Redeeming the Supreme Court

BL Anup Surenranath 28 Jan 2014

The Supreme Court has taken the position that it cannot be expected to abandon its role of being the guardian of the fundamental rights of all persons within the territory of India

In a span of about 45 days, the Supreme Court of India has delivered two judgments that have received diametrically opposite reactions — one will count among the Court’s most poorly reasoned judgments while the other is likely to be heralded as one of its finest for its clarity and fidelity to earlier decisions. The contrast between Justice Singhvi’s judgment upholding the criminalisation of homosexuality and that of Chief Justice Sathasivam affirming the rights of mercy-rejected death row prisoners could not be starker. After Justices Singhvi and Mukhopadhaya upheld the constitutionality of Section 377 of the IPC in Suresh Kumar Koushal, the credibility of the Court as a counter-majoritarian institution had suffered a serious setback. However, the Chief Justice, along with Justices Ranjan Gogoi and Shiva Kirti Singh, has done a remarkable job in partly restoring the credibility of the Court through a thoroughly reasoned judgment in Shatrughan Chauhan v Union of India. InChauhan, the Court has concluded that inordinate delay in the rejection of mercy petitions of death row convicts amounted to torture and that it is a sufficient basis, in and of itself, to commute a sentence of death to life imprisonment. It is not just about the contrast in outcomes in these two cases but the processes adopted by these two judgments will go a long way in determining the position they will occupy in the judicial history of this country.

The similarities

Any comparison between the two judgments must begin by acknowledging complexities involved in both cases. The legal response to homosexuality in India through Section 377 has been on the statute books for over 150 years. Though attitudes towards homosexuality have undergone significant changes, it would only be fair to acknowledge that it is nonetheless a deeply divisive issue in India. It would also be a fair assessment that the death penalty and treatment that must be accorded to those sentenced to death are extremely polarising issues. The case before the Supreme Court in Chauhan was particularly delicate because the President had rejected mercy to all 15 prisoners before the Court. However, all 15 prisoners had returned to the Supreme Court seeking enforcement of their right to life on the ground that their suffering on death row due to the inordinate delay by the executive (ranging between 11 to 1.5 years) entitled them to commutation of their death sentence. It must also be noted that the Supreme Court in both cases was being asked to intervene in situations where other organs of the state had already made certain determinations. In Koushal, the legislature had made the political determination that homosexuality would be criminalised by not repealing Section 377. Similarly, in Chauhan, the executive, through the President of India, had rejected all the mercy petitions.

Differences

Though the challenges were similar in many ways, there is an unbelievable contrast in the manner in which the Supreme Court responded. In Koushal, the judgment authored by Justice Singhvi does not address the legal issues that were at the heart of the constitutional challenges to Section 377. There are the poorly argued sections on equality under Article 14 and the right to life under Article 21 while completely ignoring the arguments on the protection against discrimination under Article 15. The shortcomings of Koushal are evident when it is compared to the judgment of the Delhi High Court on Section 377 in Naz Foundation. There are established constitutional doctrines to test whether a provision of law is discriminatory and violates the right to equality under Articles 14 and 15 of the Constitution, none of which finds any serious engagement in Koushal. None of this is about whether one supports Section 377 or not. It is about adopting a sound judicial technique — it is about identifying precise and relevant questions; it is about applying constitutional doctrines to those questions in a rigorous manner; it is about reasoned conclusions. Rights adjudication is not about judges merely taking a decision and that is what distinguishes them from politicians. Unfortunately, the judgment in Koushalfails on all these grounds. More than the unacceptable outcome, what must worry us more is that the judgment in Koushal reads like a thinly veiled political decision.

However, the judgment in Chauhan articulates a very difficult legal issue precisely and clarifies the decision of a five-judge bench in Triveniben (1989) on it. While clarifying and relying on Triveniben, there is thorough constitutional reasoning in Chauhan that led the Court to come to the conclusion that inordinate delay in disposing of mercy petitions amounts to torture and that the nature of the crime must have no relevance in that determination. The issue about the nature of the crime was particularly important in the context of the Supreme Court’s decision in Bhullar. In Bhullar, the Supreme Court had concluded that those sentenced to death for terrorist offences could not invoke the argument about inordinate delay in disposing of mercy petitions due to the nature of crimes. While relying on Trivenibento come to the conclusion that the classification of terrorist and non-terrorist offences in the context of inordinate delay in disposing of mercy petitions is constitutionally invalid, the judges, in Chauhan,have not created new jurisprudence and have only clarified the content and application of earlier judgments. There is tremendous judicial skill in the manner in which they have analysed earlier judgments and applied constitutional doctrines.

