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Corporate Specialised

How do e-Wallets like Paytm work?

In the dawn of demonetisation, most of us have found ourselves adapting to new payment mechanisms and methods. The government’s strong push towards a cashless society seems to be ushering in the age of the e-wallet. Paytm alone is responsible for more transactions per day than the combined average daily usage of all the debit and credit cards in India. Mobile wallets, which many of you are using these days, are a type of pre-paid instrument. But what are pre-paid instruments? How do they work?

Here are some frequently asked questions, which should provide some clarity on the conceptual and regulatory framework behind pre-paid instruments in India.

I am hearing this term for the first time. What is a pre-paid instrument?

Pre-paid instruments are payment instruments that facilitate purchase of goods and services, including by way of funds transfer, against the value stored on such instruments. The value stored on these instruments represents the value paid for by the holders of such instruments.

The issuers of pre-paid instruments have tie-ups with various merchants, and you can use the value stored on your instruments to carry out transactions with these merchants.

Ok. That’s a very legalese definition. Did the Reserve Bank of India come up with it? What is the regulatory framework for pre-paid instruments?

Actually, yes! The Reserve Bank of India (RBI) first provided the guidelines on pre-paid instruments (let’s just call them PPIs) in 2009. Over the years the RBI, issued several notifications (yes, they were not as dynamic as today!) in relation to PPIs. It then decided to consolidate all these notifications in a Master Circular (which gets updated on a yearly basis). Pre-paid instruments are subject to the Payment and Settlement Systems Act, 2007.

The latest Master Circular – Policy Guidelines on Issuance and Operation of Pre-paid Payment Instruments in India was notified on 01 July 2016. You can have a look at that here. You will find all the definitions and other details in this Master Circular.

Cool! So I guess then a PPI is a regulated instrument and one needs to have the approval of the RBI to issue one?

Yes. The RBI provides licenses to issue PPIs. All persons proposing to operate payment systems and involved in the issuance of PPIs have to seek authorisation from the Department of Payment and Settlement Systems, RBI, under the Payment and Settlement Systems Act, 2007.

Ok. If mobile wallets are one type of PPIs, what are the other types?

PPIs can be issued as smart cards, magnetic strip cards, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument, which can be used to access the pre-paid amount. A mobile wallet (Paytm, Mobikwik etc.) is one type of PPI. However, this is a dynamic sector and entrepreneurs are devising new prepaid mechanisms everyday.

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Mobile Wallets like Paytm and Mobikwik are Pre-Paid Instruments

Broadly the RBI classifies PPIs into the following types: Closed, Semi-Closed and Open Payment Instruments.

What are Closed System Payment Instruments?

These are payment instruments issued by a person for facilitating the purchase of goods and services from him/it. These do not permit cash withdrawal or redemption. As these instruments do not facilitate payments and settlement for third party services, issue and operation of such instruments are not classified as payment systems. (A pre-paid card in your canteen or a food court can be considered a type of closed system payment instrument.)

What are Semi-Closed System Payment Instruments?

These are payment instruments, which can be used for purchase of goods and services, including financial services at a group of clearly identified merchant locations/establishments, which have a specific contract with the issuer to accept the payment instruments. These instruments also do not permit cash withdrawal or redemption by the holder.

Mobile wallets like Paytm and Mobikwik are semi-closed payment instruments.

What are Open System Payment Instruments?

These are payment instruments, which can be used for purchase of goods and services, including financial services like funds transfer at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs.

Debit cards are open system payment instruments.

Are there any limits in relation to the value that I can store in the PPIs?

Currently, the limit is Rs. 20,000 per month for PPIs where minimum details of the customers have been collected.

This limit can be extended up to Rs 1,00,000 per month after collecting the appropriate KYC (Know Your Customer) documents from the holders.

Ok. So what can I do with my pre-paid instruments?

Let’s only consider semi-closed PPIs from now on, as these are the most commonly used. Your scope of usage of a semi-closed PPI is dependent upon the number of merchants the PPI issuer has tied up with. Generally you can use your PPI for payment of utilities with these merchants and for transferring money to other PPIs.

e.g. Paytm has a tie up with Uber and not with Ola. So you can use your Paytm wallet to make a payment for Uber but not for Ola.

