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Declaring Independence: What to keep in mind when starting an independent practice

Introduction-BLOG

Declaring Independence  is a series by Tishampati Sen, an Advocate-on-Record who quit his job at a top-tier law firm to start his own practice. Setting up one’s own practice at a relatively young age is a challenge, albeit one that can have great rewards. Every month, Tishampati will look at an important aspect of going independent and have useful tips and advice for young lawyers who just want to break free!

Ever since I graduated from law school, I have enjoyed a wide variety of experiences. I have had the good fortune of starting my career with a large top-tier law firm in Delhi-NCR, where I trained with some of the finest lawyers and learnt how to be a legal professional. I gained experience in the transaction side of the practice, as well as in the dispute resolution side. I handled large deals and conducted negotiations and also learnt to prepare matters, draft pleadings and appear in various forums. However along the way I developed a strong desire and passion to be able to start something on my own. So finally, egged on by my family, much to the horror of some close friends and colleagues, I took the decision to quit the firm and work towards setting up my own practice.

Before we move on, let me say this right up front, this project is in no way an attempt to show-case life outside a law firm, or conversely the life within firm or to discuss which is better. I am only using this platform to share some of my experiences and lessons that I have learned in the process of setting up an independent practice.

Moving out of my Comfort Zone

One of the first things that I learnt when I told people that I am looking to quit the firm to start my own practice, was how woefully inadequate my life is! I had been looking at the world through rose tinted glasses. One very prominent senior colleague in the firm smiled at me and told me that I was having the “law firm mid–life crisis”. There were others who told me about the people who had tried their hand at starting their own practice, failed miserably and then could not even find a job at a law firm again. The fact is that we know of all the reasons why such a move could end up being detrimental.

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But I noticed that once I did take the step, let go of the safety net and swam into the rougher waters, there were plenty of people to hold my hand and show me the way. The funny thing is that most people will tell you only about what could go wrong, and I guess to a large extent that is needed so that you make an informed, practical decision. But happily, there are quite a few very successful advocates and legal practitioners out there, who have equally, and sometimes more remarkably left cushy jobs to follow their dream of having their own practice. These are people who understood the internal conflict and self–doubt that I was going through and gave me invaluable guidance and a pat on the back. Their only request was that I persevere even when I cannot see the light at the end of the tunnel. I still remember how a rather soft–spoken, quiet sort of a man, had looked squarely into my eyes and had said with a force I have never before noticed in him, “If you have a safety net, burn it. Only when there is a fire on your backside will you make this work”.

FIRST STEPS WHEN LEAVING THE FIRM

So if you are in a law firm and have decided to branch out on your own, the first few steps could possibly include the following:

1. Save, Save and Save

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Definitely give yourself a few months (if not a year or more) before you disclose that you plan to move out. Use the steady flow of income that is coming your way to create some savings. One of the great things that my wife helped me do was analyse our spending and expenses for a couple of months (of course being told that I don’t really need a new PS3 game, was like being relegated back to school), and we came up with a number which would be the average monthly expense. Keeping a plan/sum in mind may allow you to save while still not living like a hermit. Savings are definitely a must, since it gives a bit of a reassurance as to one’s financial sustainability in the initial period. Panic is a very usual and daily emotion in such a state, but it helps if your partner or family member or friend can keep reminding you of the savings and assure you that you will be alive and fed, even if you make nothing, or close to nothing, initially.

2. Choosing the kind of work while in the firm

This, to a large extent, depends on the structure followed in the firm and whether there is any option for you to be able to choose the kind of work that you would be involved in. In the firm that I was a part of, while work was mostly assigned, one did have some amount of say and control over the kind of matters that one could opt into. The firm attracted clients who were large corporate houses, or businessmen, and the work, that I was initially involved in, was mostly in the nature of writ petitions, or Special Leave Petitions, and some company matters. But I realised that it would be a while before corporate houses would approach me and pay me to go challenge the constitutional vires of certain laws. Therefore, based on the advice of friends and mentors, I tried to involve myself in a wide variety of litigations including matters in the lower tribunals, civil suits, certain minor criminal proceedings etc., so as to get a wide base of exposure. Most people in a firm would agree that the attraction of any particular matter or transaction is also often contingent upon the billing rate and the regularity of payment by the client. However, at this stage of declaring independence, the attraction is for the specific forums where the matter is listed and the nature of the dispute. A word of caution, though: while doing this in the firm your revenue and billing may take a hit. Swallow the embarrassment of the scrutiny that your performance may be subjected to, and remind yourself of the larger picture. A good friend once gave me the following perspective which was helpful: “Take it like being taught important skills and being given essential experience, and all the while being paid for it.”

