The Macro Problems of Microfinance Industry in India - Part I

The first quarter of this month has brought to the frontline the traditional non ending tussle between the judiciary and the executive. The proponents of constitutional theory of separation of power have criticized the recent orders by Supreme Court in Black Money Case, Salva Judum Case, 2G Scam Case, etc. as clear instances of judicial overreach while others have shown their respect to these new horizons of judicial activism. In the situation where Center is witnessing a tough time in keeping the ball in its Court, the recent criticisms raised by the Andhra Pradesh government on the proposed Microfinance legislation by the Union Government has depicted that the Union also has to pass the constraints posed by federal structure of Indian polity. It would be an interesting story from herein to observe the Union’s moves when it is getting setbacks from two governance models of constitutional framework of India.

The release of recent draft of Micro Finance Institutions (Development and Regulation) Bill, 2011 by Finance Ministry marks a new development which once again depicts the overenthusiastic approach of both the Center and the State to regulate the Rs. 20,000 crore microfinance industry in India. It would be worth shooting aimlessly without acquainting the reader with background of this battle. I propose to cover different issues including but not limited to the background of MFI crisis, the government’s response to handle this crisis, quest for regulation of MFI sector and analysis of proposed Bill in a series of posts.

Microfinance as a genre of microcredit denotes a practice of providing small, working capital loans and other financial services to poor individuals who are unable to obtain access to commercial sources of credit. Once considered as next big thing in terms of investment, the definition of microfinance has undergone a significant change in the recent era. There has been a shift in the orientation of microfinance institutions from ‘reaching the unreached’ with not for profit model to ‘commercial banking activities’ with a for-profit model. In this process, much more than the profits generated by these institutions and the heated arguments accumulated by both critics and enthusiastic of microfinance institutions, it is the poor and vulnerable members of the society who have witnessed the agony of paying high interest rates and ostensibly making their loans ‘evergreen’. The plight of aam aadmi in the State of Andhra Pradesh captured the front page of newspapers across the nation wherein allegations were made that the strict and often barbaric debt recovery methods used by the MFIs, and their explosive growth rates since the beginning of the decade, had led as many as 200 borrowers to end their lives. Soon the State intervened with passing of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010, which restricted the freedom of operation of the MFIs in the state and MFIs witnessed a sharp fall in loan recovery. To address this situation and to provide relief to both common man and MFIs, the Central regulator – the Reserve Bank of India (RBI) constituted a committee under the chairmanship of Mr. Y.H. Malegam to look into issues relating to MFIs which submitted its report in January 2011. The report essentially mooted for the self-regulatory framework for MFI sector and provided an exhaustive list of recommendations which received mixed response from the critics and the enthusiastic supporters of microfinance. Andhra Government officials went public by stating that they are not bound by the recommendation posed by the committee and they would continue to regulate the microfinance sector by the State law only. Once again the Center responded to the situation with the release of Draft MFI Bill, 2011. The next post would continue the discussion on the new bill and the controversy involved therein.