Challenges and responses

The most obvious difference in the two judgments is the approach to the target groups concerned. InKoushal, the perception that only very few homosexuals have been prosecuted under Section 377 was of tremendous significance to the judges. A numerical approach to rights enforcement is rather baffling and quite alien to the jurisprudence developed by the Indian Supreme Court. In Chauhan, despite dealing with a very small group of individuals (those death row prisoners whose mercy petitions have been rejected) and in particular a group which is often hated and reviled, the judges emphatically held that the protections in the Constitution are available to every individual, without exception. Perhaps the greatest merit of the decision in Chauhan is the rejection of the argument that retribution or strong moral disapproval of actions by death row prisoners can be used to deny them constitutionally protected rights.

As far as institutional relations between different organs of the State are concerned, the Supreme Court, in Koushal, ruled that Parliament was free to amend Section 377 and decriminalise homosexuality. However, if the law were to stand, the judges felt there was no constitutional infirmity. There is a palpable reluctance to meaningfully scrutinise a law on a divisive issue where the political class has made a choice. However, in Chauhan, the Supreme Court squarely addresses the warning that the Court might be overstepping its jurisdiction because the President had already rejected the mercy petitions of all 15 prisoners. The Court is clear that it is not questioning the power of the President to reject mercy petitions but is rather interested and competent to go into the issue of whether the executive violated the rights of the death row convicts due to the inordinate delay. The Supreme Court has taken the position that it cannot be expected to abandon its role of being the guardian of the fundamental rights of all persons within the territory of India, whoever they might be.

The Supreme Court, in Chauhan, had the courage to undertake significant course correction by clarifying the ruling in Triveniben. As efforts to decriminalise homosexuality gather pace again with the scheduled review of Koushal this week, the Supreme Court must see the fact that critical questions about the constitutionality of Section 377 have not been addressed in Koushal. If the review petition does not result in correction of the errors in Koushal, the Chief Justice of India (due to retire in April 2014) will find himself in an interesting position. After having delivered a judgment that has gone a long way to restore the credibility of the Court after Koushal, the Chief Justice will have to decide if he wants to refer the constitutionality of Section 377 to a larger bench. Given the intensity of his commitment to the rule of law as displayed in Chauhan, it would be surprising if Chief Justice Sathasivam lets the poorly reasoned judgment in Koushal be a blot on his tenure as Chief Justice of India. He only needs to look as far as the Delhi High Court’s judgment on Section 377 in Naz Foundation to realise what an alternative legacy could look like.

(Anup Surendranath is an assistant professor of law and director of the Death Penalty Research Project at the National Law University, Delhi.)

How to tackle the pile of bad loans

RBI wants banks to act fast and decisively in tackling bad loans. Photo: Pradeep Gaur/ Mint

Tamal Bandyopadhyay :Live mint:22 Dec 2013

One hopes that RBI can break the cosy relationship that bankers and corporate borrowers have developed on treatment of bad loans

Now that the Reserve Bank of India (RBI) is pushing for an early recognition

 of financial distress and prompt steps for resolution and recovery of bad 

assets, will analysts rush to re-rate public sector banks that have the

 highest pile of bad loans? It’s unlikely to happen soon as the proposed 

norms deal with new bad loans and not the stock and do not give any 

handle to bankers to address issues on which they have no control. 

For instance, infrastructure firms that have been badly hit by project delays constitute a large chunk of bad loans. About 215 projects worth Rs.7 trillion have been held up, according to a finance ministry estimate. Indeed the government has initiated steps to speed up the process but progress has been slow. The RBI norms can help bank refrain from restructuring aKingfisher Airlines exposure, but bankers can do little when projects are stuck because of delays in getting clearances from various agencies and loans are turning bad.