Ok. So what happens to the money after I transfer it to my PPI?

Every PPI issuer (like Paytm, Mobikwik etc.) is required to create an escrow account with a bank, where all the money collected from its customers are credited. This account is a non-interest bearing account. The PPI issuer is required to create a security on this account in favour of the PPI holders (customers like you and me). Therefore the holders are secured and in the event of liquidation/bankruptcy of the PPI issuer, the merchants/PPI holders shall be given preference to the other creditors of the PPI issuer.

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There are strict norms, which regulate any debit or credit of this escrow account. However at no point of time can the amount in the escrow account be less than the aggregate of the balance amount in all the corresponding PPIs and all pending payment instructions in favour of the merchants. So don’t worry, your money is safe with a PPI issuer!

Can I redeem the money stored in my PPI?

No. You are not allowed to redeem your money from a semi-closed PPI. However if that particular PPI is being closed or if the RBI decides to stop this entire product of PPIs (highly unlikely, the RBI usually does not reverse a decision), the customers shall be allowed to redeem the amounts stored in the PPI, within the expiry date of the PPI.

Who can issue PPIs? Are all PPI issuers NBFCs or banks?

Only banks can issue Open PPIs. Non Banking Financial Companies (NBFCs) and other persons can issue Closed and Semi-closed PPIs. These persons need to have a minimum paid-up capital of Rs. 500 lakh and minimum positive net-worth of Rs. 100 lakh at all times. Only companies incorporated in India are eligible.

As mentioned earlier, the authorisation of the RBI is required.

If I keep my money in my bank account it earns me interest. Can I earn interest on the amount stored in my pre-paid instrument?

The money in the wallet or PPI can only be used for transactions against the value stored in such instruments.

You will not earn interest on the amount stored in the wallet.

I heard of an offer where I can get cashback points if I use a mobile wallet. How does this work?

These are usually marketing offers. The merchant may be offering the product at a discount to increase sales. The discounted amount is then credited back into the PPI.

At times, the PPI issuer may also credit the PPI with an additional amount to incentivise customers. A PPI can be funded/reloaded by third parties, so the PPI issuer is transferring the cashback amount to your PPI.

Hope this is of help! Do take some time to go through the RBI Master Circular for more details.

Abhishek is a legal and business strategy consultant with ePaylater, one of India’s first one- click checkout payment solutions. This article should not be construed as legal advice. The views expressed in this article are his personal views and opinions. He can be reached at abhishek.ray@epaylater.in.

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Litigation Specialised

Gap between the law and practice of environmental law keeping you up at night? Download this e-book now!

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Do you believe that environmental justice in India cannot wait for our governance to become transparent and accessible?

Do you feel that the lasting impact of environmental degradation in India requires affected communities to take immediate steps?

Then you will be just as thrilled as us to read this series of essays by Kanchi Kohli.

These essays distill her enormous experience of effectively moving the levers of environmental governance while working with affected communities. For those who want to work to secure environmental justice, it contains important lessons. Click this link and download this e-book now!

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Corporate Specialised

FDI in e-commerce: Everything you need to know

DivyaSinha_SwethaPrashant_JSagarAssociatesThe Department of Industrial Policy and Promotion (“DIPP”) recently released Press Note No. 3 (2016 Series) dated March 29, 2016 (“PN3”), setting out guidelines for foreign direct investment (“FDI”) in the e-commerce space. We will look at the evolution of the law and policy on foreign investment in the e-commerce space, and in particular the scope and implications of PN3.

India’s FDI law

Foreign investment in India is governed by the Consolidated FDI Policy (“FDI Policy”) and the Foreign Exchange and Management Act, 1999 (“FEMA”) and related rules and regulations. The DIPP, which is the foreign investment regulatory arm of the Ministry of Commerce and Industry of the Government of India, makes amendments the FDI Policy by issuing press notes. Rules under the FEMA, however, are notified by the Reserve Bank of India (“RBI”).