Ground Realities

The Supreme Court recently in the case of Nandini Sundar and Ors. v. State of Chhattisgarh declared the appointment and arming of Special Police Officers (SPOs) by the State of Chhattisgarh for counter insurgency purposes in naxal affected areas as unconstitutional. Despite the judgment being criticized by many as being a “judicial lecture” to the executive, it has far reaching ramifications for the state. The debate about the separation of powers and to what extent the court should be willing to enter the domain of executive policy is an endless one. This judgment needs to be appreciated in the light of the of the insight and accuracy that the court has exhibited in terms of clearly discerning for itself the real purposes of the entire scheme of the State of Chhattisgarh in the appointment if SPOs in the affected areas. At the outset it needs to be understood that it was a writ petition in the Supreme Court, hence, the evidence of particular facts can be taken only on affidavit. Therefore the court is always constrained as regards both the accuracy as well as the sufficiency of facts to decide a case a particular case. Yet the Supreme Court quite amazingly could discover the true stand of the Government in relation to the whole structure that it had put in place, which conveniently has been referred to “Salwa Judum”. The claim of the state was that the SPOs were recruited only for the purposes that they could act as “guides, spotters and translator” and would work as a source of intelligence. The essence of the argument was that the SPOs would only have roles in the nature of assistance to the main security forces in the above manner and that they would not be deployed in the main battle field against the naxalites/extremists. To a question by the court as to why providing the SPOs with firearms was necessary considering their non combative role, the state replied that it was for their “self- defence”. The court keeping in mind the fact that in national security matters “the court usually does not seek to interfere in security considerations”, however, its intervention is imperative so as to “safeguard constitutional values and goals, and fundamental rights such as equality, and right to life.” The court then reading from the very affidavit submitted by the state pointed out the fact that 170 SPOs have been killed and more than 117 of them have been injured in the last five years itself belies the claim of the state that the role of the SPOs were merely confined to non-combative operations. Furthermore the court was quick to analyse the reality that in attacks on relief camps set up by the state in various naxal affected areas the SPOs would undoubtedly get involved in what it termed as “fierce battle” with the naxalites. In the light of this fact the court held in very strong terms that the whole purposes of recruiting poor tribal youngsters as SPOs was to have them as “cannon fodder in the killing fields of Dantewada and other districts of Chattisgarh.” This court asserted was a violation of article 21 of the constitution in as much as their lives were put in direct danger by the state without putting in adequate safeguards in place. The fact that these tribals were not even given proper training for combative roles was an outright abdication of the responsibility of the stare which is to ensure that the life and liberty of its citizens were protected. Insufficiency of training coupled with the imminent danger from the operations they were subjected to was a total negation of constitutional values. Inspite of the fact that the SPOs were expected to perform all the duties of the regular police officers, be subject to all the liabilities and disciplinary codes, as members of the regular police force, and yet receive only an “honorarium” from the central government. They are completely deprived of all the other benefits which the regular forces are entitled to receive. The court could clearly see that “issues of finance have overridden other considerations such as effectiveness of such SPOs and of constitutional values.” This was held to be an outright violation of article 14 of the constitution which guarantees equal treatment to all. Furthermore the fact that these young tribals were being subjected to the same level of danger as any other member of the regular force who have much better training and education and possess much better capacities to deal with counter insurgency operations, was tantamount to treating “unequals as equals”, which is an outright violation of article 14 of the constitution.

It is submitted that the 58 page opinion of the Court though appearing to be rhetoric in the beginning, has not been welcomed in the manner it should have been. Under the circumstances where the Union had forgotten its constitutional mandate under Article 355 of the Constitution, the Court was very well justified in bringing the ground realities to the forefront and to maintain the rule of law. Critics have failed to appreciate the context in which Court remarked that “the primordial value is that it is the responsibility of every organ of the State to function within the four corners of constitutional responsibility. That is the ultimate rule of law.” It would be very interesting story now when this attitude of the Court is being characterized by the State as ideological rather than a step forward to maintain the rule of law. Reports suggest that the Chief Minister of Chhattisgarh has already hinted on filing review petition against Salwa Judum decision.