RBI wants banks to act fast and decisively in tackling bad loans. It plans to set up a central repository of information on large loans to collect, store and disseminate to date. The repository will have data on all loan accounts worth Rs.5 crore and above. Both banks and large non-banking companies will contribute credit information to the repository. This database will come in handy for the proposed joint lenders’ forum, which RBI wants the banks to set up. The platform will be particularly helpful for multiple banking arrangements. Unlike consortium lending, where all lenders are on the same page, in multiple banking, a rogue borrower can take the lenders for a ride as terms and conditions of different exposures could be different. Another critical aspect of RBI’s discussion paper of bad loan resolution—which will come into effect in January—is the formation of an independent evaluation committee that will vet all loan restricting of Rs.500 crore and above prepared by the corporate debt restructuring (CDR) cell. The India Banks’ Association, a bankers’ lobby, will set up the evaluation committee in consultation with RBI.

Overall, RBI wants to give incentives to banks for their promptness to spot a bad loan and initiate the recovery process fast and penalize them for their callous approach by making them set aside more money to take care of the pile of bad assets. Corporate borrowers will need to have more skin in the game. The victims of a slowing economy will be treated with dignity but wilful defaulters will have no place to hide. Finally, asset reconstruction companies will be encouraged to play a more active role and private equity funds may get an opportunity for leveraged buyouts of stressed assets.

RBI has been progressively tightening the rules for loan recasts to prevent misuse of the facility by companies. For instance, in May, the central bank had said promoters must provide a personal guarantee in all cases of restructuring and a corporate guarantee could not be accepted as a substitute for a personal one. Promoters also had to bring in a minimum of 20% of the loan amount that a bank would forgo in such a recast, or 2% of the total restructured debt, whichever is higher.

For restructured loans on their books in May, banks needed to increase provisions to 3.5% of restructured loan value with effect from 31 March and 4.25% with effect from 31 March 2015. One year after that, effective 31 March 2016, all provisions on restructured loans would increase to 5%. For loans restructured after 1 June, the provision was increased to 5% of the loan amount. The new norms will jack up the provision requirement manifold in cases where banks are found sleeping over their bad loan pile.

The gross bad assets of all listed banks rose close to 37% in the September quarter from a year earlier to Rs.2.29 trillion from Rs.1.67 trillion. Even after setting aside money, their net bad assets were up close to 51%—from Rs.85,000 crore to Rs.1.28 trillion. On top of this, banks have restructured some Rs.2.72 trillion loans through the CDR platform. This, however, does not include those loans that have been restructured bilaterally. The collective amount of such loans could be as much as the loans restructured at the CDR cell. That we have not seen the worst of bad loans as yet is evident from the fact that in October restructuring cases worth Rs.22,000 crore were referred to the CDR forum after Indian banks added an identical amount to the restructured loan pile in the three months ended 30 September. In the June quarter, aboutRs.20,000 crore of loans were recast and in March quarter, another Rs.15,000 crore.

One hopes that RBI is able to break the cosy relationship that bankers and their corporate borrowers have developed over the years on treatment of bad loans and loan recasts, as both sides benefit from such arrangements. While corporations ensure an uninterrupted flow of money, banks manage to make their balance sheets look healthy. On top of this, most government-owned banks lack both credit appraisal and monitoring expertise. Short tenure of the chairmen of state-run banks, which account for about 70% of banking assets in India, also contributes to this. Typically, a chairman with a two-year tenure spends his first year in cleaning up the balance sheet by identifying all bad assets and setting aside money for them, but the second year is spent hiding such assets as every boss wants to retire on a happy note. Unless these issues are addressed, it’s not easy to tackle the menace of bad loans, particularly when the economy is not in the pink of health.

Tamal Bandyopadhyay keeps a close eye on everything banking from his perch as Mint’s deputy managing editor in Mumbai. He is also the author of A Bank for the Buck, a book on HDFC Bank.

G E Vahanvati, the Attorney-General of India, :Who Is This Man Firing The Gun For?

UTTAM SENGUPTA : Outlook :Nov 18,2013

Goolam Essaji Vahanvati, the Attorney-General of India, 
courts more controversies than he helps dispel

Things have come to such a pass that every move Goolam Essaji Vahanvati, the Attorney-General of India, makes ends up fuelling further speculation about his future. Three weeks ago, the close-knit community in Delhi’s Supreme Court was all aflutter when the normally reserved Vahanvati greeted lawyers and court reporters with big smiles, handshakes, and even a bit of chit-chat. Only the previous month, he had uncharacteristically lost his cool in the apex court, complaining “I cannot carry everything in my head” and saying that he was being asked too many questions, and too fast.

