NABLAW

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Taking Rural India Forward>>

Vol III ISSUE 1 DEC- JAN , 2013 1

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From CGMs Desk

People have different notions as to what Law is. While most people will
say that law is merely a prism of common sense and logic, to look at the
facts; however Law may be much more than that. It may be the termed as
the essence of human experience codified in words. Now that experience
may be gained from social catastrophes like the Delhi case, the Palghar
case, or it may relate to complex high technology areas like design of a
drug molecule, Integrated circuits, patents or to smoothen the trade and taxation relations
between transnational entities or even something as ubiquitous as related to the
production and quality control of wine-making or food processing. Thus desirably or
undesirably, Law permeates every aspect of our life. Like the much treasured source code
of proprietory software that runs the complex machines from computer to smart phones,
this source code (Law) runs and governs humans, family, society, nations, and all. Like
any software, Law requires good programming, re-programming, DE-bugging,
maintainance and execution (by good governance).

Good governance being the biggest challenge facing the country, comes from good laws
and implementation of those laws. We have enough of laws and codes. Whenever we talk
of reforming the system, we invariably speak of enacting more/new laws and tougher laws.
We ignore the fact that tougher the laws, stronger will be the evidence required by the
courts to award the toughest of the punishments and Courts are sometimes reluctant to
even to award conviction, because of the fear of miscarriage of justice. What we require
more urgently is the certainity of punishment rather than severity of punishment. Only
certainty of punishment can ensure that the guilt is punished, rule of law is established and
justice is done. However the inordinate delay in justice delivery system has eroded faith of
the public. Even in heinous crimes like rape,murder etc., offenders go scott free, because
of the loopholes in justice delivery systems. What are the solutions ?

Appreciation and availability of evidence is vital while concluding the trial process. Usually,
witness turn hostile and fabricate evidence under pressure from anti social elements. If the
court proceedings are video recorded, it will arm the judiciary to deliver justice, also it
will be open for public scrutiny as cases where even judges have deliberately not focused
on disposal of cases. Our legal system is based on adversarial system where the benefit

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of doubt is given to the accused and guilt should be proved beyond reasonable doubts by
the prosecution. Along with that our procedural and substantive laws are archaic and not in
sync with the evolving technology, changing social equilibrium, gender sensitivity etc.

The statistics say that Govt is the largest litigant and public money is blocked till the finality
is reached in civil disputes. A simple in house mechanism in all Govt Dept can be set
up,and more importantly alternate dispute resolution should be promoted to settle such
disputes.

From governance in general to financial governance, IMF in it's financial system stability
update report on India has commented that the multiple roles of RBI may create a potential
for conflicting roles of RBI. RBI Officer are nominated as Directors on the board of Public
sector, the Banking system is used (rather than the government machinery) in meeting the
needs of priority sector – may conflict with RBI's supervisory role. However the point that
has been overlooked in the IMF report is that the very use of the Banking system by
government to meet the needs of priority sector is because the banking channels are
much more reliable, transparent and robust for delivering the benefits rather than the
Government' own direct delivery channels.

To end on an alarming note - world over from, crimes committed by juveniles are on the
rise. It is high time to realize its not the age of juvenile but the intention which should be
sole criteria to punish them.

With Best wishes and Happy reading.

U. N. Srivastava

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CURRENT ISSUES SECTION

POLICE REFORMS

Indian Police are governed by archaic and colonial police laws of 1861. In 1977,

Government of India set up a National Police Commission which had submitted eight

detailed reports between 1979 and 1981 containing comprehensive recommendations

covering the entire gamut of police working. Since then there have been recommendations

and committees. The police also very often make politicization as an alibi for their non-

performance and even nonperformance. The Supreme Court, in a landmark judgment on

September 22, 2006, ordered the setting up of three institutions at the state level with a

view to insulating the police from extraneous influences, giving its functional autonomy

and ensuring its accountability. These institutions are :

● State Security Commission which would lay down the broad policies and give

directions for the performance of the preventive tasks and service oriented

functions of the police;

● Police Establishment Board comprising the Director General of Police and four other

Senior Officers of the Department which shall decide all transfers, postings,

promotions and other service related matters of officers of and below the rank of

Deputy Superintendent of Police and make appropriate recommendations regarding

the postings and transfer of officers of the rank of Superintendent of Police and

above to the State Government, and

● Police complaints Authority at the district and state levels with a view to inquiring

into allegations of serious misconduct by the police personnel.

