Preserving Equality in Online Education

The silver bullet of technology has not only managed to pierce sectors like finance, law, healthcare, etc. but also the predominantly conservative sector of education. Pandemic was the catalyst for steering a range of investments and innovation in the online learning space. Not surprisingly, the industry is set to grow by $2.28 billion during 2022-2026, progressing at a CAGR of 19.50% during the forecast period.[1]

The rapid adoption and need of online education platforms have inspired pedagogical approaches to make tech-based education more engaging and interactive. It is anticipated that integration of blockchain, gamification, artificial intelligence, immersive technologies, learning analytics, etc. will make the online learning experience more adaptative and personalised to the needs of each individual student.

While the world of virtual education may have opened lucrative avenues, its impact dwells differently on students, teachers, schools, parents, and the industry as a whole. 

 

Supreme Court’s View on Online Education

During the pandemic, schools switched to the digital medium, and as such, the right to education was virtually denied to children belonging to the disadvantaged group (DG) or economically weaker section (EWS). The Supreme Court, headed by a three-judge bench of Justices D.Y. Chandrachud, Vikram Nath and B.V. Nagarathna in October 2021, stated that the digital divide, against the backdrop of the COVID pandemic, has produced “stark consequences.”

The top court was hearing a plea by the Action Committee on Unaided Recognised Private Schools in connection with the access to technology by children who are attending online classes and the funding needed for the same. It was a petition filed by the private school managements challenging the Delhi High Court order of September 2020 directing them to provide their 25% quota of EWS/DG students online facilities free of charge. The High Court had said that the schools could get themselves reimbursed from the government.

The Delhi government appealed to the Supreme Court against the High Court’s order, saying it had no resources to reimburse the school for the online gadgets. Though the Supreme Court had stayed the High Court order in February 2021, the bench led by Justice Chandrachud said both the Centre and states like Delhi could not bow out of their responsibilities towards young children.

The court observed that the disparity exposed by online classes had been heart-rending. The technology gap caused by online classes defeated the fundamental right of every poor child to study in mainstream schools. The court also ruled that the right to education for little children hinged on who could afford gadgets for online classes and who could not. Many students had to take temporary breaks, and in the worst case, drop out, due to a lack of resources to access the internet, for online education as their families could not afford them. Moreover, the risk of the children, who dropped out of school, being drawn into child labour or child trafficking was high. The needs of young children, who are the future of the country, cannot be ignored, it said. Though schools were gradually opening due to the receding curve of the pandemic, the need to provide adequate computer-based equipment and access to online facilities for children is of utmost importance.

The needs of young children who represent the future of the nation cannot simply be ignored. A solution must be devised at all levels of Government – State and Centre to ensure that adequate facilities are made available to children across social strata so that access to education is not denied to those who lack resources. Otherwise, the entire purpose of the Right to Education Act, allowing EWS students to learn alongside mainstream students even in unaided schools, will be defeated.

The court further held that Article 21A (the right to free and compulsory education for children aged between 6 and 14) must be a reality. It directed the Delhi government to develop a plan to help children in the EWS category and added that the Centre and State governments should jointly work to develop a realistic and lasting solution to ensure children are not denied education due to lack of resources. The said bench further said: “It is necessary for the Delhi government to come with a plan to uphold the salutary objective of the RTE Act. Centre to also coordinate with state governments and share concurrent responsibilities for the purposes of funding.”

It also appreciated the Delhi High Court’s order directing the Delhi government to provide computer-based equipment and an internet package free of cost to EWS children in private and government schools. The Bench asked the Delhi Government to come out with a plan to effectuate the ‘salutary object’ upheld in the High Court’s decision. The court said the Centre should join in the consultations. The issues raised in the present proceedings will not only cover unaided schools but also government and aided schools. The Bench issued notice in the private school’s management petition and ordered it to be tagged with the pending Delhi Government petition.

 

Guidelines for Digital Education

COVID 19 accelerated the adoption of technology and brought about a dynamic shift in the sector. However, it was also realised that technology may improve the quality of dissemination of education; but it can never replace the classroom teaching and learning experience. While adopting the blended and hybrid model of education, a balance needs to be struck in learning and taking advantage of technology, and helping children become socially and emotionally healthy individuals and responsible citizens.

Bearing that in mind, Pragyata Guidelines for Digital Education were released by the Ministry of Human Resource Development’s Department of School Education and Literacy. At the beginning of the academic year 2021-22, the school education department informed all the schools to follow these guidelines while conducting online classes. According to the guidelines, the maximum screen time per day for kindergarten/preschool students has been limited to 45 minutes. However, for classes 1 to 5, schools can conduct two sessions of 1.5 hours per day for not more than 5 days in a week. For classes 6 to 8, screen time has been limited to 2 hours and for classes 9 to 12, limited to a maximum of 3 hours per day.

 

The Two Sides of Online Learning

Online classes offer a comfortable learning environment for students and offer tremendous growth opportunities, but it does instil a sense of isolation. Students, especially those belonging to younger age groups, thrive in a socially simulated environment. However, given the set-up of online classes, children fail to develop the ability to identify social norms and etiquettes. Further, online classes also limit the time and attention teachers can extend to their students. As a consequence, students that require extra attention and guidance fail to perform well. Also, online education may be accessible, but it is not affordable. Virtual learning requires expensive gadgets like computers, laptops, tablets, or smartphones. Hence, students in the economically weaker sections are left behind.

On the plus side, exhaustion and added costs of commuting are avoided in online education. In addition, online learning platforms offers a variety of courses and programmes that empower students to explore opportunities outside the realm of their curriculum. Moreover, since it is not possible for teachers to constantly monitor the activities of all students, online classes instil a sense of responsibility and self-discipline in them as they are made to realise that their actions and negligence will have a long-term impact on their future.

Mapping and understanding the positives and negatives of online education will enable educational institutes and the ed-tech industry to pioneer strategies for more efficient delivery of education. At the same time, the legislature must take a pro-active stance in ensuring that the fundamental right to education is protected in all manner and forms without any compromise on the well-being of learners.

During the pandemic, schools switched to the digital medium, and as such, the right to education was virtually denied to children belonging to the disadvantaged group (DG) or economically weaker section (EWS). The Supreme Court, headed by a three-judge bench of Justices D.Y. Chandrachud, Vikram Nath and B.V. Nagarathna in October 2021, stated that the digital divide, against the backdrop of the COVID pandemic, has produced “stark consequences.”

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Validity of an Arbitration Clause: No Strait-Jacket Formula

On September 7, 2022, the Hon’ble Supreme Court issued a significant ruling in the case of Babanrao Rajaram Pund v. Samarth Builders & Developers[1], holding that no strait jacket formula can be made under the Arbitration and Conciliation Act, 1996, to determine the particulars of an arbitration clause. It further held that an arbitration clause must be treated as final and binding even if specific words like “final” or “binding” are not used in such a clause.

Babanrao Rajaram Pund v. Samarth Builders & Developers

The case related to one Babanrao (the Appellant), who was the owner of a property situated in Aurangabad. The Appellant intended to build residential and commercial complexes on this property. Samarth Builders & Developers (Respondent No. 1), a company specialising in the building of homes and commercial buildings, learned of the Appellant’s intention to build such a residential and commercial complex and approached him. A “Development Agreement” (DA) was subsequently signed by the Appellant and Respondent No.1. The Appellant, thereafter, signed a General Power of Attorney (GPA) in favour of Respondent No. 1.  Respondent No. 2, in the civil appeal was the partner of Respondent No. 1.