Vahanvati quickly tendered an apology at the next hearing. But clearly, something is getting to the 64-year-old attorney-general—a much-observed and talked-about man, unlike most law officers of the government, past or present. That’s because questions are being openly asked whether the country is getting adequate and sound legal advice; as the country’s top legal officer, providing that is Vahanvati’s job. As an embattled UPA struggles with many demons of its own making—from 2G and Coalgate to the validity of opinion polls and the question of the functional ambit and autonomy of the CBI—Vahanvati has a stake in each and every one of them.

The past few years have been a public relations disaster for a man who had in a recent magazine profile reportedly confided that he had in his childhood dreamt of being driven around in an official car with a red beacon (and so he does, with a ‘fancy’ number—777—to boot). Partial to Vahanvati, former A-G Soli Sorabjee told Outlook, “I know Goolam. He has gone through hell.” Sorabjee should know how tough it is to be the A-G. He occupied the office in 2000, and fought a bruising battle with the then law minister Ram Jethmalani. Sorabjee won that round, as Jethmalani was made to resign.

Four law ministers have changed since 2009; two solicitors-general and an additional S-G have quit. Vahanvati has been the one constant.

The most frequently asked question today is what Vahanvati will do in 2014 when his term draws to an end, especially if the UPA does not return to power. There’s a growing buzz that he is seeking a suitable diplomatic assignment abroad or a Rajya Sabha berth in good time. In any case, after serving the government for a decade and a half, as the first Muslim advocate-general of Maharashtra since 1999 and then as solicitor-general of India from 2004 and the attorney-general from 2009, can he ever go back to private practice? Vahanvati did not respond to an interview request fromOutlook.

The A-G is not just a lawyer and the first law officer of the government, he is appointed by the President under Article 76 of the Constitution, remains in office till the pleasure of the President and draws a remuneration decided by the President. While he is expected to give legal opinion to the government as and when it seeks any, he is also expected to advise the government in upholding the rule of law. He is a leader of the Bar and must necessarily be eligible to become a judge of the SC. He is expected to assist the court in delivering justice.

It is in this capacity that the A-G is seen as a “friend of the court”, the government’s “conscience-keeper” and the legal custodian of the interests of 1.2 billion Indians. Legal eagles Outlook spoke to recalled the deposition of the first A-G of India, M.C. Setalvad, before the M.C. Chagla Commission of Inquiry against the then finance minister T.T. Krishnamachari. Setalvad’s scathing indictment of the minister led to his resignation in 1958. And though Congress MPs then raised questions about how the A-G actually turned out to be the prosecutor, Setalvad stayed on in his post till 1963.

But times have clearly changed. Vahanvati, the 13th A-G, is seen more as a facilitator for the government, tailoring his legal opinion and advice to suit the political establishment, crony capitalists and politicians. He has been described as the government’s ‘hit man’ (by top SC lawyer Rajeev Dhavan in Mail Today), provoking a veteran SC observer to quip that all A-Gs are “by definition hit men while some turned out to be even the henchmen of the government”.

A section of Delhi’s political grapevine attributes Vahanvati’s survival to the patronage he enjoys from 10, Janpath, and more specifically from everyone’s Ahmedbhai, Sonia Gandhi’s political secretary Ahmed Patel. Others speak of his proximity to Maharashtra politicians Sharad Pawar and Sushilkumar Shinde while everyone agrees that he has the backing of the who’s who of the industrial lobby in Mumbai, like the Ambanis, Ruias, Tata and Vedanta. His alleged friendship with Anil Ambani has often cast a cloud over his professional conduct.

A section of Delhi’s political grapevine attributes Vahanvati’s survival to 10, Janpath’s patronage, and Sonia’s political secretary Ahmed Patel.