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The Supreme Court orders, if implemented, would have far reaching implications for better

governance and administrations of criminal justice. They would change the working

philosophy of the police. The Ruler's Police would be transformed into People's Police. The

reforms are not for the glory of the police. The police will be made more accountable to

the law and the people. They will ensure better security and protection to the people of

the country, uphold their human rights and generally improve the governance as a whole.

We cannot afford to lose any more time. The police force must be reorganized, revitalized

and given the necessary morale, manpower and equipment. It must also undergo

behavioral orientation and project itself and function as a people-friendly force.

SAVINGS BANK ACCOUNT RATE OF 4 % OFFERED BY PSU BANKS- whether

cartelisation

It is common knowledge that the cost of funds and interest margin may not be the same

for all Banks and FI and is much dependent on their operational efficiency, deposit

mobilization and effectiveness of their business models. While the PSU banks resort to

periodically increasing or decreasing term (fixed) deposit rates, savings account rates

were only raised in May 2011, that too after RBI mandated an increase from 3.5% to 4%.

The RBI's move to an unregulated regime a few months later was opposed by most public

sector banks. However despite the deregulation of Savings Bank interest rates in October

2011 by RBI, only five private players, 10 foreign banks and a cooperative bank including

Kotak Mahindra and Yes Bank have increased their savings deposit rate by one to five

percentage points. The common, 4% interest rate being paid rest of all public sector banks

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on savings bank deposits seems to be acting in tandem. Because of this policy, small

depositors are losing out and also the banks are also losing business. By keeping interest

rates on savings bank deposits unchanged at 4%, banks have managed to ensure a

healthy net interest margin, which is the difference between the cost of funds and the rate

at which they lend.

Competition Commission of India, the fair play watchdog, has decided to investigate the

matter. The PSU banks counter that cartelisation argument and say that Every bank has

its own policy and no one exchanges notes. It is only banks with a small network of

branches that are offering higher rates.

THE PITFALLS OF CREDIT SCORE

CIR or Credit Information Reports are relied upon by the Banks/FIs, forming an important

element of the decision matrix, as to whether to go ahead with a particular loan proposal or

not. CIRs are nothing but a snapshot of past history of the borrowing and repayment

transactions of a borrowing entity with all his Banks/ FI. It is extracted from the legacy data

built up over the years, by submission of credit data by all the Banks and FI, of all their

borrowers, to some commonly agreed Credit bureau(s) like CIBIL.

Based on the past repayment track record, credit scores are alloted to the borrowers. Such

score card (which is borrower specific and is different from credit risk rating of borrower) of

past repayment track record, forms the basis in deciding the quantum of loan and loan

pricing (interest rate). The entire exercise depends upon the authenticity and correctness

of the past credit transaction data submitted by Banks to credit rating agency. The latent

problem arises when a borrower is affected due to wrong data submitted by Banks/ FI s,

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because a borrower can neither challenge nor rectify nor has any other remedy, if

information about him, provided by lenders to the credit bureau is factually incorrect. A

faulty CIR based on faulty data about a borrower, results in wrongful rejection of his loan

proposal. In other words, if a borrower is wrongly marked as defaulter by a credit bureau ,

he has no remedy per se.

At present there are four different Credit bureaus operating in INDIA – CIBIL, Experian,

Equifax and High Mark. To add further to the woes and confusion of borrower, the basic

report of past repayment history from all these bureaus is not similar. This is because the

Banks are selectively sharing the data only with CIBIL as a result of which the other three

bureau have very thin legacy data and are unable to provide any valuable CIR.

NEW SET OF GUIDELINES FOR CONSENT ORDER MECHANISM

SEBI has framed a new set of guidelines for consent order mechanism 9discussed in the

earlier issues of NABLAW). Recapitulating Consent mechanism refers to settlement of a

case dealing with alleged flouting of securities laws without the individual or company

involved admitting or denying guilt. The alleged party gets absolved of the charges by

paying a mutually agreed penalty to the SEBI.