According to the DA, Respondent No.1 had to build “Amay Apartments” on the property within 15 months. However, this deadline could have been extended with the payment of a penalty. Respondent No. 1 accepted the conditions of the DA and stated that he would build 45 percent of the constructed space before or on the deadline of the 15-month period, retaining the other 55 percent of the developed section for himself.

Respondent No.1 was, however, unable to finish the work within the allotted time. Aggrieved by this act, the Appellant gave notice to terminate the DA and to cancel the GPA. On 11.07.2016 the cancellation of the agreement and GPA were also publicised in a newspaper by the Appellant. Since, Respondent No.1 did not respond to the notice of the Appellant issued under Clause 18 of the DA, which carried an arbitration clause, the Appellant was constrained to approach the High Court.

Clause 18 of the DA reads as follows:

“18. All the disputes or differences arising between the parties hereto as to the interpretation of this Agreement or any covenants or conditions thereof or as to the rights, duties, or liabilities of any part hereunder or as to any act, matter, or thing arising out of or relating to or under this Agreement (even though the Agreement may have been terminated), the same shall be referred to arbitration by a sole arbitrator mutually appointed, failing which, two arbitrators, one to be appointed by each party to the dispute or difference, and these two Arbitrators will appoint a third Arbitrator and the Arbitration shall be governed by the Arbitration and Conciliation Act, 1996 or any re-enactment thereof.”

The Arbitration Clause

Before the Hon’ble High Court of Bombay, the Appellant had filed an application pursuant to Section 11 of the Arbitration Act, 1996, after receiving no response from the Respondents. The Respondents claimed that clause 18 of the DA could not be enforced because it lacked the precise phrase “to be bound by the decision of the Arbitral Tribunal.” The Hon’ble High Court ruled in favour of the Respondents and determined that the clause lacked necessary components of a legitimate arbitration agreement and did not expressly specify that the arbitrator’s ruling would be binding. Aggrieved by the order of the High Court, a Special Leave Petition was filed by the Appellant before the Hon’ble Supreme Court.

The Issue Before the Hon’ble Supreme Court

If an arbitration clause lacks specific language like “binding” or “final,” should it still be considered a valid agreement for the purpose of invoking powers under Sec. 11 of the Arbitration and Conciliation Act, 1996?

While analysing the issue, the Hon’ble Supreme Court made it clear that there is no precise form of an arbitration clause, and that Section 7 of the Arbitration Act of 1996 does not provide a specific form of arbitration agreement. The Hon’ble Supreme Court critically analysed Clause 18 of the DA and concluded that the terms of the agreement were clear. It made it clear that the term “disputes shall be” referred to arbitration, meant that the reference to arbitration was clear in the DA. Additionally, it was also observed that the contract contained clear instructions for choosing a third arbitrator and that the parties would be subject to the Arbitration and Conciliation Act, 1996. The Hon’ble Supreme Court further opined that the requirement and purpose of the parties to be bound by the arbitral tribunal are mandated by Clause 18 of the DA. The arbitral clause was held to be not invalidated by the omission of the phrases “final” and “binding.” The decision of the Hon’ble High Court of Judicature of Bombay was thus set aside by the Hon’ble Supreme Court and a sole arbitrator was appointed to resolve the dispute.

Key Takeaway

Though, the decision by the Hon’ble Supreme Court gives considerable breathing room for an arbitration clause, it is imperative to consider that an insufficiently written arbitration clause does hinder the process of arbitration. The only solution in such a scenario is to fix the deficiency in the arbitral clause. The parties must ensure that the arbitration agreement is well drafted so that there are no errors and the intention of the parties to refer the dispute to arbitration can be easily inferred. This will also ensure that the parties will not be forced to approach the courts to determine the validity of the clause.

References: 

[1] 2022 SCC OnLine SC 1165.

The only solution in such a scenario is to fix the deficiency in the arbitral clause. The parties must ensure that the arbitration agreement is well drafted so that there are no errors and the intention of the parties to refer the dispute to arbitration can be easily inferred. 

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Rectifying the Parallel Regime of RERA & WB-HIRA

The Supreme Court issued an important verdict on May 4, 2021, when it declared that the West Bengal Housing Industry Regulatory Act, 2017 (WB-HIRA) is “repugnant” to the Parliamentary law of Real Estate (Regulation and Development) Act, 2016 (RERA). The state law created a “parallel regime” and encroached upon the identical Central law RERA, 2016, enacted the year before, and was in direct conflict with the central legislation by lacking necessary safeguards to protect consumers.

Background

The Bench of Justices D. Y. Chandrachud and M. R. Shah in Writ Petition (C) No. 116 of 2019 [Forum for People’s Collective Efforts (FPCE) & Anr. vs. State of West Bengal & Anr.], in its 190-page judgment, struck down as unconstitutional West Bengal State law WB-HIRA meant to protect home buyers, enacted in 2017, a year after the Centre passed the RERA, stating that if Parliament had passed legislation, it was not open for states to enact similar statute.

Before Parliament enacted the RERA in 2016, state legislatures had enacted several laws to regulate the relationship between promoters and purchasers of real estate. Before the WB-HIRA, one of the laws the state legislature had enacted was the West Bengal (Regulation of Promotion of Construction and Transfer by Promoters) Act, 1993 (the “WB 1993 Act”). Upon receiving the assent of the President, the Act was published in the Calcutta Gazette, Extraordinary on March 9, 1994.

In the State of West Bengal, the Real Estate (Regulation and Development) Bill, 2016 (the “RERA Bill 2016”) was introduced and draft rules under the RERA were framed on August 18, 2016, but no further progress was made in that regard. On August 16, 2017, the motion to pass the WB-HIRA Bill was adopted in the State Legislative Assembly. The Housing Industry Regulatory Authority was established under Section 20 of the West Bengal Housing Industry Regulatory Act, 2017 to regulate and promote the housing sector, to ensure the sale of plots, apartments or buildings, as the case may be, or sale of real estate projects in an efficient and transparent manner, to protect the interests of consumers in the real estate sector and to establish a mechanism for speedy dispute redressal and for matters connected therewith or incidental thereto. The State enactment received the assent of the Governor of West Bengal and was published in the Official Gazette on October 17, 2017, and came into effect from June 1, 2018.

The WB-HIRA repealed the WB 1993 Act. The remaining provisions of WB-HIRA were enforced by a notification dated March 29, 2018, issued by the Governor of the State of West Bengal in exercise of the power conferred by sub-section (3) of section 1 of WB-HIRA. Thereafter, on June 8, 2018, the State of West Bengal framed rules under WB-HIRA.

Because the Supreme Court declared the provisions of WB-HIRA to be invalid and struck them down in the current judgment, there will be no revival of the provisions of the WB 1993 Act, which were repealed upon the enactment of WB-HIRA, because the provisions of the WB 1993 Act are repugnant to the corresponding provisions of the RERA, which were impliedly repealed upon the enactment of the RERA in 2016.

The State Legislature has encroached upon the legislative authority of Parliament and this exercise conducted by the State Legislature is unconstitutional. The valuable safeguards introduced by Parliament in the public interest and certain remedies created by Parliament were absent in WB-HIRA.