INDIAN BAR SELLING INTERNATIONAL LIQUOR

             This post is targeted at law students pursuing their law in premium law schools of India. (Both N-Rated as well as non N-Rated). The students who have stood stern battles in their respective law schools to argue it out on a constitutional matter in most the prestigious moot court in India would surely be amazed to know that the 27^TH BAR Council India Moot is going Commercially International. The hindrance is that the proposed International Commercial Arbitration compromis for Bar Moot cannot synchronize itself with Indian family disputes, criminal law and as the great Nani Palkivala would put it this compromis will also not support the fundamental law of superior obligation i.e. the Constitution of India. I am reminded of few lines of literature which read as “everything that glitters is not gold”. The International tag of 27^TH Bar Moot has more to hate and less to love. As hosts to 27^TH BAR moot our college team has been sweating it out reading those lengthy and heavy treatises of Constitutional law (I presume same would be the case with other law schools preparing seriously for the same moot) but this news, BAR moot bouts to judged on the criterion of International Commercial Arbitration compromis, has compelled them to consider other moot options. I would argue like a lawyer by presenting three contentions against the proposed change. First the purpose of Bar is to promote more and more students to join the practice of this noble profession. The proposed the change won’t do any good to the cause of BAR. It seems Bar is working against its own cause. Secondly, when we peruse through the burdensome course curriculum of the premium law schools in India we would rarely find commercial international even arbitration as a part of it. Thirdly Bar Council moot has witnessed maximum number of law schools participation than any other moots organized in India but when we taking in the parlance of International Commercial Arbitration we are taking about foreign authors and mostly foreign books which of course are expensive. I am sure objectionaries that only handful of Indian law schools would posses’ sufficient resources for students to work on International Commercial Arbitration. The figure of participation in law school will surely fall down because of the stated reason. If Bar wants to go international and provided Indian law students with an international forum to compete then it should organize to parallel competitions one highlighting Indian law and other based on the International Commercial Arbitration compromis.  

Pickon Biswal

Karnataka Assembly Crisis

The author expresses his regret for going beyond the word limit; however, the exigency of the matter compelled him to do so.

The ongoing political outcry in the State of Karnataka has stunned the whole nation and the vibes of this political deadlock has brought the constitutional issues regarding the authority of the Speaker of the assembly and Anti defection law at the forefront. The disqualification of 16 MLAs (11 BJP and 5 independents) by the Speaker K.G. Bopaiah ahead of the trust vote on October 11, 2010 has taken the legal and political community aback. Eminent politicians, jurists and commentators posit themselves on opposing extremes of the academic spectrum on this point, and recent split judicial pronouncements by Karnataka High Court add to the confusion. Being students of Constitutional Law, it is imperative as well as essential for us to gauge the validity of these political actions on the touch stone of the Constitution. This post would delve into the contentious issue of law regarding the disqualification of MLAs. In doing so, the first part would provide a brief background to the present controversy and then it moves to trace the constitutional provisions with regards to the disqualification of MLAs. The next part would examine the case law jurisprudence revolving around the same issue.

Part I: Background of the Controversy

The saga begins on October 6, 2010 when 16 MLAs approached the Governor H.R. Bhardwaj whereby they expressed their lack of confidence in the government on being aggrieved by the alleged disillusion with the functioning of the government headed by B.S. Yediyurappa. It was alleged that the government was responsible for widespread corruption, nepotism, favourism, abuse of power and misuse of government machinery. With these reasons they asserted that they have withdrawn their support to this government in their letter on the same date. Taking note of this dissatisfaction, the Governor addressed a letter to Chief Minister on the same date wherein he requested the CM to prove his majority on the floor of the house. At this juncture, it is pertinent to note that the said floor test has been laid down by the Supreme Court in S.R. Bommai Case which was subsequently followed in Rameshwar Case. Subsequently, the CM filed a petition under Rule 6 of the Karnataka Legislative Assembly (Disqualification of Members on grounds of Defection) Rules, 1986 praying for the disqualification of 13 MLAs. The Speaker accepted this petition and passed the impugned order dated October 10, 2010 whereby 11 MLAs were disqualified. The story took an interesting turn when the questions arose as regards to the said disqualification wherein it was alleged in various media reports that the sole purpose of such disqualification before the trust vote was to bring down the strength of the house to 208 and thus it was aimed at facilitating the comfortable win for Yediyurappa’s government. Aggrieved by this, the MLAs challenged their disqualification in the Karnataka High Court. The court pronounced a split verdict on the issue on October 18. Chief Justice J.S. Khehar upheld the action of the speaker and Justice N. Kumar set aside the order of the speaker calling it unconstitutional. The matter has now been listed for hearing before a third Judge on October 20.