FDI in e-commerce – the story before PN3

FDI has been permitted in the e-commerce space in a limited manner since the year 2000. According to Press Note No. 2 (2000 series) (“PN2”), FDI of up to 100 per cent was allowed in an e-commerce company under the automatic route (that is, without the approval of the government) as along as that company was engaged in business-to-business (“B2B”) e-commerce. If such a company was listed overseas however, 26 per cent stake in it had to be divested in favour of the Indian public within a period of five years. On the other hand, FDI was not permitted in retail trading, that is, in business-to-consumer (“B2C”) e-commerce. The policy had also categorically specified that the restrictions applicable (at that time) to domestic trading would be applicable to e-commerce as well.

On trading (including wholesale, single-brand retail, and multi-brand retail), the FDI Policy witnessed many changes since 2000, but in the e-commerce space it remained mostly stagnant until the end of 2015. Among minor changes made during this period, the requirement of mandatory disinvestment of 26 per cent stake in favour of the Indian public was dispensed with in 2006. “E-commerce” was also defined in the FDI Policy in 2010 to mean the activity of buying and selling by a company through an e-commerce platform.

B2BModelECommerce B2CModelECommerce

In 2014, the DIPP released a discussion paper seeking comments from various stakeholders for formulating the guidelines on FDI in the e-commerce sector. While it was still in the process of formulating the policy on FDI in B2B e-commerce, it released Press Note No. 12 (2015 series) (“PN12”), which liberalised the FDI Policy in the B2C e-commerce sector in a limited manner.

Shackles on single-brand B2C e-commerce

According to PN12, FDI in B2C e-commerce was permitted in ‘single-brand product retail trading’ as follows:

(a) single-brand retailers with physical stores were permitted to sell their products online as well; and

(b) Indian manufacturers were permitted to sell their own single-brand products online as along as the manufacturers are: (i) the investee companies (that is, those which have received FDI); and (ii) the owners of ‘Indian brands’ (that is, those that are owned by Indian residents or Indian companies owned and controlled by Indian residents); (iii) manufactured 70 per cent of the value of the products in-house; and (iv) sourced the remaining 30 per cent from other Indian manufacturers.

Single-brand retailers and Indian manufacturers with FDI who want to sell their single-brand products through e-commerce also need to comply with a few other conditions set out in PN12. Currently, FDI is permitted up to 100 per cent in Indian entities engaged in single-brand retail trading. FDI beyond 49 per cent requires government approval but below that threshold, it can be under the automatic route.

So far as multi-brand retail trading goes, FDI is permitted up to 51 per cent under the approval route subject to certain funding, sourcing, and other conditions. The FDI Policy on multi-brand retail e-commerce by Indian companies with FDI, however, did not change and the restriction continued by implication. Consequently, Indian companies with FDI who are engaged in multi-brand retail trade are not permitted to undertake B2C multi-brand e-commerce.

Several regulatory snarls and the litigation faced by e-commerce players during the last few years appear to have prompted the DIPP to clarify the FDI Policy on B2B e-commerce space through PN3.

PN3: Laying the boundaries for FDI in B2B e-commerce

As discussed above, FDI of up to 100 per cent was already allowed in B2B e-commerce under the automatic route (that is, without the approval of the government) since 2000. PN3, in addition to reiterating the FDI policy on B2B and B2C e-commerce that is currently in place, has distinguished two models of e-commerce – the “inventory based model” and the “marketplace based model”. It clearly states that FDI of up to 100 per cent will be allowed without any government approval only in “marketplace based models” and that FDI in “inventory based models” is prohibited.

PN3 has also redefined the term “e-commerce” and clearly defined the concept of “e-commerce entities”. It stipulates some operating conditions for e-commerce entities with FDI for undertaking “marketplace based” e-commerce retailing.

“E-commerce” and “e-commerce entities”

The term “e-commerce” has been redefined to mean the “buying and selling of both goods and services, including digital products over both digital as well as electronic network”. This is broader than the previous definition, which was restricted to the buying and selling of goods by a company on an e-commerce platform. The new definition covers services also and clarifies the forms of e-commerce platforms (such as computers, television channels, webpages, and mobiles).