Inconsistencies with RERA

RERA is a complete and exhaustive code which regulates the contractual relationship between a builder/promoter and a buyer/consumer in the real estate sector and provides remedial measures. RERA regulates the rights and obligations between promoters and buyers of real estate, in addition to the provisions of the Indian Contract Act, 1872. The enactment, in ensuring the actual transfer of property to the buyer, furthers the objects of the Transfer of Property Act, 1882. It provides for the enforcement of contracts through remedial measures that are in addition to the remedies provided in the Consumer Protection Act, 1986 and its successor legislation of 2019. RERA, in other words, is a special statute governing the real estate sector, encompassing rights and obligations found in different central enactments.

WB-HIRA covers the identical field of regulating the contractual behaviour of promoters and buyers in real estate projects. The State law is a ‘copy and paste’ replica of the central legislation (except for certain provisions which are inconsistent with RERA) and covers the field which is occupied by the central enactment. WB-HIRA is a “virtual replica” of the Central Law. A significant and even overwhelmingly large part of WB-HIRA overlaps with the provisions of RERA, but it does not complement the central law by fortifying the rights, obligations, and remedies.

The important provisions of WB-HIRA which are inconsistent with RERA are mentioned herein below:

  1. Force majeure events – The RERA restricts force majeure events to fire, cyclone, drought, flood, war, earthquake, or any other natural calamity that hinders the development of the projects, while WB-HIRA includes “any other circumstances as may be prescribed” as an added eventuality.
  2. Planning Area – The RERA specifies that only the projects that fall within the planning areas are subject to the RERA. According to Section 2 (zh) of the RERA, a “planning area” is a planning area or a development area, a local planning area, a regional development plan area, any other area specified as such by the appropriate government or any competent authority, while the WB-HIRA does not define the term “planning area”.
  3. Garage Area – RERA defines a garage as being ‘a place within a project having a roof and walls on three sides for parking any vehicle. It does not include uncovered parking spaces such as open parking areas. On the other hand, WB-HIRA has no such restrictions in defining garage or parking spaces and only mentions spaces as sanctioned by the competent authority.
  4. Compounding of Offences – If any person is found to have violated the RERA, they can be punished under the provision in the Code of Criminal Procedure, 1973 while WB-HIRA does not have provision for the compounding of offences.

Apart from the above, the subject of the provisions of the state enactment is identical, the content is identical. In essence and substance, WB-HIRA has enacted a parallel mechanism and parallel regime which the RERA already entails. In other words, the State legislature has enacted legislation on the same subject matter as the central enactment. Not only is the subject matter identical, but the statutory provisions of WB-HIRA are nearly identical to those of RERA.

WB-HIRA, since its enforcement in the State of West Bengal, would have been applied to building projects and implemented by the authorities constituted under the law in the state. In order to avoid uncertainty and disruption in respect of actions taken in the past, recourse to the jurisdiction of this Court under Article 142 was necessary. The Court, as such, exercised its extraordinary powers under Article 142 and gave effect to its judgment striking down the provisions of WB-HIRA prospective. The Court directed that the striking down of WB-HIRA will not affect the registrations, sanctions, and permissions previously granted under the legislation prior to the date of this judgment.

Down the Road

After the repeal of the WB-HIRA, the Government of West Bengal, Housing Department, by its Notification dated July 27, 2021, framed the West Bengal Real Estate (Regulation and Development) Rules, 2021, and the rules will come into force from the date of their publication in the Official Gazette. Thereafter, by another Notification dated July 29, 2021, the Government of West Bengal, Housing Department established an Authority known as the West Bengal Real Estate Regulatory Authority with immediate effect to exercise the powers conferred on it and to perform the functions assigned to it under the RERA throughout the State of West Bengal. With a further notification dated July 30, 2021, the Government of West Bengal, Housing Department, established an Appellate Tribunal known as the West Bengal Real Estate Appellate Tribunal with immediate effect. It is a sad plight that though the authorities have been established by several notifications dated July 29, 2021 and July 30, 2021, respectively, the positions of Chairperson, Members of the Regulatory Authority, Judicial Member, and Administrative Member of the Appellate Authority are still vacant. By a notice dated July 7, 2022, the Search Committee constituted under the West Bengal Real Estate (Regulation and Development) Rules, 2021, invited eligible and willing persons for the above-mentioned position.

A time-bound and proper implementation of the real estate regulatory law RERA in the state is required. Lack of implementation of RERA has left home buyers in the lurch as neither new complaints can be filed against builders nor existing complaints already filed before the erstwhile WB-HIRA can be continued and home buyers are being subjected to even more ruthless exploitation by builders since there is no mechanism in the state at present for redressal of home buyers’ grievances.

WB-HIRA is a “virtual replica” of the Central Law. A significant and even overwhelmingly large part of WB-HIRA overlaps with the provisions of RERA, but it does not complement the central law by fortifying the rights, obligations, and remedies.

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Thinking through Timelines: Acceptance of Rent Amounts to Waiver of Termination of Lease?

On June 24, 2022, the Supreme Court of India while deciding the matter of Sri K.M. Manjunath Vs. Sri Erappa G,[i] held that mere acceptance of rent by landlord after the expiry of lease would not amount to waiver of termination of lease.

Background

 

The dispute in this matter arose in connection with unregistered lease agreements for the lease of shop premises at Banaswadi Main Road, Bengaluru. Pursuant to the expiry of the last lease deed executed between the parties, the respondent-lessor filed a suit for ejectment before the Small Causes Court against the petitioner-lessee to obtain vacant possession of the shop premises. The Small Causes Court dismissed the suit for ejectment on the grounds that the suit was not maintainable as there was no valid termination of tenancy under section 106 of the Transfer of Property Act, 1882 (“ToP Act”) (detailed hereinbelow).

Aggrieved by the aforesaid dismissal, the respondent-lessor preferred a revision petition before the Karnataka High Court (“High Court”). Upon appreciation of the evidence on record, which inter alia consisted of unregistered lease agreements executed between the parties during the period of 1989 to 1995, the High Court noted that the duration of the lease agreements could be inferred to be for a period of 11 (eleven) months each, and thus the lease granted thereunder stood terminated by efflux of time. Hence, the petitioner-lessee was not entitled to notice under section 106 of the ToP Act. The High Court thus set aside the judgement of the Small Causes Court.

The petitioner-lessee thereafter filed a special leave petition (“Special Leave Petition”) before the Supreme Court challenging the judgment and final order of the High Court.

 

Applicable Provisions and Contentions

 

The primary contention in the matter was the applicability of section 106 of the ToP Act, which provides that where there is no written contract for the lease of immovable property, not being leased for agricultural or manufacturing purposes, the period of the lease shall be deemed to be from month to month and terminable by 15 (fifteen) days’ notice. The contention of the petitioner-lessee before the Small Causes Court was that no valid notice was served by the respondent-lessor as per this provision. On the basis of the aforesaid, the Small Causes Court ruled in favour of the petitioner-lessee. However, based on the aforementioned evidence evaluation, the High Court determined that the lease in this case stood determined by virtue of section 111(a) of the ToP Act, which provides that a lease may come to an end by efflux of time limited therein.

The Supreme Court, in the Special Leave Petition, took note of the contention of the petitioner-lessee that after the expiry of the period of the last lease agreement, the petitioner-lessee was continuing as a tenant in sufferance and had paid the rent till the date of the filing of the suit for ejectment.