PENSION SECTOR

The Pension Fund Regulatory and Development Authority (PFRDA) was earlier planning

to allow the entry of more fund managers in November last year, but the deadline could not

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be met. There hasn't been a overwhelming response as foreign players are awaiting the

passage of PFRDA Bill, which was again deferred in the winter session. The Bill proposes

the entry of foreign players with the same holding as it is for insurance sector, which is now

at 26% and it is proposed to be raised to 49% as per the insurance Bill. In 2012, the

PFRDA decided to grant licenses on the basis of certain stringent eligibility criteria rather

than auction based on the cost of managing the funds. Even existing players have to

renew their certificate of registrations after complying with the new guidelines, which

mandates a company to have a minimum net worth of Rs.25 crore, a three year profit

record and managing assets of at least Rs.8,000 crore. In 2007, the PFRDA allowed state-

owned Life Insurance Corporation, State Bank of India and UTI AMC to set up pension

fund companies and mange the long-term savings of Government staff. After two years,

PFRDA allowed four private players – IDFC Pension Fund Management, ICICI Prudential

Pension Fund Management, Kotak Mahindra Pension Fund and Reliance Capital Pension

– into the sector. These PFMs now manage assets worth over Rs.20,000 crore of 3.75

million subscribers in government, private and unorganized sectors. Though foreign

pension funds, banks, mutual funds and insurance companies were eager to enter the fast

growing pension sector, restrictions on the number of players and selection criteria based

on the lowest bid for fund management charges have deterred them. Sensing this, the

PFRDA in July 2012 abolished the bidding process and announced a list of eligibility

criteria to allow new players. The Pension fund Regulatory and Development Authority Bill,

which aims to empower PFRDA as a statutory regulator of the New Pension System(NPS)

and allows 26% FDI among other reforms, was introduced in Parliament in 2005. It has

approval of the Standing Committee headed by BJP leader Yashwant Sinha. The bill may

be taken up in the budget session of Parliament.

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LEGISLATION SECTION

INDIAN WINE INDUSTRY – proposed regulation.

We may be wondering as to what regulation, if at all is required, for wine Industry in India.

The representatives of the Food Safety Standards Authority of India (FSSAI), National

Research Centre for Grapes (NRC), APEDA, Pune Excise Department, Agriculture

Departments and the Ministry of Food Processing Industry, agricultural processed food

products export development authority and All-India Wine Producers' Association (AIWPA)

in a joint establishing the identity of Indian wine in the international markets Indian

Grape Processing Board is working to regulate (Viticulture) wine-making for identity of

Indian wines in intl market. It is in the process of formulating standards and coming up with

a wine legislation for Indian wines. This move is not only expected to help Indian wines

make a mark in the export market but also create an own indigenous identity in the wine

market globally. India has accepted membership of the International Organization on Wine

and Wine (OIV) and this would entail adopting wine-related international rules, regulations

and laws. The legislation will include product definition like sparkling, carbonated, fortified,

still, organic and herbal wines will also be decided. The label on the wine bottle will also

include the name of the wine grape variety. The alcoholic proportion in different wines will

also be decided. The legislation will also help prevent the cheap ans substandard wines

into the Indian market, he added.

RECOVERY LAWS – amendment approved.

The Lok Sabha has approved an amendment bill to make easier recovery of bad loans by

banks. The Enforcement of Security Interest and Recovery of Debts Laws (Amendment)

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Bill, 2011, which was approved by Lower House, seeks to convert any part of debt into

shares of defaulting company by the Asset Reconstruction Company (ARC). Banks or any

person (most often the third party auction sale purchaser of security under SARFAESI) to

file a caveat so that before granting any stay, the bank or person is heard by the Debt

Recovery Tribunal.

The Banking Laws (Amendment) Bill, 2012 passed

The upper house of Parliament on 20/12/2012 cleared the bill, two days after on

18/12/2012 the Lok Sabha, the lower house, gave the legislation its nod to the long

awaited Banking Laws (Amendment) Bill, 2012, paving the way for issuance of new bank

licenses and consolidation in the sector.

Advantages:

There is a increase in voting rights of investors in the private sector banks to 26

percent from the existing 10 percent. Shareholders' voting rights in the public sector

banks is capped at 10 per cent from the existing 1 percent.