The term “e-commerce entity” on the other hand, has been defined for the very first time. It includes Indian companies, foreign companies, and offices, branches, or agencies owned and controlled by non-residents, which conduct e-commerce business. As a result of this new definition, it is now clear that foreign companies can invest in “marketplace based” B2B e-commerce. This will also enable foreign investors to acquire existing Indian entities operating marketplace B2B e-commerce.

It is, however, interesting that the definition does not include limited liability partnerships (“LLPs”). On a plain reading, it appears that FDI will not be permitted in LLPs that undertake B2B e-commerce. This position, however, contradicts the FDI Policy on LLPs, which was recently amended in PN12 which allowed FDI up to 100 per cent in LLPs operating in sectors where 100 per cent FDI is permitted under the automatic route and where there are no performance-linked conditions. The DIPP should provide some clarity on this front as it could impact the structuring of FDI in the B2B e-commerce space.

“marketplace based” and “inventory based”

As FDI is permitted only in marketplace-based models, it is important to understand the difference between “marketplace based models” and “inventory based models”.

The “marketplace based model” of e-commerce is defined as the provision of an information technology platform by an e-commerce entity on a digital or electronic network. A marketplace-based e-commerce entity, PN3 clarifies, cannot own any inventory by itself. If any marketplace-based e-commerce entity with FDI gains ownership over such products and services, then it will be considered an inventory-based e-commerce entity. Therefore, at no point can a marketplace-based e-commerce entity gain ownership over the goods. The title to the goods and services should remain with the seller.

A marketplace-based model is essentially a B2B model where the e-commerce entity is merely acting as a facilitator between sellers and consumers. In this model, an e-commerce entity will not sell goods or provide services directly to the consumers. The actual sale of goods or services takes place between the seller and the end consumer. The e-commerce entity will earn a commission from the seller for the services provided by it to the seller.

FDI_ECommerce_B2BModel

The “inventory based model” on the other hand, has been defined as e-commerce activity where the inventory of goods and services is owned by the e-commerce entity and those goods and services are sold directly to the consumers. An inventory-based model, therefore, is essentially a B2C model where the e-commerce entity has ownership over the goods and the sale of goods and services takes place between the e-commerce entity and the end consumer.

As we discussed above, PN12 only permitted manufacturers and single-brand retailers to undertake B2C single brand retail trading through e-commerce. If an e-commerce entity with FDI undertakes the inventory-based model, then it could be considered to be undertaking (the currently prohibited) multi-brand retail trading e-commerce.

FDI_Ecommerce_B2CModel

One way to determine whether e-commerce entities are undertaking marketplace-based e-commerce is to examine the treatment of inventory or merchandise in their accounts. If they are accounting the merchandise or inventory in their own balance sheet, then they could be considered “inventory based models’ and will attract penal provisions of the applicable foreign exchange laws.

Operating guidelines for B2B e-commerce: Support functions, pricing of goods and services, and revenue generation

The DIPP has, for the first time, stipulated operating guidelines for marketplace-based e-commerce entities with FDI.

Support functions: E-commerce entities have been allowed to provide logistics, warehousing, order fulfilment, call center, payment collection, and other support functions to the sellers. These support services will allow e-commerce entities to generate revenues for themselves in addition to any commission or fee that may be charged from the seller. Leading e-commerce entities such as Amazon, Flipkart, Jabong, and Myntra provide warehousing services to sellers. As long as they are merely providing support functions to the sellers, they will not be in violation of the policy. PN3 also states that if e-commerce entities undertake payment collection, they should also ensure that their service is in conformity with the relevant RBI guidelines. These guidelines endorse the principles of a marketplace-based B2B model.

Pricing of goods and services: E-commerce entities cannot “directly or indirectly influence the sale price of goods or services” and are obligated to maintain a “level playing field”. This guideline has been seen as a measure to curb the predatory pricing tactics of e-commerce entities and to create a level playing field with offline traders. There have been allegations that leading e-commerce players, in order to attract customers on the platform, are using innovative methods to influence sellers to substantially mark down prices or provide deep discounts on their products and services. For example, some e-commerce entities such as Amazon refund the amount denoting discounts provided by the sellers on the platforms. Some e-commerce players like Patym provide cash back on the products purchased on the platform to the consumers. In a true marketplace-model however, sellers are in control of the pricing of the products and services, and any markdown or discounts on the maximum retail price on the platform are offered directly by the sellers. The e-commerce entity, which is merely a facilitator between the sellers and the consumers, does not influence the pricing of products and services offered by the sellers on the platform in any way.