 

Verdict

 

Considering the above provisions and contentions, the Supreme Court appreciated the reiteration of the High Court, based on the precedents relied upon by the High Court, that mere acceptance of the rent does not amount to a waiver of the termination of the tenancy. The Supreme Court, however, granted the request of the petitioner-lessee for a grant of time to vacate the shop premises by allotting a period of 6 (six) months from the date of its judgement to hand over the possession of the shop premises to the respondent-lessor. The aforesaid extension was granted subject to the petitioner-lessee submitting an undertaking on affidavit to pay the arrears of rent at the rate of INR 1400/- (Indian Rupees One Thousand Four Hundred only) per month for the arrears pending from the year 2017 (as determined by the High Court) and extending to the aforesaid period of 6 (six) months.

Accordingly, the Supreme Court upheld the decision of the High Court and dismissed the Special Leave Petition for being devoid of merit.

 

The Takeaway

 

The reaffirmation of the Supreme Court on non-waiver of termination in this matter reinforces the significance of capturing the duration of the lease in crystal clear terms in lease agreements. Detailing timelines for termination and notice period is just as important. As seen in the facts of the discussed case, the absence of such agreed timelines can further complicate disputes arising between the parties. Hence, customising such timelines on a case-specific basis is critical, while adopting timelines based merely on common practice is best avoided.

References: 

[i]Petition For Special Leave To Appeal (C) NO.10700 OF 2022 filed before the Supreme Court Of India, Civil Original Jurisdiction.

Image Credits: Photo by  Tierra Mallorca on Unsplash

The reaffirmation of the Supreme Court on non-waiver of termination in this matter reinforces the significance of capturing the duration of the lease in crystal clear terms in lease agreements. Detailing timelines for termination and notice period is just as important. 

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Delhi High Court Suspends CGPDTM Notice Fixing the IP Applications Cut-off Date

The Hon’ble Delhi High Court has suspended the operation of a public notice issued by the Controller General of Patents, Designs and Trademarks (CGPDTM) that had fixed the cut-off date (18.05.2020) for completion of various acts/proceedings, filings, payment of fees and other deadlines that had fallen due during this lockdown. The public notice was found to be contrary to the Supreme Court order which extended the period of limitation applicable to all proceedings before all Courts and Tribunals with effect from 15th March 2020 till further orders.

 

Keeping in mind the extraordinary situation prevailing in the Country attributable to the lockdown announced by the Government, causing difficulties to litigants/advocates in filing their petitions/suits/applications/appeals/or other proceedings, etc. within the limitation period, the Hon’ble Supreme Court had Suo Motu registered a case numbered as Suo Motu Writ Petition (Civil) Nos. 3/2020 titled Re: Cognisance for Extension of Limitation.  

Invoking its plenary power conferred by the Constitution under Articles 141 & 142, the Bench comprising of Hon’ble Chief Justice S.A. Bobde, Hon’ble Justice L. Nageswara Rao & Hon’ble Justice Surya Kant passed the Order dated 23rd March 2020 extending the period of limitation applicable to all proceedings before all Courts and Tribunals governed by general law or special laws whether condonable or not with effect from 15th March 2020 till further orders.

The CGPDTM had issued a Public Notice dated 4th May 2020 informing applicants/registrants and/or its agents/advocates that the due-dates with respect to timelines/periods prescribed under the IP Acts and Rules, falling due during the lockdown, to complete various acts/proceedings, filing of any reply/document, payment of fees, etc. in the matter of any Intellectual Property (IP) applications, shall be 18th May 2020, since the lockdown period from 25th March 2020 to 3rd May 2020 was further extended by two weeks, i.e., till 17th May 2020.

Aggrieved by this public notice, a writ petition (W.P.(C) No.3059/2020) was filed before the Delhi High Court on 06.05.2020 by the Intellectual Property Attorneys Association (IPAA) challenging the said notice. The petitioners submitted that the public notice issued by the CGPDTM is a blatant disregard to the order of Hon’ble Supreme Court dated 23rd March 2020, and specifically conferred the following arguments:  

  1. The order of extension of limitation is applicable to all proceedings irrespective of whether it was governed by general laws or special laws and would be in force with effect from 15th March 2020, as opposed to 25th March 2020 as mentioned in the public notice.
  1. The said extension of limitation shall be in effect until further orders. Hence, the cut-off due-date of 18th May 2020, fixed by the CGPDTM in the public notice, for the completion of various acts/proceedings, filings, payment of fees, etc. in the matters of any IP applications, is also contrary to the Supreme Court order. 
  1. The said due date of 18th May 2020 would also pose difficulties to litigants/advocates to obtain necessary documents/files and file them as per the prescribed procedures, since the lockdown would only be lifted on 17th May 2020.

The Hon’ble Delhi High Court, taking into consideration the Supreme Court Order dated 23.03.2020 and the arguments of the petitioners, passed an Order dated 11th May 2020, holding that no Court, Tribunal, or Authority can act contrary to the order of the Supreme Court. Further, as per Article 144 of the Constitution, all authorities whether civil or judicial, located in the territory of India are required to act in aid of the orders passed by the Supreme Court. The Court also agreed that the period of limitation would stand effective from 15th March 2020 and not from 25th March 2020 as provided in the public notice. 

The Hon’ble Delhi High Court hence rightly held that order of Hon’ble Supreme Court was binding on the CGPDTM and disposed of the petition by suspending the operation of the public notice dated 4th May 2020.

The Hon’ble Delhi High Court has suspended the operation of a public notice issued by the Controller General of Patents, Designs and Trademarks (CGPDTM) that had fixed the cut-off date (18.05.2020) for completion of various acts/proceedings, filings, payment of fees and other deadlines that had fallen due during this lockdown. The public notice was found to be contrary to the Supreme Court order which extended the period of limitation applicable to all proceedings before all Courts and Tribunals with effect from 15th March 2020 till further orders.

Image Credits: Photo by samer daboul from Pexels

The Hon’ble Delhi High Court, taking into consideration the Supreme Court Order dated 23.03.2020 and the arguments of the petitioners, passed an Order dated 11th May 2020, holding that no Court, Tribunal or Authority can act contrary to the order of the Supreme Court. Further, as per Article 144 of the Constitution, all authorities whether civil or judicial, located in the territory of India are required to act in aid of the orders passed by the Supreme Court. The Court also agreed that the period of limitation would stand effective from 15th March 2020 and not from 25th March 2020 as provided in the public notice. 

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Supreme Court lifts the RBI notification prohibiting banking services to Virtual Currency Business: Analysis

After providing the reference of more than 50 cases about legality of virtual currency from across the world in its 180-page-long judgement, the Supreme Court, on March 4th, 2020 lifted the RBI notification prohibiting banking services to Virtual Currency (VC) business.

‘Cryptocurrency’ means “a math-based, decentralised convertible Virtual Currency Protected by cryptography by relying on public and private keys to transfer value from one person to another and signed cryptographically each time it is transferred.”[1]

“‘Virtual currency (VC)’ as the name suggests is a digital representation of value that can be traded digitally and functioning as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but not having a legal tender status.” [2]

On a global level, regulatory responses to cryptocurrency have ranged from a complete clamp down in some jurisdictions to a comparatively ‘light-touch regulatory approach.

