview of fresh start process and the insolvency process under the Code. For example, any liability imposed by a court/tribunal, any maintenance required to be paid under any law and any student loan form a part of ‘excluded debt’. Similarly, any unencumbered tools, books or vehicles of the debtor which are required for personal use, employment or vocation, unencumbered life insurance policies, pension plans, personal ornaments having religious sentiments and single dwelling unit of the debtor fall within the ambit of ‘excluded assets’.
- Eligibility criteria
The Code provides for stringent criteria for any debtor to be eligible to apply for a fresh start process under the Code. For example, any person who does not own a dwelling unit and has a gross annual income of less than INR 60,000, with assets of a value not exceeding INR 20,000, and the aggregate value of the qualifying debt of such individual or partnership firm not exceeding INR 35,000 shall be eligible to apply for a fresh start process. In addition, it is imperative that such applicant is not an undischarged bankrupt and there are no previous fresh start process or insolvency resolution process subsisting against him.
The Code stipulates an interim-moratorium period which would commence after filing of the application for a fresh start process and shall cease to exist after elapse of a period of 180 days from the date of application. During such period, all legal proceedings against such debtor should be stayed and no fresh suits, proceedings, recovery or enforcement action may be initiated against such debtor. However, the Code has also imposed certain restrictions on the debtor during the moratorium period such as the debtor shall be not be permitted to act as a director of any company (directly/indirectly) or be involved in the promotion or management of a company during the moratorium period. Further, he shall not dispose of his assets or travel abroad during this period, except with the permission of the Adjudicating Authority.
- Eligibility criteria
- Insolvency Resolution Process
An application to initiate an IRP under the Code can be either made by the debtor (personally or through an insolvency resolution professional) or by a creditor (either personally or jointly with other creditors through an insolvency resolution professional). However, a partner of a partnership firm is not eligible to apply for an IRP unless a joint application is filed by majority of the partners of the partnership firm.
- Repayment Plan
In the IRP, the creditors and the debtor need to arrive at an agreeable repayment plan for restructuring the debts and affairs of the debtor, supervised by an IP. The repayment plan will require approval of a three-fourth majority of financial creditors in value. The repayment plan may authorize or require the resolution professional to: (a) carry on the debtor’s business or trade on his behalf or in his name; or (b) realize the assets of the debtor; or (c) administer or dispose of any funds of the debtor.
- Moratorium The Code prescribes a timeline of 180 days within which the Adjudicating Authority shall pass an order on the repayment plan and beyond such period, if no repayment plan has been passed by the Adjudicating Authority, the moratorium in respect of the debts under consideration under the IRP shall cease to have an effect.
- Repayment Plan
The bankruptcy of an individual can be initiated by the debtor, the creditors (either jointly or individually) or by any partner of a partnership firm (where the debtor is a firm), only after the failure of the IRP or non-implementation of repayment plan. The bankruptcy trustee is responsible for administration of the estate of the bankrupt and for distribution of the proceeds on the basis of the priority set out in the Code.
- Key Changes in the Insolvency/Liquidation Regime
- Decision Making in the Hands of Creditors Presently, winding up of companies as envisaged in the Companies Act vests the decision on whether a company should be wound up or not on the wisdom of the High Court/NCLT. On the other hand, under the new regime, if the restructuring fails to be implemented as prescribed under the Code it would lead to automatic liquidation of the debtor (except in case of individuals).
- Unsecured Creditors Vote at Par
Under the Code, each financial creditor of the COC, whether secured or not, gets to vote on the resolution plan of the corporate debtor on the basis of its voting share (proportionate to the money advanced by the creditor).
- Government Dues Take Backseat Under the Code, government dues including taxes rank lower than the unsecured creditors and wages as against the exiting regime, where after secured creditors and workmen dues, government dues including all taxes take preference on liquidation payouts.
- Individual bankruptcy gets a shot in the arm Currently, individual bankruptcy proceedings are adjudicated upon by district courts under 2 different statues. The Code proposes to unify the regime governing individual bankruptcy and in case where the individual bankruptcy is initiated alongside the corporate insolvency, NCLT will have jurisdiction to hear the matter relating to individual bankruptcy along with corporate insolvency. This is expected to speed up resolution on such matters.
- Protection to workers
The Code protects the workers in case of insolvency, paying their salaries for up to 24 months in priority over all other creditors including secured creditors. This is a welcome change as in most cases of corporate insolvency, the workers and employees end up bearing the brunt of long drawn insolvency/bankruptcy process.
- Incentive to Insolvency Professionals
In the distribution of liquidation proceeds, the cost of IP and the IRP has first priority, thereby acting as an incentive for them to strive for speedy resolution. This is at par with international practices.