As solicitor-general, he was accused of bypassing the law ministry and giving an opinion directly to the then telecom minister, A. Raja, which benefited Reliance Communications. In fact, Vahanvati became the first attorney-general earlier this year to depose as a witness in a criminal case related to the 2G scam. Again, his opinion allowed Reliance Power to divert surplus coal from Sasan coalmines in Madhya Pradesh, a decision that was frowned upon by the CAG, and one which would result in windfall gains for the company. Vahanvati and the next telecom minister Kapil Sibal were also accused of reducing the penalty of Rs 650 crore imposed on Reliance Communication to just Rs 5 crore for alleged violations of the Unified Access Service Licence Agreement.

Unlike his predecessors, he is also not seen keeping the political establishment at arm’s length. Consider his complaint about receiving a phone call in September from a woman who allegedly pretended to be UPA chairperson Sonia Gandhi. Media reports suggested that Vahanvati checked with UPA leaders and when informed that Sonia had not called him, lodged a complaint with Delhi Police. Curiously, the police initially claimed to have tracked down the caller and identified the lady as an officer working for a public sector undertaking. But thereafter not a whisper has been heard about the case.

“I do not know what wrong I committed in my last life that the media is after me,” Vahanvati said in court in 2011. But it is a tribute to his quiet networking skills and his friendship with media barons that the media has by and large left him alone. Indeed, Vahanvati has survived one controversy after another. To put this in perspective, there have been four Union law ministers since 2009, the term of each one shorter than his predecessor. M. Veerappa Moily lasted a little more than two years. Salman Khurshid a little more than one, Ashwani Kumar less than one while the present incumbent Kapil Sibal took over in May 2013 and, if not replaced, will also have a tenure of less than a year.

During this same period, two eminent lawyers—Gopal Subramaniam and Rohinton Nariman—also put in their papers as solicitors-general of India, apparently because they did not see eye to eye with Vahanvati. One of the additional solicitors- general, Harin Raval, resigned after accusing the A-G of compromising his position in court; another additional solicitor-general, Bishwajit Bhattacharya, released a book the day after demitting office on November 9, 2012, to give vent to his frustration. During his three-year tenure beginning 2009, wrote Bhattacharya, the A-G did not call a single meeting of all law officers together. Bhattacharya often received briefs late at night for cases to be argued the next morning in the SC.

What say? Vahanvati with Salman Khurshid, R. Chandrasekhar. (Photograph by Jitender Gupta)

Amidst such bloodletting, the one constant has been the A-G himself. Curiously, the apex court has been rather lenient to him. Consider Coalgate. Since the CBI has been investigating the role of government officials and politicians and possible criminality, the A-G—as the lawyer of the government—had no business interacting with the investigating and the prosecuting agency. But that’s exactly what he did. Even when an affidavit by the CBI director revealed that Vahanvati had misled the court, he was let off with the mildest of rebukes by the court as well as the government whereas Raval and law minister Kumar were forced to quit. Could it be because he has been defending the prime minister, who was directly in charge of the coal ministry? Is it because he knows too much?

He is said to be close to Sharad Pawar and Sushilkumar Shinde. He also has the backing of the who’s who of the Mumbai industrial lobby.

Yet another high-profile case where Vahanvati’s role app­ea­red suspect is the Vodafone case where the income-tax dep­artment demanded a whopping Rs 11,000 crore by way of taxes when Vodafone bought the Indian operations of Hutch. A day after the deal, $11 billion travelled from Cayman Island to the Hong Kong office of Hutch as payment. The money should have come to India and tax deducted at source but Vodafone took advantage of a Reserve Bank of India rule that allowed such transactions following a “general permission”.

After the Supreme Court cleared the deal and then FM Pranab Mukherjee brought in a retrospective amendment in the rules to address cases like this, Vodafone approached the government for conciliation and an out-of-court settlement. At this time, Vahanvati advised then law minister Kumar to deny conciliation. But soon after, Sibal took over as the law minister and sought fresh opinion from the A-G, he took a U-turn and advised him in favour of conciliation.

Vahanvati himself is not unduly perturbed by charges of flip-flop. “On numerous occasions,” he told The Times of India, “after the opinions are rendered, I receive requests to reconsider or review the opinion. This is sometimes based on additional facts or on some provisions of law or the Constitution not previously considered. This could lead to reiteration or reconsideration of the opinion....”