The RBI gets wide ranging power to inspect books of business groups that have a

bank – it can appoint Directors and Chairman, and it can veto bulk purchases of a

bank's shares.

The new regulation also seeks to bring the banking sector under the competition

commission purview.

Modified legislation would help create to "world size" banks in India. With the passage of

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the Bill, big corporate houses like Tatas, Reliance and also entities in the public sector

would be eligible to obtain licenses to set up banks. RBI is empowered to frame the

guidelines and issue new bank licenses. The RBI will be regulator of the banking sector,

while, the Competition Commission of India (CCI) will look into competition practices in the

banking sector. This will make the Indian banking sector attractive for the overseas

investors and is expected to lead to consolidation in the industry.

Points of caution: Therefore, entry of too many private banks is detrimental as public

money deposited in the banks, which can be misused for the benefit of few corporate

honchos and not for the general public.

BANKING LAWS (AMENDMENT) BILL SNAPSHOT

ACTION
IMPACT

RBI gets more powers, can supersede bank Industrial houses to get licenses to operate banks
board.
More foreign and domestic investment to flow
Voting rights of shareholders in banks go
in
up.
Banks not allowed to trade in commodity Could have proved to be a hedging tool for
futures. banks
RBI to be banking regulator, CCI to regulate
Bank M&As may need clearance by two regulators
M&As

FACELIFT TO 56-YEAR-OLD COMPANIES ACT

More teeth to the shareholder and empowers him to take legal action against

a company for fraud. The act provides that: “Shareholders associations or group

of shareholders are to be enabled to take legal action in case of any fraudulent

action on the part of company and to take part in investor protection activities and

class action suits. The legislation grants statutory powers to the Serious Fraud

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Investigation Office (SFIO) to tackle corporate fraud. The SFIO will get a big fillip

once the legislation comes into force.

The bill aims at improving corporate governance also contains provisions to

strengthen regulations for companies and auditing firms. Although the bill does not

precisely define what constitutes corporate social responsibility (CSR), it will

mandatory for profit-making companies to spend on activities related to CSR. The

CSR condition will apply to firms that have a net worth in excess of Rs 500 crore, or

a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more.

The act proposes to tighten the laws for raising money from the public. The move

will hit chit funds. Only banking companies, NBFCs and other firms allowed by

regulators will be permitted to accept deposits from the public.

A director’s remuneration should not exceed five per cent of a company’s net profit.

The new law also aims to strengthen corporate governance. It will be mandatory for

independent directors to constitute at least one-third of the board.

Audit firms cannot take up more than 20 assignments at any time. The appointment

of auditors for five years to be ratified annually.

If a company winds up operations, it must pay two years’ salary to its employees.

The bill also bans buy back of shares within one year of the last buyback of shares.

COMPANIES LAWS (AMENDMENT) BILL - SNAPSHOTs

Makes it mandatory for companies to spend 2% of average net profit
on CSR
Mandates payment of two years' salary to employees in companies
which wind up operations
Limits the number of companies an auditor can serve to 20
More clarity on criminal liability of auditors
Annual ratification of appointment of auditors for five years

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New clause related to offence of falsely inducing banks for obtaining

credit
Statutory powers to SFIO to tackle corporate fraud.

NATIONAL PHARMA POLICY-Features

The new policy caps prices of 348 essential medicine formulations at the arithmetic

average of all drugs in a particular segment with a minimum of one per cent market

share .

Companies will be allowed to annually raise prices of regulated drugs in tandem

with the wholesale price index (WPI). As a corollary though, the companies will also

have to cut these prices if there is a decline in the index prices of these drugs,which

will be determined by market forces. The government reserves the right to intervene

within the next 12 months if prices increase by more than 10 per cent annually.

STANDARDISATION IN HEALTH INSURANCE – DRAFT GUIDELINES.

In order to make health insurance more customer-friendly, the Insurance Regulatory

and Development Authority (IRDA) today released an exposure draft on

standardization in health insurance. It attempts to bring uniformity in health

coverage practices, including the exclusion of disease conditions and charges

across the policies.