While PN3 does not explain the parameters for determining “influence”, this guideline is expected to impact offline arrangements (such as the funding of discounts) between sellers and e-commerce entities as they may be considered to amount to influencing sale prices. Despite this regulation, many e-commerce websites continue to provide discounts and cash back offers. The pricing models adopted by sellers and e-commerce entities will need to be studied in greater depth to determine if e-commerce companies are in violation of this provision. The DIPP should clarify the intent of this provision to ensure that e-commerce companies with FDI are not violating this guideline.

Sourcing: E-commerce entities cannot derive more than 25 per cent sales on their platform from a single seller or any of the e-commerce entity’s group companies. This guideline is intended to ensure that e-commerce entities do not carry out B2C e-commerce in the garb of a marketplace model using convoluted business structures. This provision will definitely impact those e-commerce players who derive more than 25 per cent of their sales from their vendors or group companies. For instance, it is reported that both Flipkart and Amazon India generate sales beyond 25 per cent from their group companies, WS Retail Services Private Limited and Cloudtail India Private Limited, respectively. These e-commerce players will need to restructure their business models to toe the line with PN3. Further, there is no clarity on the duration for calculating the cap on sales, that is, whether this cap will be calculated on a financial year basis or otherwise. The DIPP should also clarify the intent of this provision to ensure that e-commerce companies with FDI are not violating this guideline.

Other conditions: The responsibility for the delivery of goods to the customer and customer satisfaction following a sale on the technology platform as well as providing any warranty or guarantee of goods and services lies with the seller. This guideline is in line with the principles of a marketplace-based model. If such responsibility lies with the e-commerce entity, then it will no longer be considered a mere facilitator, and any sale on its platform could take on the colour of B2C multi-brand e-commerce retail, which (as we have discussed previously) is currently prohibited, except for single-brand retailers and manufacturers.

The guideline on the delivery of goods by the seller, however, appears to contradict the guideline which allows e-commerce entities to provide support services to the sellers. This may be a drafting flaw, which the DIPP will need to clarify to ensure that e-commerce companies with FDI are not violating this guideline.

PN3 also states that e-commerce entities are permitted to enter into transactions with sellers registered on the platform on a B2B basis. This guideline is very ambiguous since it does not clarify what kind of B2B business e-commerce entities are expected to transact with sellers on. For example, if the sellers sell their goods to e-commerce entities, it would be considered as a B2B business since e-commerce entities are not the ultimate consumers. This would, however, violate the guideline that e-commerce entities gaining ownership over the goods will no longer be considered marketplace-based e-commerce entities. This ambiguity needs to be clarified by the DIPP.

Going forward – the search for a level playing field

The introduction of PN3 may encourage foreign investors, who may have been hesitant to enter this space till now due to a lack of regulatory clarity, to invest in the Indian e-commerce space. It also provides legitimacy to the existing businesses of e-commerce companies with FDI that have been operating on the marketplace model in India. E-commerce companies with FDI will definitely need to re-examine their business structures to ensure that they are in compliance with PN3.

Having said that PN3 may not really create a level playing field between e-commerce entities with FDI and e-commerce entities without FDI. PN3 could impact e-commerce companies that already have FDI or intend to raise FDI, but not e-commerce companies without FDI. While the FDI Policy will govern only those e-commerce companies with FDI, no similar restrictions apply to e-commerce companies without FDI under other laws. The latter category may, for instance, continue to provide deep discounts on similar products and services or generate revenues beyond 25 percent from a single vendor or group company. Further, there are no similar restrictions on offline retailers without FDI. The government, which is keen on attracting foreign investment in this sector, should re-examine this policy to ensure that the interests of both offline retailers as well as e-commerce entities are adequately protected. While PN3 is a good move, there is room for further fine-tuning a few aspects of the policy by the government, especially with respect to the pricing of products and services and limits on revenue generation.