For instance, the Public Accounts Committee summoned Vahanvati to explain his conflicting opinions on the CAG’s contention that the government had withdrawn Rs 37,365 crore from the Consolidated Fund of India without Parliament’s approval in the past five years. Vah­anvati first advised the PAC the CAG’s stand was correct. But when the finance ministry called for a fresh opinion, he concurred and held that Par­l­iament’s approval wasn’t required as interest payment on I-T ref­u­nds was both a statutory and recurrent obligation.

His opinions have been so controversial that a plea was made under the RTI Act to make the A-G’s opinions public. But the A-G pleaded that he was not a public authority. Chief Information Commissioner Satyanand Mishra upheld his plea that the A-G was a “single entity”, did not have a secretariat unlike other constitutional functionaries and that his relationship with the government was that of a lawyer and client and not of servant and master. The cic also accepted the plea that the A-G had no administrative control over other law officers. The undefined role and position of the A-G, whose advice is not binding on the government, was further accentuated when former Union law minister Khurshid was quoted as saying, “The attorney-general is an officer of the court and not an officer of the government.”

There is a growing buzz that Vahanvati is seeking a suitable diplomatic assignment abroad or a berth in the Rajya Sabha in good time.

In a close-knit legal community—where relatives often occupy key positions—it is almost expected that conflict of interest situations arise. A successful corporate lawyer who rose to become the advocate-general of Maharashtra, he is close to business interests. Vahanvati’s son, Essaji, was a junior partner in the prominent corporate law firm azb, founded among others by Soli Sorabjee’s daughter, Zia Modi. His daughter, Sholeen, and son-in-law Tariq Carrimjee, both British citizens, work closely with investors, brokers and the stock exchange (see column by Kian Ganz).

With as much as 80 per cent of the SC’s workload comprising Special Leave Petitions involving civil or commercial disputes, and the bulk of the cases emanating from just four or five high courts (Delhi, Bombay, Madras, Punjab & Haryana and Allahabad), the possibility of conflicts of interest clouding the judgement of a corporate lawyer is clearly high. Vahanvati, like those belonging to similar lawyer families, faces the same allegations.

That said, people who have known Vahanvati are effusive in hailing him as a genius who has a ready solution to every problem. Above all, he is credited with having a sharp legal mind. He was the first Indian lawyer who was allowed to argue a case in London in the early 1980s. “A man of great integrity” is what eminent jurist Fali Nariman had said when Vahanvati was appointed.

By all accounts, Vahanvati is a likeable man with varied interests. He likes rock music and is a gardening enthusiast. Vahanvati is said to know the names and details of every plant brought in from all over the world in his four-acre farmhouse in Pune. He bred horses but following the death of his favourite horse, he reportedly gifted all the 17 horses he had to his friends “free of cost”. He lectured at St Xavier’s College and Sophia College, Mumbai, and wrote on history of food in the inhouse magazine of Taj. He also wrote a weekly newspaper column on legal affairs for four years.

His acquaintances too are fulsome in their endorsement of him. “Diligent”, “obsessive about details”, “relentless”, “generous”, “very sweet” and much “understated” are some of the adjectives used to describe Vahanvati. He is also said to be a “great raconteur”. A perceptive profile in Caravan, however, brought out a disconcerting detail. Vahanvati claimed that when his father died, he did not even have the resources to bury his body. He also claimed that he had no fascination for fancy stuff and pointed to an array of modest pens on the table. But Vahanvati’s son later told the interviewer that his father had one of the most extensive collection of expensive pens at his farmhouse.

 Why would the A-G be so economical with the truth on such a petty issue?

 There is no clear answer.

In a rare interview he gave to Misbah, a Dawoodi Bohra journal, after becoming the A-G, Vahanvati had spelled out his ambition. “I want to go down in history as the first attorney-general who really tackled the problem of judicial refo­rms.” But obviously Vahanvati has not been able to do so, pleading that he has become far too busy fighting legal battles for his masters. His critics and well-wishers are, however, left wondering whether he has served the country equally well.

The trials of tribunals

 B S :M J Antony  |  New Delhi  

October 8, 2013 Last Updated at 21:48 IST

Two tough laws have not speeded up the recovery of debts due to banks and have disappointed both the lender and the borrower

There has been a trend to set up tribunals in every sector in recent years, led by the hope that they will deliver decisions cheaper and faster, untrammelled by the procedural tangles of the civil courts. 