Though cryptocurrency may not currently pose systemic risks, its increasing popularity leading to price bubbles raises serious concerns for consumer and investor protection and market integrity. The cryptocurrency eco-system may affect the existing payment and settlement system which could, in turn, influence the transmission of monetary policy.[3]

Brief facts:

It was in 2013, for the first time, RBI had noted and discussed the risks of the development of technology and VCs in its Financial Stability Report[4]. In the report, RBI had mentioned VCs as unregulated money and that regulators were studying the impact of the same.  A press release was thereafter issued by RBI on the potential impact and risks associated with VCs. Later that year newspapers reported about the first-ever raid in India by enforcement authorities on two Bitcoin firms.

On 01-02-2017, RBI again issued a Press Release[5] cautioning users, vendors and holders of VCs. Closely on the heels of the Press Release, the Ministry of Finance constituted an Interdisciplinary committee and the committee gave its report on 25-07-2017. The committee recommended issuing warnings to the general public that the Government does not support cryptocurrencies and those offering to buy or sell these currencies must stop such activities. However, it was clarified that there was no restriction on the use of blockchain technology.

RBI issued a “Statement on Developmental and Regulatory Policies[6]” followed by a circular[7] dated April 6, 2018,  directing the entities regulated by it (i) not to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies and (ii) to exit the relationship with such persons or entities, if they were already providing such services to them. It appears that at around the same time (April 2018), the Inter-Ministerial Committee submitted its initial report, (or a precursor to the report) along with a draft bill known as ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019’.[8]

Challenging the said Statement and Circular and seeking a direction to the RBI not to restrict or restrain banks and financial institutions regulated by RBI from providing access to banking services to those engaged in transactions in crypto assets, these writ petitions were filed. The petitioner in the first writ petition is a specialized industry body known as the ‘Internet and Mobile Association of India’ which represents the interests of the online and digital services industry. The petitioners in the second writ petition comprise a few companies which run online crypto assets exchange platforms, the shareholders/founders of these companies, and a few individual crypto-assets traders.

After detailed analysis, the Hon’ble Supreme Court bench comprising of Hon’ble Justices R.F. Nariman, Aniruddha Bose, and V. Ramasubramanian set aside the impugned circular issued by RBI on “directing  the entities regulated by RBI (i) not to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies and (ii) to exit the relationship with such persons or entities, if they were already providing such services to them.” [9]

There were two main issues raised before the Hon’ble Supreme Court.

 

  1. Whether RBI had the power to prohibit the activities of trading in VCs?

 

No power at all:

One of the major contention raised by the  Petitioners is that RBI has no power to prohibit VC as it is neither a  legal tender nor comes within the credit system of the country so as to enable RBI to act upon the power conferred in it. Also, that, it does not have any characteristics of money for RBI to have the power to regulate the same.  

RBI in its counter-argument agreed to the fact that VC does not satisfy with being acknowledged as currency, however, stated that VCs do not have any formal or structured mechanism for handling consumer disputes/ grievances. Further, due to its anonymity/pseudo-anonymity characteristic, it is capable of being used for illegal activities. Increased use of VCs would eventually erode the monetary stability of the Indian currency and the credit system. Therefore, RBI has every power to regulate and control the activities of trading in VCs.

With regard to the above contentions and arguments, the Supreme Court after analyzing opinions and definitions of various legislations observed that though VCs are not recognized as legal tender, they are capable of performing some or most of the functions of real currency. The statutory obligation that RBI has, as a central bank, is  (i) to operate the currency and credit system, (ii) to regulate the financial system, and (iii) to ensure the payment system of the country to be on track, would compel them naturally to address all issues that are perceived as potential risks to the monetary, currency, payment, credit and financial systems of the country. Therefore, anything that may pose a threat to or have an impact on the financial system of the country can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system. and concluded that the users and traders of virtual currencies carry on an activity that falls squarely within the purview of the RBI.

If at all power, only to regulate:

Another contention made by the Petitioners was that, if at all RBI is conferred with any power it is only to regulate, but not to prohibit.  It was contended by petitioners that the power to prohibit something as res extra commercium was always a legislative policy and that therefore the same could not be done through executive fiat.  In support of its contention, the petitioners referred to the definition of the expression “payment system” under the Payment and Settlement Act and contented that VC Exchanges do not operate any payment system and that since the power to issue directions under Section 18 of the Payment and settlement systems Act was only to regulate payment systems, the invocation of the said power to something that did not fall within the purview of payment system was arbitrary.

RBI in its counter-argument stated that the impugned decision of RBI was legislative in character and was in the realm of an economic policy decision taken by an expert body warranting a hands-off approach from the Court.  

In this regard, the Supreme Court observed that the power of RBI was not merely curative but also preventive. Further, in any case, the projection of the impugned decisions of RBI as a total prohibition of activity altogether, might not be correct. The impugned Circular did not impose a prohibition on the use of or the trading in VCs. It merely directed the entities regulated by RBI not to provide banking services to those engaged in the trading or facilitating the trading in VCs. The fact that the functioning of VC Exchanges automatically got paralyzed or crippled because of the impugned Circular, was no ground to hold that it tantamounted to total prohibition.

Supreme court in this issue held that in the overall scheme of the Payment and Settlement Systems Act, 2007, it was impossible to say that RBI did not have the power to frame policies and issue directions to banks who are system participants, with respect to transactions that would fall under the category of payment obligation or payment instruction, if not a payment system. Hence, the argument revolving around Section 18 failed.

  1. If RBI has the power to deal with carrying out activities related to VCs, whether this impugned circular was a proper exercise of that power?

The second issue raised was regarding the mode of exercise of power and the court-tested its appropriateness and validity based on certain well-established parameters.

No application of mind

One of the major contentions by the petitioner was that RBI had not adequately applied its mind. However, SC was of the view that RBI had been brooding over the issue for almost five years without taking any extreme step. RBI had even issued a press release titled “RBI cautions users of Virtual Currencies against Risks”. Therefore, RBI could hardly be held guilty of non-application of mind.

Malice in law

Another contention made by petitioners was that the impugned Circular was a colorable exercise of power and tainted by malice in law, in as much as it sought to achieve an object completely different from the one for which the power was entrusted.

However, SC observed that in order to constitute colorable exercise of power, the act must have been done in bad faith and the power must have been exercised not with the object of protecting the regulated entities or the public in general, but with the object of hitting those who form the target. To constitute malice in law, the act must have been done wrongfully and wilfully without reasonable or probable cause which is not the case here. Hence, SC rejected the argument.

Violative of Article 19 and proportionality

The next ground of issue raised before the Supreme Court was on the basis of Article 19(1)(g) of the Constitution. It was contended by the Petitioners that since access to banking was the equivalent of the supply of oxygen in any modern economy, the denial of such access to those who carry on a trade which was not prohibited by law, was not a reasonable restriction, rather it was extremely disproportionate. It was further contended that the right to access the banking system was actually integral to the right to carry on any trade or profession and therefore legislation, subordinate or otherwise whose effect or impact severely impairs the right to carry on a trade or business, not prohibited by law, would be violative of Article 19(1)(g).

RBI raised two fundamental objections in this regard. The first was that corporate bodies/entities that had come up with the challenge were not ‘citizens’ and hence, not entitled to maintain a challenge under Article 19(1)(g). Secondly, there was no fundamental right to purchase, sell, transact and/or invest in VCs and that therefore, the petitioners could not invoke Article 19(1)(g).