Having dealt with the factual background leading up to the passing of the split decision by High Court, I shall now venture to deal with the law on disqualification.

Part II: Constitutional Provision Regarding Disqualification Of Members

The 16 MLAs were disqualified by the speaker under the 10^th schedule of the Constitution on grounds of defection. Article 191 read with the paragraph 2 of 10^th schedule of the constitution lists two grounds on which a member of a house “belonging to any political party” can be disqualified. First, “if he has voluntarily give up his membership of such political party”, Second, “if he votes or abstains from voting contrary to any direction issued by the political party.” In the present context, it can be very well argued on behalf of the MLAs that their action of approaching the governor to express their grievance against the government did not amount to voluntarily giving up their membership. As Justice J.S. Khehar put forth, the MLAs merely “dissented”, it was not “dissidence.” The right to dissent has an enormous bearing on democracy. Democracy is not about “who is ruling” but “who is in the opposition.” Merely on grounds of dissenting it would indeed be unjust to remove the rebel MLAs.

Part III: Judicial Pronouncements On Disqualification of Members

Similar issue had plagued and perplexed the judicial minds in the case of Ravi S. Naik & Sanjay Bandekar v. Union of India & others wherein the Court held that the words “voluntarily giving up membership” do not mean “resignation”. The court had categorically clarified that “A person may voluntarily give up his membership of a political party even though he has not tendered his resignation from the membership of that party. Even in the absence of a formal resignation from membership an inference can be drawn from the conduct of a member that he has voluntarily given up his membership of the political party to which he belongs.” An inference has to be made by the speaker on the basis of evidence supporting the same. In the present case Mr. Bopaiah had send show cause notices to all the MLAs asking them to explain why action should not be taken against them. Here the procedure was duly followed as envisaged by Rule 6 and 7 of KLA Rules, 1986. The MLAs were given a chance to explain their positions by adducing documents. However, the MLAs were given just 4 days to file their replies, whereas the Rule 7(3) of Karnataka Assembly provide for seven days time. Therefore it would indeed be difficult for the Court to classify the action of the speaker as unconstitutional. The speaker was well within the ambit of the law when he passed the order of disqualification. Further in the case of Sri Rajendra Singh Rana & Ors. V. Swami Prasad Maurya & Ors, the Supreme Court took a liberal view of what constitutes “voluntary giving up” by laying down that “the act of giving a letter requesting the Governor to call upon the leader of the other party to form a Government, itself would amount to an act of voluntarily giving up the membership of the party on whose ticket the said members had got elected”. Hence the fact of defection can be implied as well express.

Even after a scrutiny of constitutional literature ranging from bare provision to the judicial interpretation, the dispute rests with the judiciary standing at the forefront as the torchbearer. The author awaits the reasoning of the Court coming up on October 20 which would further provide me the chance to analyze the approach of judiciary in such matters.

The Kihoto Hollohan case conclusively established judicial review in case of disqualification of members form the house as it struck down para 7 of the tenth schedule.

YOUTHENESIA

The global enigma of politics has shifted. We have a black American president; few years back the populous would have considered this consanguine a flagrant fallacy. What I am suggesting in this short post would seem impalpable like few decades back a black American president would, therefore it is a humble request to the objectionaries of our blog to read this post with an open blend of mind.