Swetha Prashant is a Principal Associate at J. Sagar Associates. Divya Sinha is a Junior Associate at the same firm. The views expressed in this article do not represent the firm’s view in any manner.

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Litigation Skills Specialised

My land is lying unused. Can I have it back? How to initiate repatriation under the 2013 land acquisition law

CommunitiesAndLegalAction_KanchiKohliEven as presentations were underway at a meeting on land rights somewhere in the capital, a lady seated next to me craved some specifics. “What is the latest with the land acquisition process in the country? Someone told me that I could actually get my land back? It had been taken away a decade ago.” Pushpa behan was among several people who had come for the meeting from the eastern part of the country and had lost her land to the expansion of a government-owned iron ore mine.

I pulled out the latest version of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (“The RFCLARR Act). I knew that some of its clauses would apply to the question that she had raised.

We were temporarily distracted by a voice from the dais that informed the audience that the RFCLARR Act had replaced an 1894 land acquisition law under which the government had the power to acquire land for public purposes. A notice and a short time frame to move out of your home is all that people had. The RFCLARR Act had faced criticism but it had come a long way from the 1894 law and had linked the process of land acquisition with corresponding resettlement and rehabilitation obligations.

During a short tea break, we decided to step out to the canteen to talk at length. Our discussion soon revealed that about 20 families had lost about 100 hectares of agricultural land when the state government had issued them notices for evacuation. While their homes remained with them, the loss of their land had an impact on their source of livelihood. While she did not have many details, she also knew of others who had faced similar issues in neighbouring areas.

When we sat down to look at the Hindi version of the law together, I read out the two relevant clauses. Since the legalese was difficult to fathom, we broke it down. Just as we were talking, a few others from her village joined us. It was turning out to be an impromptu study session.

Section 101 is clear and simple. It says that “when any land acquired under this Act remains unutilised for a period of five years from the date of taking over the possession, the same shall be returned to the original owner or owners or their legal heirs, as the case may be, or to the Land Bank of the appropriate Government by reversion in the manner as may be prescribed by the appropriate Government.” This however, applies only to land acquired under the 2013 law. That was not the case with Pushpa behan’s land.

Image from Vinoth Chandar's photostream on Flickr. CC BY 2.0

Image from Vinoth Chandar’s photostream on Flickr. CC BY 2.0

I asked Pushpa and the others if they had received any “award” or been paid compensation following the notice that their land was being acquired. Under the 1894 law, an award had to be issued by a District Collector or District Magistrate (depending on the state). Such an award would include details such as the true area of the land, the amount of compensation due, and the list of people among whom the compensation would be apportioned. Three scenarios could have emerged:

(1) no award was issued;

(2) an award was issued; and

(3) an award was issued but the physical possession of land was not taken and no compensation was paid.

Is repatriation possible?

Clauses (1) and (2) of Section 24 of the RFCLARR Act deal with these three scenarios. When no actual award was issued pursuant to a land acquisition notice under the 1894 law, then all the provisions related to compensation in the 2013 law would apply under Section 24(1)(a). The compensation available under the 2013 law is much higher and has to be determined using a range of criteria including market value of the land and damages incurred by standing crops or trees.

But this was not the case with Pushpa behan and the others from her village. They fell into the third category. Even though an award had been made in relation to the land that had been acquired, no compensation had been paid and physical possession of the land had not taken place for over eight years. Under Section 24(2), in such a situation, the proceedings of land acquisition undertaken so far would be deemed as lapsed and a fresh process would now need to be initiated under the 2013 law. This includes a detailed process of social impact assessment and the seeking of the consent of 70 per cent of the landholders in case the project is a public sector project or 80 per cent if there is private sector involvement.

(Left) The former Union Minister for Rural Development, Shri Jairam Ramesh addressing a press conference on Land Acquisition Bill, in Jaipur on September 15, 2013. (Right) The Union Minister for Road Transport & Highways and Shipping, Shri Nitin Gadkari addressing a Press Conference, during an Interaction with Farmer's Association on land acquisition, in Hyderabad on June 01, 2015. Both images from PIB.