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A standard nomenclature for critical illnesses has been proposed for both hospitals

and insurers to follow, so that customers do not face any difficulty while taking a

policy. Cancer, coma, first heart attack, kidney failure and organ transplant are

some of the diseases mentioned in critical illness category. The regulator has

allowed certain exclusions of disease conditions and procedures in 11 critical

illnesses including skin cancer and HIV induced diseases. Customer also face

problems while hospitalization, since they are not aware of the expenses excluded

in such indemnity policies. To curb this anomaly, Irda has proposed that a standard

list of exclusions in such hospitalization indemnity including areas like baby food,

internet charges, diaper charges.

The regulator, however, has allowed the companies to include the excluded items of

payment based on product design or as part of hospital expenses. While defining

hospital the regulator mandated that a facility should have at least 10 inpatient beds

in towns having population less than 1 million and 15 inpatient beds in towns and

cities having population above 1 million to treat the patients under health coverage.

The exposure draft called for standardizing billing formats and enabling mapping of

hospital information systems to specific data requirements of the Insurance

companies for faster claim processing and enhanced analysis of data. The

committee has suggested that the bill is expected to be in two formats, one would

be the summary bill and the detailed breakup of the bills. It has been suggested that

the summary bill the provider has to mention the service tax number in case they

charge service tax to the insurance company / TPA among others. Further in

detailed breakup of bills, the date on which the service is rendered is to be

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mentioned in the bill. Some providers have outsourced the pharmacy to external

vendors. For implementation, the committee has suggested that a central body for

maintenance, dissemination and addition of billing codes should be formed. For

TPAs, IRDA has proposed that the TPA shall only process the claim to facilitate the

insurer to take decision on claim settlement or claims rejection, as applicable. Only

the insurer shall have the right to settle or repudiate a claim. It has called for TPAs

to process all the claims applications to the extent possible within 2 working days

after receipt of the complete set of claim documents.

The IRDA will make these mandatory across the insurance industry after

receiving suggestions and comments from the stakeholders, who have been given

10 days to respond on the exposure draft.

JUDGEMENT SECTION

Award should be served to the party itself

The Supreme Court has held that the service of a copy of an arbital award on the agent or
a lawyer of a party to the agreement did not amount to service on the party itself as per
the provisions of the Arbitration and Conciliation Act, 1996. The issue before the court in
the case Benarsi Krishna Committee vs Karmayogi Shelters Ltd wa whether the service of
an arbitral award on the agent of a party amounts to service on the party itself under
Sections 31(5) and 34(3) of the Act.

In this case, the Committee of Managing Landlords, the co-owners of the Benarsi Krishna
Estate in Delhi, had amended its collaboration agreement of November 1990, by which
Karmayogi Shelters Ltd (KSL), an estate developer, was to convert a cinema hall
compound into a commercial complex. As disputes arose between the parties over the

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payment scheme, KSL sought appointment of an arbitrator before the Delhi High Court,
which appointed Justice K Ramamoorthy, a retired judge, as the sole arbitrator. The
arbitrator held the company guilty of committing breach of agreement and directed the
committee to refund the money to the developer within three months.

The copy of the award was available with the lawyer, but not the firm itself. This caused a
delay of nine months. A single-judge bench in August 2009 held that if the lawyer or agent
got the copy of the award, it would amount to the party itself getting it. But the division
bench overruled this and insisted that the award should be served properly on the party
itself. On appeal, the Supreme Court upheld this view by accepting the stand of Senior
Counsel K V Viswanathan, who on behalf of the firm argued that after conclusion of the
hearing and passing of the award by the Arbitrator, the power given to an advocate came
to an end and the advocate was no longer entitled to act on the strength thereof.