But they are showing the same symptoms of full-fledged courts, such as massive arrears, hundreds of vacancies, inadequate infrastructure and poor funding. Several jurists now feel that tribunalisation is an experiment that failed. 

When it comes to debt recovery this could weaken banks and financial institutions. Courts have been lamenting this situation in several judgments; the latest coming from the Supreme Court.

In an eight-year-old dispute over a home-loan recovery, the court threw a slew of rhetoric questions such as: "To what extent the defaulters be given protection in the name of balancing the stringent powers vested on the banks and the statutory safeguards prescribed in favour of the loanees? Even assuming there are legal lapses and abuses, how long the statutory tribunals take to put the controversy to rest being oblivious of the fact that the concept of flexibility is insegragably associated with valuation of asset?" In a desperate vein the court cited the Bhagavad Gita, "Awake, arise, O, Partha!" (Standard Chartered Bank vs Dharminder).

In January this year, the Supreme Court devoted ample time to the plight of the debt recovery tribunals (DRT) and delivered a judgment with instructions to the government on remedying the situation (Union of India vs DRT Bar Association). 

However, the new judgment shows that the directions have not been followed and there has been little improvement on the ground. In fact, the current slowdown in the economy is supposed to have increased the pendency of cases by 70 per cent. 

Some 43,000 cases in 33 DRTs across the country have tied up Rs 1.43 lakh crore this financial year. Three DRTs in the Mumbai region alone have a total pendency of 3,632 cases involving Rs 43,401.37 crore, according to finance ministry data.

It was with high hopes that two stringent laws were passed to wipe out non-performing assets. The working of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, have since disappointed both the lender and the borrower. The latest judgment involving Standard Chartered Bank is a telltale example. 

The appellate tribunal took nearly five years to dispose of the case. "It has totally forgotten the obligation cast on it by the Act," the judgment said and added that it was "perplexing" to note that the tribunal kept on granting adjournments without reason and disposed it of with a "laconic" order.

In the 2010 judgment, United Bank of India vs Satyawati, the court had remarked that "tribunals have become synonymous with those of the regular courts and the lawyers use every possible mechanism and dilatory tactics to impede expeditious adjudication of cases. The flawed appointment procedure greatly contributes to the malaise of delay." In Transcore vs Union of India, the court pointed out the effect of inflation on the original claims and counterclaims before the tribunals.

It has been 10 months since the Supreme Court passed a series of directions to improve the working of the DRTs. 

It is pertinent to recall some of the directions so that the government might wake up (though it is difficult to waken someone who pretends to slumber). Dealing with the tribunals working in cramped tenanted buildings, the court stated that if sufficient space is available in a government building, space from the concerned department will be allotted on a permanent basis. 

If space is not available in government buildings but sufficient space is available in public sector undertakings' buildings, the DRTs may move there on a permanent lease/rental basis. If neither is possible, suitable land may be purchased for construction of a building, or a suitably constructed building may be purchased from public authorities.

Other important suggestions: Fill all anticipated vacancies for the posts of senior officers as and when they arise, implement the "e-DRT Project" to automate and improve DRT services by building information technology systems as expeditiously as possible, streamline recruitment and promotions.

 The central government had initiated some of these ideas and had consented to the court suggestions. 

The court had stated that if its suggestions are not complied with the matter it could be brought before it again. In the event, there has neither been any little step towards implementation nor a reminder to the court about the continuing plight of the tribunals. 

Though the high courts have been empowered to superintend the tribunals, they have also not been able to do much, assuming they are aware of the judgment and directions. With legal remedies turning into a nightmare, the lender and the borrower will start looking at each other with deep suspicion, affecting economic growth.

JP Cements is just a distress sale but UltraTech gets a killer bargain

Ultratech Cements is likely to fund the acquisition through debt, equity 
and internal accruals. UltraCement currently has net debts of Rs 2000 crore.
 Reuters


By Rajesh Pandathil and Sunainaa  :FP:Sep 12, 2013



Chadha Jaypee Associates’ Rs 3,800 crore deal to sell its Gujarat cement units to UltraTech is a distress sale. For one, the company has been trying desperately to sell its cement business in order to cut its debt pile of Rs 55,000 crore. Moreover, the valuation is at a huge discount to the earlier estimates of Rs 4,500 crore.