(Left) The former Union Minister for Rural Development, Shri Jairam Ramesh addressing a press conference on Land Acquisition Bill, in Jaipur on September 15, 2013. (Right) The Union Minister for Road Transport & Highways and Shipping, Shri Nitin Gadkari addressing a Press Conference, during an Interaction with Farmer’s Association on land acquisition, in Hyderabad on June 01, 2015. Both images from PIB.

Does this mean that we have a chance to say no to this acquisition and possibly get back our land?” one person in the group enquired. In principle, yes, I said, but we still had to test it out. The 1894 law had no provision for social impact assessment or any provision about seeking consent and that is why many project authorities feel that the 2013 law would make it impossible for land to be acquired.

He asked, “if the compensation had been paid and physical possession taken in the last 5 years, then this possibility would not arise, right?” That’s what the law says as of now, I replied.

What next?

Several groups across the country have taken steps with the help of lawyers to get better compensation or to restart land acquisition processes under the 2013 law. In fact there is recent news that Reliance Industries has challenged this legal provision in the Gujarat High Court in response to a case filed by farmers.

But the 2013 law does not say that these processes need to be initiated through the courts alone. It is perhaps even possible to do so by approaching the departments that had first initiated land acquisition proceedings and where the records lie.

It would have been useful to have a set of executive rules to enable these provisions but the two and half years of the existence of this law has seen such resistance from the government that little attention has been paid to issue enabling rules. The clauses we had discussed were at the heart of a series of ordinances promulgated to amend the 2013 law and which were allowed to lapse last year.

For now, we know that these provisions are in place and are open for all to use. Pushpa smiled, took the copy of the Hindi text of the law from me and said, “Well, we have the clause in our favour for now and we have to try and use it. Get our paperwork in order and get going.” The half and hour we spent discussing what was and what could be had opened many doors.

Kanchi Kohli is a researcher working on law, environment justice, and community empowerment.

Categories
Litigation Specialised

A railway line through a forest belt – environmental impact assessments and forest rights

CommunitiesAndLegalAction_KanchiKohliSarita tai was worried about the construction of a railway line between the iron ore mine and the railhead located 30 kilometres from the village she worked at. At least 15 kilometres of this railway line would cut through an important part of the central forest belt. She called me with many questions: What was the process for taking permissions for using forestland for railway lines? Had this process been completed? What was the role of the gram sabha? What if the forest rights of people had not been fully recognised yet?

Some of these answers came easy but the others required the study of some recent circulars and directions of the environment ministry, the tribal affairs ministry, and the National Green Tribunal (“NGT”).

EIAs for railway lines

Surprising as it may seem, the railway line and its related infrastructure are not in the list of projects that need to go through the procedure laid out in the EIA Notification, 2006 issued under the Environment Protection Act, 1986. We have long tried to find the logic behind it, but without success. Railway projects simply do not require an environment impact assessment and a public consultation for an environmental clearance.

If the railway line is separated from the other components of the project like it was in the case of the mine that Sarita tai was worried about, it could easily avoid the environment impact assessment process. The mine had been up and running for the last year and the proposal for the railway line was only mooted much after the environment clearance was procured for the mine.

Forest diversion and the felling of trees

All non-forest use requires the user agency to seek prior approval under the Forest Conservation Act, 1980. There is a detailed procedure under Section 2, which remains away from public eye and only within negotiations between forest department officials; the Ministry of Environment, Forests and Climate Change (“MoEFCC”); and the user agency.

Until recently, no activity related to a project could be carried out for any non-forest use until the entire procedure, which includes a two-stage approval by the MoEFCC and an order by the government of the state where the forest is located, was completed. Felling trees would be illegal without it.

But during the last year, the MoEFCC has allowed the felling of trees to be carried out after a project receives “Stage 1 approval”, that is, the approval of the MoEFCC. This approval often contains conditions including additional studies related to hydrology, impact on wildlife, identification of compensatory afforestation land and others that have a bearing on whether the forest diversion should be approved or not. But in the case of linear projects such as railways, highways or transmission lines, the MoEFCC has attempted to be create a “simplified procedure.”