Constitution Bench to resolve puzzle

In view of conflicting views by its various benches, the Supreme Court has referred to a
larger bench the issue related to the maintainability of a review petition in a High Court
after the disposal of the special leave petition (SLP) by the apex court without granting
leave. In the case Khoday Distilleries Ltd vs Mahadeshwara SSK Ltd., the former had
challenged the Karnataka High Court's decision that ruled that a review petition cannot be
moved after approaching the Supreme Court. On appeal, the apex court said that a large
number of review petitions are being filed in High Courts after the Supreme Court
dismissed the SLPs. Thus, an authoritative pronouncement by a constitution bench is
necessary to resolve contrary opinions of the apex court for proper guidance to the High
Courts. Mahadeshwara, by relying on the top court's judgment in Abhai Maligai Partnership
Firm vs K.Santhkumaran, had contended that decision would squarely apply to th facts of
this case and the HC had rightly dismissed the review petition by holding that when the
judgment and decree passed by the HC was confirmed by the Supreme Courat while
dismissing the SLP, there was no question of entertaining the review petition. Counsel
Gopal Jain, appearing for Khoday Distilleries submitted that the HC has committed a grave
error in dismissing the review petition since the SLP was dismissed at the admission stage
by a non-speaking order and it would not constitute resjudicata and does ot culminate in

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merger of the impugned judgment.

CESTAT has powers to condone delay

The Supreme court has ruled that the Customs, Excise and Service Tax Appellate Tribunal
(CESTAT) has discretionary power under Section 129A(5) of the Customs Act, 1962 to
condone dthe delay in filing appeal, if there is a sufficient cause for the delay. In this case
M/s Thakker Shipping Ltd Vs Commissioner of Customs, a container containing assorted
electrical and electronic goods of foreign origin was intercepted by the customs
department in 2001. The goods were cleared by custom house agent Thakker Shpping.
The value of seized cargo was estimated at Rs.77,10,000 as against the declared value of
Rs.10,03,690 by the importer, which could not be interrogated. The CHA's licence was
suspended by the department, but was later set aside by CESTAT. Even the Commissioner
of Customs in 2004 dropped the proceedings by rejecting the findings of the inquiry offier.
The Committee of Chief Commissioners of Customs had directed the Commissioenr to
apply to the tribunal for determining Commissioner to apply to the tribunal for determining
whether the order of the Commissioner dropping the proceedings against the CHA shoule
be quashed. However, the Commissioner could not make the application within the
prescribed period. The tribunal rejected the application for condonation of delay. The
commissioner appealed to the Gujarat High Court, which reversed the decision and
allowed the application of the commissioner for condonation of delay. This view was
upheld by the Supreme Court.

BANKING and OTHER NEWS

POST BANK OF INDIA TO BE ESTABLISHED SOON

In order to provide full banking services to rural people, who still depend on informal credit

sources, the Department of Posts is likely to finalise plans for setting up the Post Bank of

India. For a providing better clarity on the organizational structure of the proposed Post

Bank of India, a detailed project report (DPR) is expected to be in place in a few weeks.

The proposed Post Bank of India will be a profit making entity which would essentially help

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the Department of Posts in reducing its deficit and might also provide ATM services in

remote areas, besides taking core-banking facilities to the rural areas. The standing

committee have asked the Department of Posts to establish the Post Bank of India within

the 12th Five-Year Plan period.

FOREIGN TAX CREDIT (FTC) --TAX PAYMENTS ON INCOME IN OTHER COUNTRIES

The India business houses are becoming more and more international. It is critical for

professionals and companies in information technology and other sectors engaged in other

countries; issues like foreign exchange variations and difference in the timing of filing tax

returns need to be immediately tackled. The Central Board of Direct Taxes ( CBDT) is

drafting rules for foreign tax credit (FTC), to bring in clarity in its administration. At present,

there are no set rules for foreign tax credit, making it difficult for assessees to decide on

credit claims and leads to either undue harassment for the taxpayers or litigation. The

guiding principle to decide on FTC is the double tax avoidance agreement (DTAA) with the

country in which tax has been paid, for which the credit has to be taken in India. If the tax

payment has been made in a country with which India does not have a DTAA, the Income-

Tax Act provisions are the deciding factors. The question is how to compute taxes in cases

like dividend, distribution, etc, in which tax rates are different in different countries.