The SC, however, objected to the contentions of RBI for two reasons namely, (i) that at least some of the petitioners are not claiming any right to purchase, sell or transact in VCs, but claiming a right to provide a platform for facilitating an activity of trading in VCs between individuals/entities who want to buy and sell VCs) which is not yet prohibited by law and (ii) that in any case, the impugned Circular does not per se prohibit the purchase or sale of VCs.

SC observed that, despite the fact that the users and traders of VCs are also prevented by the impugned Circular from accessing the banking services, the circular has not paralyzed many of the other ways in which crypto-currencies can still find their way to or from the market. It was further noted by the apex court that if a central authority like RBI, on a conspectus of various factors perceive the trend as the growth of a parallel economy and severs the umbilical cord that virtual currency has with fiat currency, the same cannot be very lightly nullified as offending Article 19(1)(g).

On the question of proportionality, the petitioners relied upon the four-pronged test summed up in the opinion of the majority in Modern Dental College and Research Centre v. State of Madhya Pradesh. These four tests were (i) that the measure was designated for a proper purpose (ii) that the measures were rationally connected to the fulfillment of the purpose (iii) that there were no alternative less invasive measures and (iv) that there was a proper relation between the importance of achieving the aim and the importance of limiting the right.

SC observed that the impugned circular was issued with the aim of prohibiting the trade in VCs. The object of hitting at trading in VCs was to ensure (i) consumer protection (ii) prevention of violation of money laundering laws (iii) curbing the menace of financing of terrorism and (iv) safeguarding of the existing monetary/payment/credit system from being polluted. However, in the process, it has hit VC Exchanges and not the actual trading of VCs, consequently, the volume of transactions in VCs (perhaps through VCEs alone) is stated to have come down.

SC further observed that at the time when the impugned Circular was issued, RBI had not obviously addressed many of the issues flagged by the writ petitioners. SC held that RBI failed to pass the test of proportionality due to the following reasons:

  • Even though RBI states that it can adversely impact its regulated entities, consumers, and the economy, RBI has not so far found, in the past 5 years or more, the activities of VC exchanges to have actually impacted adversely, the way the entities regulated by RBI function. Before taking any pre-emptive action against VCs, the RBI is required to show some semblance of any damage suffered to it or regulated entities. Since they don’t have any substantial evidence to show damage, RBI failed in the test of proportionality.
  • Secondly, despite coming out with various circulars, statements against cryptocurrency, RBI has consistently taken the stand that it has not prohibited VCs in the country. Therefore, RBI’s position is still murky.
  • Thirdly, the Government of India is unable to take a call despite several committees coming up with several proposals including two bills. It is also worthwhile to mention that the draft bills also take opposite stands where one bill tries to ban cryptocurrency while the other bill tries to regulate them.

Order:

In light of answering the final issue, SC held that petitioners are entitled to succeed, and the impugned Circular dated 06-04-2018 is liable to be set aside on the ground of proportionality.

Conclusion:

It is only in the last leg that the apex court held against the respondent RBI and ordered to set aside the circular. The ruling was based on the reasons that- (i) RBI has failed to provide any empirical evidence to show that VCs have negatively impacted the banking sector or other entities regulated by the RBI; (ii) the inconsistencies in proposals made by Govt and; (iii) RBIs consistent position that they have not banned VC.

However, notably, this judgement lost the opportunity to answer crucial questions or take a definitive stand on cryptocurrency. The Court could take measures to legalize cryptocurrencies or direct the RBI to come up with more documentation and legal backing to ban the same.   

Even though this judgement held in favour of the cryptocurrency communities, we cannot conclude that that the apex court is for VC it in fact empowered RBI to regulate virtual currency clearly confirming the powers of RBI in this regard.

Till this judgement, RBI wasn’t very sure about whether it has the power to hit VC directly. With that dilemma, RBI issued this impugned (now banned) Circular by ring-fencing them.   This judgement now paves a way for RBI to take a decision on whether to completely ban VC or should it come up with alternate solution capable of dealing with virtual currencies for the stability of the financial system. Though the judgement set aside the RBI circular, it in fact empowered RBI to regulate and even ban VC’s in the future. You can now expect some fresh regulatory steps from RBI or from the government.   

This judgment lost the opportunity to answer crucial questions or take a definitive stand on cryptocurrency. The Court could take measures to legalize cryptocurrencies or direct the RBI to come up with more documentation and legal backing to ban the same.   

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Housing Apartheid In Urban Areas: A Constitutional Challenge

“Excellent brand new 2bhk fully furnished flat, cross ventilation, natural light, cosmopolitan society, no Muslims; with car-parking, on immediate sale, 5th floor. If interested, pls call___” read the controversial 99acres.com advertisement for a flat in Dadar (East), Mumbai.[1] This generated a furore and resulted in the removal of the advertisement from the website and a statement from them claiming that they were opposed to any kind of discriminatory practice.[2]

 

 

Jayanagar is one of the largest residential areas in Bangalore. The population is mostly dominated by upper-class Hindus and is extremely notorious in its treatment towards Muslims and sometimes to Christians too, with respect to letting outhouses.[3] They mask their prejudice mostly in the garb of not letting houses out to non-vegetarians (which is problematic on its own). The tolerance level is higher for Hindu non-vegetarians (preferably non-SC/ST), then Christians, then SC/STs and then Muslims.

These incidents and many more in addition to them provide a propitious opportunity to discuss housing apartheid, which is not peculiar to a particular area or city. The examples stated above display instances of housing apartheid in most cosmopolitan cities in the country. They illustrate discrimination and prejudice, either overtly or covertly, and, in my opinion, are in direct violation of Article 15 of the Constitution of India[4].

The concept of housing apartheid is elucidated herein by first discussing the infamous Supreme Court case, Zoroastrian Co-operative Housing Society Limited v. District Registrar Co-operative Societies (Urban),[5] which allowed for setting up of segregated housing societies, and then proceed to evaluate the constitutional provisions in the context of right to housing, for Muslims in particular, and finally query into the feasibility of regulating the private sphere in this context.

 

The case

 

In the Zoroastrian Co-operative Housing Society Limited case,[6] members of the Parsee community established a housing society and limited membership to the co-operation, through a bye-law, only to persons belonging to that community. The Respondent applied to the society, seeking permission to demolish the building and use the space for construction of a commercial building. Permission was not granted as the bye-laws of the society did not allow for the use of the property for commercial purposes. Subsequently, when he applied for permission to construct residential flats to be sold to Parsees, he was permitted to go ahead. When he entered into negotiations with a builders’ association for sale of property, he violated the restriction placed upon him with respect to not allowing membership of non-Parsees in the co-operative society. The matter reached the High Court of Gujarat when the society challenged such a violation. The High Court rejected the claim of the society and held that restricting membership would amount to a violation of the right to property and Article 300A. Subsequently, the society went on appeal to the Supreme Court of India, wherein the claim was upheld and the court held that the bye-law was not in contravention with Section 4 of the Gujarat Co-operative Societies Act which laid down that any bye-law which contravenes public policy would not be recognised. The court’s understanding of this provision was that public policy has to be located within the confines of the Act and not look for constitutional principles or provisions unless explicitly provided by the Act.  This judgement also held that a co-operative society does not come under the fold of a ‘state’ under Article 13 of the Constitution of India[7] and accordingly, a fundamental rights challenge cannot be held valid as they are attracted only when a state action contravenes these rights.