- Interim Financing
The Code prescribes that any interim financing and the cost of raising such financing will be included as part of the IRP cost, thereby giving it first priority in the waterfall and also in any creditor driven plan. Security can be created over the assets of the company to secure such financing by the interim resolution professional without the consent of existing creditor(s) if the value of the property secured in favour of existing secured creditors is at least twice the outstanding debt. However, any financing after the appointment of the resolution professional and constitution of the COC must be approved by 75% of the financial creditors by value.
- Cross Border Insolvency The Code for the first time attempts to addresses the issue of cross border insolvency given the multi-jurisdictional spread of assets of large corporates. In order to deal with this aspect, the Code stipulates a two pronged solution, one being the Central Government entering into agreements with other countries for enforcing the provisions of the Code and the other giving the Adjudicating Authority the authority to write a letter to the courts and/or authorities of other countries (as may be relevant) for seeking information or requesting action in relation to the assets of the debtor situated outside India.
Topic: Indian Constitution- historical underpinnings, evolution, features, amendments, significant provisions and basic structure.
Universal Basic Income-
A Universal basic income is a form of social security in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.
There are three features of UBI:
- First, it is universal and not targeted. In the Indian context, this makes sense because of the less-than-satisfactory experience with targeting welfare services like PDS.
- The second feature of any proposed universal basic income scheme is cash transfer in lieu of in-kind transfer. Cash transfers are supposed to be much less market-distorting than in-kind transfers.
- The third distinguishing feature is that it is unconditional. Cash transfers are not tied to exhibiting certain behavior, and the people are free to spend the cash as they want.
Arguments in favor of UBI-
- Economists are advocating universal basic incomes for fighting inequality, slow wage growth, advancing automation and fears that immigrants will take away jobs.
- A basic income scheme will be administratively easier and cleaner than the employment schemes like Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS): putting money into select Aadhaar-seeded Jan-Dhan bank accounts ought to be relatively simple.
- The current situation of the govt welfare schemes for the poor is plagued with problems like mis-targeting of subsidies, leakages and diversion of resources. UBI could be a solution as it would allow people to buy from open market.
- The existing plethora of welfare schemes have failed to address the long-standing problems like corruption in the implementation, rampant poverty in the country, malnutrition and unemployment issues. Thus it is expected that Universal Basic Income would act as antidote to these problems.
- Universal Basic Income would allow citizens to decide how to spend them. It offers them basket of choices thereby empowering the citizens.
Arguments against UBI-
- The main reason why UBI was rejected in Switzerland was because of its fiscal implication. Most of the suggestions in favour of UBI in India are made fiscally feasible with a number of unrealistic assumptions. A study has shown that both Centre and State subsidies amount to 14% of the GDP. The idea should be to reduce non merit subsidies and boost capital spending.
- Secondly, it will not be easy to roll back non merit subsidies easily. In fact, it will become more difficult to arrive at the amount to be transferred under UBI if subsidies are rolled back.
- The plan would be only for families below the poverty line that could create a disincentive to work, because once you crossed over the poverty line the government payments would drop.
- In rural areas, free and unconditional money is prone to give rise to spending in unproductive things such as alcohol and drugs.
Why UBI is applicable for India?
- It’s just a new way:India already spend a lot of money in terms of hundreds of social sectoral schemes.
- Leads to greater accountability: It would ensure the percolation of subsidy in a better manner which government is spending on the people.
- Positive outcome of Study:The recent Pilot project of UNICEF (by SEWA) in Madhya Pradesh has proved a scheme like UBI could be far better than present scheme.
- Previous recommendation:The recommendation of Tendulkar Committee has already sought for UBI and it’s calculation shows the burden of UBI (RS. 1000~/ month) on GDP is the approx 12% of GDP.
- Government will have to find ways to increase and implement taxes more
on commodities and products to balance the financial system.
- Government have to set up commissions that will provide an quarterly and annual report.
- Need to focus on more towards digitization, e-banking, and make it available to the people at grass root level also.
- Need to spread awareness about the digital economy and make use of programme like digital India effectively by conducting seminars, awareness camp at villages, towns, school, colleges etc
- Proper audits need to be conduct to check the allotment of fund, and an independent authority needs to be constituted at the state and central level to work independently without any political pressure. It will help to achieve transparency as well.