The Direct Taxes Code (DTC) seeks to streamline the system and has proposed FTC rules

under section 207. Clause 207 of the DTC Bill, 2010, is associated with foreign tax credit

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allowable to an assessee, being a resident in India in any financial year on income which

is taxed in India as well as outside India. The clause states that where the assessee is

required to pay Indian income-tax in respect of an income that has been taxed in any

specified territory or other country with which India has a DTAA, the foreign tax credit will

be allowed in accordance with the agreement. Where there is no such agreement, the tax

credit will be determined at the Indian rate of tax or the rate of tax of the other country,

whichever is lower. The credit in either case will not exceed the Indian income-tax payable

in respect of income which is taxed outside India and the Indian income-tax payable on

total income of the assessee. It also provides that CBDT, for the relief or avoidance of

double taxation, prescribes the method for computing the amount of credit, manner of

claiming credit and other particulars.

FAQs & INFO NUGGET

What is the role of Finance Commission ?

The government last week constituted the 14th Finance Commission under the

chairmanship of former Reserve Bank of India Governor V V Reddy.

WHAT IS THE ROLE OF FINANCE COMMISSIONS ?

A finance commission is set up every five years by the President under Article 200 of the

Constitution. Its main function is to recommend how the Union Government should share

taxes levied by it with the states. These recommendations cover a period of five years.

The commission is also lays down rules by which the centre should provide grants-in-aid

to states out of the consolidated Fund of India.

WHY DOES THE CONSTITUTION PROVIDE FOR SHARING OF TAX PROCEEDS ?

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Under the federal structure envisaged in the Constitution most of the taxation powers are

with the Centre but the bulk of spending is done by the states. Such a federal structure

requires transfer of resources from the centre, which levies and collects the big taxes such

as income tax and indirect taxes like excise and customs, to the states.

CAN THE COMMISSION EXAMINE OTHER FISCAL ISSUES AS WELL ?

Yes. The government can ask the commission to make suggestions on specific fiscal issues

that it may want addressed. For instance, the government has asked the 14 th Finance

Commission to deliberate on the level of subsidies and explore statutory measures to

insulate pricing of public utility services like the drinking water, irrigation, power and public

transport from policy fluctuations. The new commissions will also look at the impact of

GST and suggest a mechanism to compensate states in case of revenue loss. Besides, it

will deliberate on listing, disinvestment and sale of state owned companies.

WHAT IS THE FORCE OF THE COMMISSION'S RECOMMENDATION ?

The Constitution does not make the recommendations of the Finance Commission of the

Finance Commission binding on the government of the day. However, there is a strong

precedent that governments generally go by the suggestions as far as sharing of revenues

is concerned. These recommendations relating to distribution of union taxes and duties

and grants-in-aid are usually implemented by a presidential order.

RAJIV GANDHI EQUITY SAVINGS SCHEME

The objective of the Scheme is to encourage the savings of the small investors in domestic

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capital market. The deduction under the Scheme shall be available to a new retail investor

who complies with the conditions of the Scheme and whose gross total income for the

financial year in which the investment is made under the Scheme is less than or equal to

ten lakh rupees. The scheme, which has a lock-in period of three years, would allow for

income tax deduction of 50 per cent to new retail investors who invest up to Rs. 50,000

directly in equities and whose annual income is less than Rs.10 lakh.

Illustration of lock-in period in RGESS RGESS lock-in period if investments are

brought in at once

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RGESS LOCK-IN PERIOD IF INVESTMENTS ARE BROUGHT ARE IN INSTALLME NT

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NOT LEGALLY SPEAKING

Seniority is important; but, vision, imagination and hard work

is more important" - Barrack Husein Obamah, US President
FOR 2ND TERM

At a country – club party , a young man was introduced to an

attractive girl. Immediately, he began paying her court and
flattering her outrageously. The girl liked the young man, but
she was taken a bit aback by his fast and ardent pitch. She was
amazed when after 30 minutes he seriously proposed marriage.
'Look" she said , " We only met half an hour ago . How can you
be so sure ? We know nothing of each other." " You are wrong,"
the young man declared . For the past five years , I have been
working in the Bank where your father has his account" .

"When you’re with fools, laugh with them and at them

simultaneously"

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Disclaimer
The Information/ news items contained in this news letter have appeared in various external

sources/media for public use or consumption. The present is a selective compilation meant

for internal consumption of fellow NABARDians. The views expressed and / or events

narrated /stated in the said Information /news item are as perceived by the respective source.

The Law Department, NABARD neither holds nor assumes any responsibility for the

correctness or adequacy or otherwise of the news items, events, facts or any information

whatsoever.

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