On a fateful day the constituent assembly of India was established with the objective of drafting a constitution for India. The minutes of the assembly have been efficiently structured and preserved in twelve volumes. It was not until very recently that I realized, after perusing through the volumes, that none of the members of this assembly were below the age group of fifty. I wonder this document is nothing more than bric-a-brac for the youths in India. I will not draw more fresh blood from the old wounds but surely I will not refrain myself from pondering about the future. In our present constitutional scheme we have a minimum age criterion set for our parliamentarians. For the upper house the said criteria is fixed at 35 years of age and for the lower house it has been fixed at 25 years of age. With keen interest I went through the profile of the all present parliamentarians and to my annoyance only a few of them were below 30 years of age. This figure is very less especially for a country which has more than half of its population less than the same age group. If our country intends to feature among the other advanced nation of international community then the “I” in INDIA i.e. the youth has to take to politics. The recent “women empowerment” would have reverberated much better waves of sound if it was pronounced as “women youth empowerment”. We should introduce reservation on the basis of age and not on caste. The latter being barred by few constitutional provisions and the former has no such limitation attached to it. The schematic of Indian politics needs a renovation and this can achieved by attaching the chandeliers of youth in the Indian parliament. If reservation can be the means to uplift the backward class, it can also pave way for Youth-nesia in Indian polity.

Validity of Presumption of Marriage: An Unresolved Quandary

The fate of female partner in a live-in relationship, though presently at the crossroads and in intersection with the institution of marriage, has been shown a ‘yellow light’ by a divisional bench of Supreme Court in its latest decision in Chanmuniya v. Virendra Kumar Singh Kushwaha & Ors, wherein the Court has requested the Chief Justice of India to refer three contentious questions of law to be decided by a larger bench. The most important question among them is that whether the living together of a man and woman as husband and wife for a considerable period of time would raise the presumption of a valid marriage between them and whether such a presumption would entitle the woman to maintenance under Section 125 Cr.P.C?

In the present case, the Appellant, after the death of her husband, had married to his younger brother (the first respondent) as per the alleged customs and usages (viz. Katha and Sindur) prevalent in the Kushwaha community in 1996. They both lived together and fulfilled all the marital obligations toward each other till the time when the husband starting torturing her which was followed by refusal to maintain her and fulfill the marital obligations. The High Court held that there was no valid marriage as the essentials of a valid Hindu marriage, as required under Section 7 of the Hindu Marriage Act, 1955 had not been performed between them and thus it held that the first respondent was not the husband of the appellant. Aggrieved by this, the appellant brought the matter to the Supreme Court wherein the Court was once again cropped with the question whether a man and woman living together for a long time, even without a valid marriage, would raise as in the present case, a presumption of a valid marriage entitling such a woman to maintenance.

To clear the grey clouds around the interpretation of word ‘wife’ as given in section 125 of Cr.P.C, the Court referred to the catena of cases decided by House of Lords, Privy Council and Supreme Court and categorically remarked that “the man should not be allowed to benefit from the legal loopholes by enjoying the advantages of a de facto marriage without undertaking the duties and obligations. Any other interpretation would lead the woman to vagrancy and destitution, which the provision of maintenance in Section 125 is meant to prevent.” The Court being conscious to the probable sufferings of the female partner in such relationships remarked that a broad view needs to be taken to interpret the word wife in this section, nevertheless, the Court also took note of the fact that sitting in a two-Judge Bench, they cannottake a view contrary to the views expressed in the Yamunabai Anantrao Case and Savitaben Bhatiya Case wherein the Court held that the wife means legally wedded wife.

The author, although satisfied by the concerns of the Hon’ble Court, is conscious as to the approach taken up by the Court to interpret the law on this point. It is humbly submitted that the Court should be careful when it uses phrases like presumption of a valid marriage. I had earliest opportunity to discuss the ramifications of such terminology in a recent decision of the Apex Court with my classmates during our Family Law class discussions. A valid marriage as per HMA not only requires fulfillment of essentials as provided under section 5 but also the essential ceremonies as provided under section 7. When the Court makes presumption of a valid marriage, the author believes that the Court looks at section 5 in isolation and completely ignores the other collary essentials. The question which still remains unsolved and unresolved is that – is such presumption is in strict compliance with the fulfillment of requirements of a valid marriage. Moreover, this legal fiction of validity of a marriage would defeat the purpose of the HMA wherein the Parliament has clearly provided a set of requirements which are necessarily to be fulfilled by the parties to the marriage. The Court has reached the right conclusion but still the reasoning employed by the Court contradicts the status of women as wife in HMA. Though the female partner is protected and covered under the ambit of Domestic Violence Act, 2005, yet, notwithstanding the current case law development, there is still a long journey ahead. It is a difficult task for the Supreme Court to arrive at a conclusive decision on this yet the hopes of many couples living in such relationships are attached with this referral.