General Studies – 3
Topic: Infrastructure; Science and Technology- developments and their applications and effects in everyday life
Hyperloop is a proposed mode of passenger and freight transportation that would propel a pod-like vehicle through a reduced-pressure tube that would exceed airliner speed. The alpha version of the proposal, published on the SpaceX website, describes design claims of the system, as well as its function. The pods would accelerate to cruising speed gradually using a linear electric motor and glide above their track using passive magnetic levitation or air bearings. The tubes could also go above ground on columns or underground, eliminating the dangers of grade crossings. It is hoped that the system will be highly energy-efficient, quiet and autonomous.
In Musk’s words, a hyperloop is a system to “build a tube over or under the ground that contains a special environment.” Cars would basically be propelled in this tube. One example could be a huge sort of pneumatic tube where high-speed fans would compress and push the air — although the friction implications make Musk skeptical that it would work. Another option is having a vacuum in the tube and using electromagnetic suspension instead. Musk acknowledges it is hard to maintain a vacuum (one small leak in hundreds of miles of tubing, and the system shuts down), but there are pumping solutions to overcome this. He favors the second solution.
How does it work?
Hyperloop has four key features.
2) The tube tracks do have a vaccuum, but not completely free of air. Instead, they have low pressure air inside of them.
Most things moving through airtubes will end up compressing the air in the front thus, providing a cushion of air that slows the object down. But the hyperloop will feature a compressor fan in the front of the capsule. The compressor fan can redirect air to the back of the capsule, but mostly air will be sent to the air bearings.
3) Air bearings are ski like paddles that levitate the capsules above the surface of the tube to reduce friction.
4) The tube track is designed to be immune to weather and earthquakes. They are also designed to be self-powering and unobsrtuctive. The pillars that rise the tube abobe the ground have a small foot-print that can sway in the case of an earthquake. Each of the tube sections can move around flexibly of the train ships because there isn’t a constant track that capsules rely on.
With these innovations and completely automated departure system, Elon Musk’s dreams of the hyperloop being the fastest, safest and the most convenient form of travel in the world.
The enthusiasm of India for Rapid transportation system have attracted the hyperloop system which promises to transform the way India travels as it will-
- Reduce the time of travel at the same time enhancing the connectivity.
- Share the burden of freight and passengers with overburdened railways and airways.
- Be comparatively cheaper than other high speed/bullet trains.
- be build underground and above ground on columns and hence is flexible to diverse Indian Topography.
- If coupled with green energy it will become more energy efficient mode of travel.
- Can be used for shorter distance. e.g Pod-taxi proposal in Delhi. This will lower the crowd pressure on roads and metros.
- Per Km. installation cost will be cheaper than that of high speed bullet trains. Also Travel cost will be cheaper than a high speed trains.
- The tube design can withstand earthquakes. Hence it will be safer to operate in high seismic zone areas of India.
- High speed transportation could be achieved at lower consumption of energy.
Topic: Disaster and Disaster management
8) It is said that in Bhuj’s post 2001 earthquake rebuilding, the Gujarat approach is widely looked at as a model for reconstruction post natural disasters such as earthquakes. Discuss features of this disaster management model. (200 Words)
As the nation celebrated its 68th Republic Day, Gujarat mourned the 16th anniversary of the worst disaster that struck the state on January 26, 2001. Gujarat’s historic earthquake killed over 20,000 people, injuring 1,66,000, destroying nearly 4,00,000 homes. The shock waves spread over 700 km; 21 districts were affected and 6,00,000 people left homeless. While many believed that Gujarat would take years to get back to normal, the massive rehabilitation and reconstruction undertaken brought a resilient Gujarat back from the rubble. Bhuj, epicentre of the earthquake, managed to emerge strong after the disaster.
The disaster management model adopted has a number of positive features:
- Focus on disaster-resistant building technologies.
- Promoting a culture of development by allowing businesses to prosper in the region.
- Massive development of infrastructure, with significant land-based investments being made.
However, certain negative features have also been spotted, which are:
- Inequality as regards distribution of facilities meant for rehabilitation and reconstruction.
- Allotment of more resources towards areas which were more severely affected, even with respect to investment for development.
- Discriminatory allotment of houses, eventually benefitting the richer classes.
- Many poor and marginalized sections had to lose their lands in order to promote growth in infrastructure.
- Tremendous blow to the informal sector.
While NGOs emerged as a significant stakeholder in rehabilitation, local self-governing bodies like panchayats and municipalities were not sufficiently empowered. As Bhuj shows, disaster management practice in the country remains highly technical and instrumental — the current model does not have any effective policy framework to address social exclusion and the marginalisation of the poor. But any discussion on disaster management must address the proper assessment and identification of vulnerable groups. Reconstruction doesn’t mean only rebuilding houses but rebuilding lives, particularly of the weak. That alone leads to real development.