This is an extremely verticalist interpretation of the Constitution[8] and potentially bad in law. By taking this approach, the court has completely disregarded the obligation of non-state actors in not violating fundamental rights. For example, Article 17 of the Constitution[9] would be rendered a toothless provision if it is not enforceable against non-state actors. Another example that is closer to the topic in discussion is the case of Vishaka v. State of Rajasthan,[10] wherein, the Supreme Court issued guidelines and norms to be followed in order to prevent instances of sexual harassment against women at workplaces. Observance of these guidelines would not have been effective if state actors were the only bodies expected to do so. Horizontal application of fundamental rights, i.e., a rights challenge enforceable against both state and non-state actors, was etched out clearly in this case.

 

Right to housing

 

The Supreme Court has endorsed a segregationist view by allowing community based housing, despite religion being an explicitly mentioned ground for non-discrimination.[11] The Indian society has undergone the trauma of partition, and in this framework, it is important and would be a highly mature approach if consideration is given to what it means for a minority community to practice, profess and propagate their religion, without having the fear of being discriminated against, and the degree to which the right to dignity may enable an individual or a group of persons to enjoy the right to freedom of religion without the expectation and fear of either implicit or visible manifestations of hate and incitement to religious hatred.

The ease with which the Supreme Court allowed for such a discriminatory practice based on a specified ground to pass gives a huge leeway for other discriminatory practices based on non-specified grounds to be carried out, such as refusing housing on grounds such as HIV status, sexual orientation, disability, language etc.[12]

 

What can be done about it?

 

The Justice Sachar Committee Report (Report on Social, Economic and Educational Status of the Muslim Community of India), 2006 was submitted by the expert level group set by the Ministry of Minority Affairs.[13] It was recommended by this report that an Equal Opportunities Commission (EOC) be set up to keep a check on discrimination against minorities. The Madhava Menon Committee was set up in order to examine and analyse the structure and functioning of the EOC. This committee proposed the draft EOC Bill in 2008.[14] The Union Cabinet on 20 February 2014 gave its nod to the setting up of this Commission.[15]

While this Commission seeks to make a paradigm shift in the way equality is understood in the traditional sense, it is also onerous on the Commission to not exclude the housing sector from its immediate scope. Several critics have opined that such an Act would pervade into the private sphere of the landlord with respect to the choices that he/she would want to make about who to let out the house to. However, with the horizontal application of fundamental rights, such a problem would not arise as a violation of Article 15 would be enforceable against a private party too.

In arguendo, if such an application of fundamental rights were not allowed then, such a restriction on the choice of the landlord should be considered as a reasonable restriction as a direct co-relation can be made to increasing ghettoization of certain communities due to the practice of housing apartheid.[16]

 

Conclusion

 

The Zoroastrian Co-operative Housing Society Limited case narrowed down the scope of constitutional interpretation. However, with the coming of the EOC, the right to housing has to be construed as a constitutional guarantee and only when this is done can the principle of minority protection, which is one of the foremost responsibilities of the Constitution, be said to have been achieved to an extent.

 

References:

[1] Saurabh Gupta, Mumbai: No Muslims, said online ad for a flat, NDTV, 8 November 2013, available at: http://www.ndtv.com/article/cities/mumbai-no-muslims-said-online-ad-for-a-flat-443130 (Last visited on 18 March 2014).

[2] Mumbai property broker posts online ad, says no to Muslims, IBN Live, 7 November 2013, available at: http://ibnlive.in.com/news/mumbai-property-broker-posts-online-ad-says-no-to-muslims/432717-3-237.html (Last visited on 18 March 2014).

[3] Zainab Bawa, The Shame of a Name, Kafila, 20 March 2009, available at: http://kafila.org/2009/03/20/the-shame-of-a-name/ (Last visited on 18 March 2014).

[4] Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth

(1) The State shall not discriminate against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them

(2) No citizen shall, on grounds only of religion, race, caste, sex, place of birth or any of them, be subject to any disability, liability, restriction or condition with regard to

(a) access to shops, public restaurants, hotels and palaces of public entertainment; or

(b) the use of wells, tanks, bathing ghats, roads and places of public resort maintained wholly or partly out of State funds or dedicated to the use of the general public

(3) Nothing in this article shall prevent the State from making any special provision for women and children

(4) Nothing in this article or in clause ( 2 ) of Article 29 shall prevent the State from making any special provision for the advancement of any socially and educationally backward classes of citizens or for the Scheduled Castes and the Scheduled Tribes

[5] AIR 2005 SC 2306.

[6] Ibid.

[7] Laws inconsistent with or in derogation of the fundamental rights:

(1) All laws in force in the territory of India immediately before the commencement of this Constitution, in so far as they are inconsistent with the provisions of this Part, shall, to the extent of such inconsistency, be void

(2) The State shall not make any law which takes away or abridges the rights conferred by this Part and any law made in contravention of this clause shall, to the extent of the contravention, be void

(3) In this article, unless the context otherwise requires law includes any Ordinance, order, bye law, rule, regulation, notification, custom or usages having in the territory of India the force of law; laws in force includes laws passed or made by Legislature or other competent authority in the territory of India before the commencement of this Constitution and not previously repealed, notwithstanding that any such law or any part thereof may not be then in operation either at all or in particular areas

(4) Nothing in this article shall apply to any amendment of this Constitution made under Article 368 Right of Equality

[8] Ashish Chugh, Fundamental Rights: Vertical or Horizontal?, (2005) 7 SCC (J) 9.

[9] Abolition of Untouchability: Untouchability is abolished and its practice in any form is forbidden. The enforcement of any disability arising out of Untouchability shall be an offence punishable in accordance with law

[10] AIR 1997 SC 3011.

[11] Under Article 15 of the Constitution of India.

[12] Tarunabh Khaitan, Reading Swaraj into Article 15: A New Deal for all the Minorities, 2 NUJS L. Rev. 419 (2009).

[13] Justice Sachar Committee Report on the Social, Economic and Educational Status of the Muslim Community of India, available at: http://www.minorityaffairs.gov.in/sites/upload_files/moma/files/pdfs/sachar_comm.pdf (Last visited on 18 March 2014).

[14] Madhav Menon Committee Report on Equal Opportunity Commission: What, Why and How?, available at:  http://usindiapolicy.org/documents/inclusion/EOC-Report-MMA.pdf (Last visited on 18 March 2014).

[15] Govt clears Panel to check Discrimination against Minority, The Indian Express, 20 February 2014, available at: communitieshttp://indianexpress.com/article/india/india-others/govt-clears-panel-to-check-discrimination-against-minority-communities/ (Last visited on 18 March 2014).

[16] Rafiq Dossani, The Future of Indian Muslims, Stanford Journal of Muslim Affairs, available at: http://iis-db.stanford.edu/pubs/23275/2011Spring_Avicenna_DossaniRafiq.pdf (Last visited on 18 March 2014).