In a set of guidelines issued on May 7, 2015 and subsequently updated on August 28, 2015, the ministry said that to allow for the speedy execution of these projects, the in-principle approval will be enough to allow for both tree cutting and commencement of work if all “compensatory levies” and a wildlife conservation plan are ready.

Sarita tai was livid. The last time she had seen an in-principle approval, it listed 27 important conditions including that of redoing some important assessments. What is the point going through the remaining procedure for this project if the work can commence and trees can be cut, she asked. It defeats the entire purpose of any safeguards or conditions levied.

train_jungleI agreed and told her that these guidelines had been challenged before the NGT. In January 2015, the NGT first restrained the felling of trees after Stage 1 approval, but subsequently reviewed the order in the light of an affidavit submitted by the MoEFCC. In its direction, the NGT concluded that the while tree felling and commencement of work might be allowed for linear projects it would be treated as an order under Section 2 of the FCA and therefore can be challenged before the NGT. This is important to understand because the NGT had previously ordered that only those orders issued finally by state governments activating forest diversions could be brought before it. Till then no commencement of work or tree felling could be allowed.

The MoEF’s May 7 and August 28, 2015 guidelines lay down that while the “simplified” procedure for the speedy execution of linear projects remains in place an “aggrieved person” now has the option to approach the NGT with an appeal against this order.

Forest rights and linear projects

I knew that Sarita tai would also ask about the recognition of the rights of forest dwelling communities who have historically either lived or used the forest that is sought to be diverted. The Scheduled Tribes And Other Traditional Forest Dwellers (Recognition Of Forest Rights) Act, 2006 mandates the recognition of individual and community forest rights of tribal and other forest dwelling communities.

On August 3, 2009, the MoEFCC issued an important circular, which, among other things, clarified that no diversion of forest land for non-forest use would take effect unless the process of recognition of rights had been completed. It also said that the consent of the gram sabhas would be required before the diversion process can be given effect. This has also been re-iterated and confirmed by the Ministry of Tribal Affairs (“MoTA”), which oversees the implementation of the FRA.

In the villages that Savita tai was working in, several of the community forest rights claims were still pending final approval and the grant of individual rights had been contentious as people had only received rights over a part of the forest land that had been claimed. In their view, their rights over the forests were yet to be recognised. So the first question that came to our mind was whether the forest diversion and tree cutting could have come into affect if the recognition of rights was pending. The gram sabha (village assembly) had confirmed that their consent had not been sought.

This issue had been a bone of contention between the MoTA and the MoEFCC since 2013. While the MoEFCC had claimed through their February 5, 2013 circular that the requirement of the gram sabha consent could be dispensed for linear projects, the MoTA, the nodal ministry, said that the MoEFCC had no authority to make such an interpretation. All projects, linear or non-linear, had to be treated equally regarding forest diversions and consent provisions.

These different interpretations continue to operate and the MoEFCC has been approving proposals for forest diversion and allowing for tree felling for linear projects, interpreting that a gram sabha nod was not required, especially in cases where there has been an assurance from the state government that either the rights under FRA have been recognised or are in the process of being so.

A worrying scenario

Thus, with no requirement of EIAs once a railway line is segregated from other aspects of a project; tree felling permitted after in-principle approvals; and tentative interpretations for gram sabha consent; the situation did not seem very encouraging to Sarita tai and the affected people that she was working with. They could however, still petition the concerned ministries. No doubt, the fate of the project and the forest dependent people could still lie in bureaucratic interpretations and the application of mind by expert committees.

With no court action on the anvil immediately and the affected communities clearly aligned to question both the FCA guidelines and the dilution of the consent provisions; its anyone’s guess whether the railway line will be built or not. But it once again raises questions about why any project, which has a far-reaching impact on forests, wildlife, and people, should be granted exemptions from basic environmental scrutiny and  stringent safeguards. Meanwhile, people like Sarita tai have to grapple with many interpretations of the law on a case-by-case basis.

Kanchi Kohli is a researcher working on law, environment justice, and community empowerment.