 The fall in valuation has been attributed to the slowdown in economy and concerns over a mine owned by Jaypee. “Had the economy been growing at 8 percent, I would not have sold the Gijarat unit, Manoj Gaur of Jaypee Associates told CNBC- TV18 in an interview soon after the deal was announced. According to reports, the deal values the units at $124 per tonne, nearly half of the $230 per tonne Barings Private Equity Asia had paid in its 14 percent stake deal with Lafarge India.

 The private equity company had paid Rs 1,400 crore for the stake. Further, Holcim paid $200 per tonne for buying stakes in ACC and Ambuja. But that was in 2008, when the economy was not in as bad shape. 

The valuation is poor even compared with the current replacement cost of $140-145 per tonne for a 1 million tonne cement plant. Replacement cost denotes the cost required to set up a green field cement plant. 

Consider UltraTech’s own current valuation of $131 a tonne, and you know why shares of Jaypee Associates are the worst hit today ( down 6 percent) while UltraTech is up about 1 percent. Jaypee needs to sell more assets to pare its debt and Gaur has indicated that he would not rule out selling the Andhra Pradesh and Panipat units. 

According to the agreement between UltraTech and Jaypee Cements, UltraTech will take over the debt of Rs 3,650 crore of Jaypee’s Gujarat unit and transfer remaining Rs 150 crore worth of shares once the transaction is completed. So, the transaction will help Jaypee to cut its debt to a small extent. 

The company has said that it would reduce debt by Rs 15,000 crore through sale of assets this year but attaining this target will be a tall task given the economic downturn. Ultratech Cements is likely to fund the acquisition through debt, equity and internal accruals. UltraCement currently has net debts of Rs 2000 crore. Reuters 

The debt reduction from the Gujarat plant sale will happen directly from the group’s flagship Jaiprakash Associate (JAL). JAL has a total debt of Rs 23,000 crore, which will now immediately be reduced by Rs 3,650 crore on conclusion of the deal. 

“Post completion of this transaction, it is likely to reduce the overall debt on standalone basis by Rs 2000 crore and also reduce loans and advances by Rs 1,650 crore.

 This is likely to enhance earnings for the company in FY15,” said Kotak in a research report. Ultratech Cements is likely to fund the acquisition through debt, equity and internal accruals. UltraCement currently has net debts of Rs 2000 crore. 

According to Kotak, this acquisition is likely to be marginally EPS negative in near term for Ultratech Cements as the deal is likely to be completed in 6-9 months and incremental debt is expected to increase interest outgo. 

However, higher capacity in Gujarat is likely to increase Ultratech Cement’s market share and gives company ready access to completed plant. As this CNBC-TV18 report noted, the purchase will enable Ultratech to grow its market share in Gujarat from roughly 20 percent to 35 percent and in country’s fastest growing cement region.” 

Overall, Ultratech’s cement capacity goes up from 54 million tonnes to 59 million tones and it also gains access to 57.5 MW captive power capacity, limestone reserves sufficient for over 90 years at current capacity and a captive jetty.

 “Ready, recently built capacity with potential to double the existing capacity given the land parcel and limestone reserve is a positive for UltraCement,” said Morgan Stanley in a research report.

 Not only will UltraTech now enjoy a higher pricing power, it will also become the leader in the cement space in the western region. 

However, ICICI Securities cautioned that while the acquisition would increase UltraTech’s market share by 1.5% and save three to four years of lead time for setting up plants, it would also increase its net debt to equity from 0.1x to 0.3x.

 So while the deal may be beneficial for UltraTech in the near term it will increase its net debt by Rs 3650 crore, there by taking away the comfort of a relatively unleveraged balance sheet.

 Many brokerages see the deal as one-off in a sector which is bogged down by economic slowdown. 

They do not see the deal as a harbinger of a consolidation.

 Rising input and energy costs have been squeezing cement companies’ margins, while demand remains a worry amid a weakening economy and high interest rates. 

The pressure is mounting on cement makers, especially those with high debt. 

The UltraTech-Jaypee deal means nothing for the sector now.