 

 

Image Credits: Photo by <a href=”https://pixabay.com/users/PhotoMIX-Company-1546875/?utm_source=link-attribution&amp;utm_medium=referral&amp;utm_campaign=image&amp;utm_content=1407562″>Photo Mix</a> from <a href=”https://pixabay.com/?utm_source=link-attribution&amp;utm_medium=referral&amp;utm_campaign=image&amp;utm_content=1407562″>Pixabay</a>

The Zoroastrian Co-operative Housing Society Limited case narrowed down the scope of constitutional interpretation. However, with the coming of the EOC, the right to housing has to be construed as a constitutional guarantee and only when this is done can the principle of minority protection, which is one of the foremost responsibilities of the Constitution, be said to have been achieved to an extent.

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Impact of Supreme Court ruling pertaining to calculation of Provident Fund contribution on Allowances

The Hon’ble Supreme Court, in a recent judgement, answered the question of whether “special allowances” would fall within the expression “basic wages” for Provident Fund (PF) contribution in the affirmative. Interpreting the provisions of Employees Provident Funds and Miscellaneous Provisions Act, 1952 (“PF Act”) as a beneficial social welfare legislation, the Court affirmed the PF authorities’ factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution to the provident fund account of the employees.

In essence, the Court reiterated the principle laid down in prior rulings that where the wage is universally, necessarily and ordinarily paid to all across the board, such emoluments are basic wages and employers had to expressly prove the special treatment in the special allowance for it to be kept out of the purview of calculations for PF purposes.

 

Background

The PF Act is a social security legislation enacted to help ensure that both employees and employers contributed towards a superannuation fund for the purpose of retirement benefits. Per the PF Act, all employees are required to contribute 12% of their basic wages, dearness allowance, cash value of any food concession and retaining allowance, if any with the employer contributing a matching 12%.

 

Basic Wages under Section 2(b)(ii) read with Section 6 of the PF Act is defined as “all emoluments which are earned by an employee while on duty or [on leave or on holidays with wages in either case] in accordance with the terms of employment and which are paid or payable in cash to him, but does not include:

  • the cash value of any food concession;
  • any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowances payable to the employee in respect of his employment or of work done in such employment;
  • any presents made by the employer.

The phrase “or any other similar allowance” has not specifically been defined in the PF Act or related schemes and has thus been a subject of litigation for several decades. Over the year, companies have been structuring the salary paid to employees to include various allowances, including special allowance. However, in all instances per the understanding of the PF Act, employers have only been paying contribution on Basic Salary, Dearness Allowance and Retaining Allowance or such equivalent components. The PF authorities have usually contended that ‘special allowances’ should be included for the purpose of calculation of contribution. The Hight Courts in India have taken varying views on the subject matter pertaining to contribution on allowances which had resulted in various appeals pending before the Supreme Court of India.

 

Supreme Court Decision on 28th February, 2019[1]

Various appeals[2] were preferred before the Supreme Court questioning whether various types of allowances such as special allowance, travel allowance, HRA, food allowance, etc. were to be construed as ‘basic wages’ for the purpose of calculation of contribution. The petitioners/employers had used the argument that the term ‘basic wages’ had certain specific exceptions and only such payment that had been earned by the employee in accordance with the terms of the employment was to be included for calculation of provident fund. The PF authorities, on the other hand used the principle of ‘universality’, stating that only incentive payments linked to output could be excluded from the calculation of provident fund.

 

The Hon’ble Supreme Court dismissed the appeals by the employers (except the appeal by the RPFC in the Vivekananda Vidyamandir case) and concluded, relying on the principle of universality, that all payments which were made to all employees or categories/classes of employees without discrimination and which are not specifically ‘variable’ in nature and fact or linked to certain incentive for greater output, would be construed as ‘basic wages’ and thus provident fund contribution was to be made on them. For an amount to be construed as variable in nature it would need to be demonstrated that the said amounts were payable on account of employees contributing beyond any normal work that would usually be expected of them; or that it would be payable to employees only if they availed certain opportunities.

 

The Supreme Court relied on some of its previous decisions for its conclusions, namely:

  • Whatever is payable by all concerns or earned by all permanent employees had to be included in basic wage for the purpose of deduction under Section 6 of the Act. It is only such allowances not payable by all concerns or may not be earned by all employees of the concern, that would stand excluded from deduction.[3]
  • Any variable earning which may vary from individual to individual according to their efficiency and diligence will stand excluded from the term ‘basic wages’.[4]
  • Where the wage is universally, necessarily and ordinarily paid to all across the board such emoluments are basic wages. Where the payment is available to be specially paid to those who avail of the opportunity is not basic wages. Conversely, any payment by way of a special incentive or work is not basic wages.[5]
  • That the Act was a piece of beneficial social welfare legislation and must be interpreted as such.”[6]

Impact of Supreme Court Decision

The principles laid out by the Supreme Court, although not new, are a welcome clarification on the position of allowances with respect to the calculation of provident fund contribution. From an employee perspective, employees’ net take home salary is also likely to be impacted by the decision.

 

However, the possibility of the decision having a retrospective effect might exasperate employers. This is on account of the fact that the judgement interprets an existing provision in the law and does not create any new provisions. The retrospective effect may require employer to cover the shortfall in contribution for the past year but additionally pay interest and damages as well.

 

It may also be noted that the Supreme Court decision to include allowances as part of basic wages has primary financial implications in connection to those domestic employees whose salary (on which PF contributions were being paid i.e. basic salary and dearness allowance) is less than INR 15,000 per month, as well as all international workers.

 

Employers are advised to revisit their policies and salary structures and start ensuring that all components of salary which are not discretionary or variable in nature are included for the purpose of PF contributions. Employers are also recommended to conduct audits to ascertain potential past non-compliances / shortfalls in contributions.

 

The matter is also currently sub judice with the management of Surya Roshni Ltd. having filed a review petition before the Supreme Court. It also remains to be seen if the EPFO would take a more lenient stance and allow employers to rectify past non-compliances without incurring the additional cost of interest and damages.

 

References:

[1] In connection with Civil Appeal no. 6221/2011, 3965-66/2013, 3969-70/2013, 3967-68/2013 and Transfer Case no. 19/2019 (arising out of TP(C) no. 1273/2013)

[2] Appeals considered jointly: (i) The Regional Provident Fund Commissioner (“RPFC”), West Bengal v/s Vivekananda Vidyamandir and Others (Kolkata High Court); (ii) Surya Roshni Ltd. vs. Employees Provident Fund and others (Madhya Pradesh High Court); (iii) U-Flex Ltd v/s EPF and another; (iv) Montage Enterprises Pvt. Ltd. v/s EPF and another (Madhya Pradesh High Court); (v) The Management of Saint-Gobain Glass India Limited v/s The RPFC, EPFO (Madras High Court).

[3] (i) Bridge and Roof Co. (India) Ltd. vs. Union of India, (1963) 3 SCR 978

[4] Muir Mills Co. Ltd., Kanpur Vs. Its Workmen, AIR 1960 SC 985

[5] Manipal Academy of Higher Education vs. Provident Fund Commissioner, (2008) 5 SCC 428

[6] The Daily Partap vs. The Regional Provident Fund Commissioner, Punjab, Haryana, Himachal Pradesh and Union Territory, Chandigarh, (1998) 8 SCC 90

Image Credits: Image by Shutterbug75 from Pixabay 

Employers are advised to revisit their policies and salary structures and start ensuring that all components of salary which are not discretionary or variable in nature are included for the purpose of PF contributions. Employers are also recommended to conduct audits to ascertain potential past non-compliances / shortfalls in contributions.

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