Jeet Soni

An Awesome Sunday: First Dinabandhu Sahu Memorial Lecture

It is been rightly said that Knowledge knows no boundaries and probably it was a perfect day for a bunch of students here to travel a journey of odd-30 minutes to perplex our minds with the practicalities of legal acumen. There could have been no better use of the bright Sunday morning then to attend the First Dinabandhu Sahu Memorial Lecture 2010 organized by our beloved teacher and mentor Dr. Faizan Mustafa at the magnificent academic block of National Law University, Orissa. The event was presided by Hon’ble Justice D.P. Mohapatra, Former Judge, Supreme Court of India and the keynote speaker was Hon’ble Justice A.K. Patnaik, Judge, Supreme Court of India. The topic for the lecture was Compensation to Victims of Crimes and Rehabilitation of Convicts after Imprisonment. His Lordship began with a very interesting instance to depict the sense of humour of this great legend. Once when Late Dinabandhu Sahu was sitting in the Court room as a defense lawyer and the Public Prosecutor was arguing before Sessions Judge, being interrupted by his comments the PP who was a tall man, said “if this little man talks more, I will put him in my pocket.” Without a loss of moment, he interjected – “if the Public Prosecutor does that then he will have more brains in his picket than in his head.” With an applaud from the students and the dignitaries present there, he moved on to the topic of the day. Following are the excerpts from the lecture:

“Notwithstanding the punishment of the convict, the victim may continue to be financially crippled on account of the crime and his right to life and liberty guaranteed under Article 21 of the Constitution may continue to be infringed. On the other hand, we must bear in mind that a convict does not cease to be a person and as a person continues to have the fundamental right to life and liberty guaranteed under article 21 of the Constitution. All that happens by virtue of conviction is that the convict is deprived of his liberty during the period of imprisonment in accordance with law and after that he is entitled to his fundamental rights guaranteed by the Constitution of India. Hence our law must provide for compensation to the needy victims of crime and rehabilitation of the convicts after punishment.”

He referred to some of the Supreme Court decisions, viz., Nilabati Behera v. State of Orissa & Ors, Chairman, Railway Board & Ors v. Chandrima Das & Ors, D.K. Basu v. State of West Bengal, in which the Court took the lead and awarded compensation to the victims. His Lordship also took note of section 357 of Cr.P.C. which empowers the criminal courts to award compensation to the victims. One of the interesting issues raised by his lordship in course of his lecture was that what would happen if the Court finds that the convict has no capacity to compensate the victim. To clarify the position on this point, he made passing reference to the Prisoners’ Earnings Act 1996 in England. The need for such a provision to compensate the victim in such situation was overviewed by the Supreme Court in State of Gujarat v. Hon’ble High Court of Guajarat. This recommendation was taken up by the State Legislature and it made a common fund in which a portion of wages earned by the Prisoner was set apart to be paid as compensation the victim.

The Hon’ble Speaker took a critical note of current trend as regard to the rehabilitation of the convict and opined that the law in India presently does not provide that the State has to undertake rehabilitation of the convict. The remarks made by the Supreme Court in this regard in State of Gujarat Case are remarkable. He concluded with the following remarks:

“…Law reforms for victim compensation and rehabilitation of the convict must be introduced in laws as early as possible on recommendations of expert bodies such as Law Commissions which may be set up by States. We must remember that in a democracy governed by Rule of Law any change toward a better society for the victims of crimes the convicts can only be achieved through reforms in the law and by effective enforcement of such laws.”