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Since my practice and work today includes both transactional as well as disputes work, I must share my learning on the transaction front as well. My experience in the firm on the transaction front was with the Projects team, under a truly brilliant partner and with an excellent team. Hence, I have always been very comfortable and confident in contract law, structuring deals and providing legal opinions on various rules and regulations. However, given the work split and team divisions in the firm, I did not have ample exposure to pure company issues relating to the shareholders rights, structuring and restructuring of companies. There seems to be plenty of work relating to the such company issues that are available for young independent lawyers to do. Especially, in the age of start-ups, corporate arrangements, shareholder agreements and restructuring become viable work opportunities. So while I had to pick up these skills along the way, with the help of friends, if you intend to do transactional work, get some experience on these while still with the firm if you can. It may not be as juicy as contractual, or other work, but get into it. You’ll thank me later!

3. Preparing the mind

Ask anyone else who has taken the same path before and they will tell you right out, your life will change once you have left the safe harbours of the firm. Of course there are many types of firms and how you feel will depend on the structure of the firm as well as how long you have spent there. But I never realised until I quit my job, how large a part of my identity was the firm name. Having had the good fortune of being a part of a top–tier law firm with a very recognisable and well–established name, I had always been very confident and proud of introducing myself to people and piggy backing on the firm’s goodwill. I guess it is presumed that since you are with this particular firm, you would be competent as an advocate and a contender. Corporates and business people recognise your firm name and you bask in its reflected glory. But once that identity goes, you are relegated to only being a lawyer. One of many. No matter how many times you tell people that you have your own practice or your own firm, unless you are (a) middle–aged, and (b) a known name (which is unlikely until you are middle–aged), it is often heard by people as “not employed”. One moment you are the hot-shot associate in one of the largest firms in the country and the next, you are just an advocate like the thousands around you. What’s more, the other advocates are more street smart than you and have something you don’t have yet – clients. Prepare yourself to re-invent your identity and image. You will have to build your reputation and goodwill from scratch.

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Simple perks like clean toilets, green tea, a court clerk who actually knows how to get things done, playing a cricket tournament as a part of the firm, running printers, office boys etc., may be sorely missed and the memory of the same could trigger a violent emotional outburst later. For all those who are overworked and stressed from working really hard in a law firm looking at going independent as a way out, to whom it looks like a way out from the crazy hours, working weekends, unreasonable clients etc., you are in for a shock! You will find yourself working just as hard (hopefully and eventually) when your work load increases. There are no longer any concept of weekends, all days merge into each other. Remember, shorter timelines for delivery and lower fees are the only USP that you have to offer in the period while the world figures out that you’re a legal genius and are willing to pay you top dollar.

KEEP THE FAITH

The one major learning I have had since I quit the firm has been that things have the propensity to work themselves out if one is willing to be patient and open to receiving help. Fortunately, as I mentioned earlier, there are plenty of very wonderful advocates and lawyers, who are very supportive towards ‘youngsters’ and happily act as mentors towards young advocates and lawyers. In the period since I quit the firm, the one thing that I am very proud of myself for is that I was able to swallow my pride, quickly get over my past identity and seek guidance from people who had been doing this before, including people who are younger than me. I have picked up invaluable lessons and tips on various issues, such as client handling, self–projection, preparing for a matter keeping in mind the concerned judges and the day on which the matter may be listed, settling upon the fee rates, and the way to remind clients and seek payment of the same. 

I look forward to sharing my experiences and learnings with you on this blog!

Tishampati SenTishampati Sen is an Advocate–on–Record  of the Supreme Court of India. He worked with one of the premier law firms of the country (in corporate transactions as well as dispute resolution) for many years before deciding to take the plunge of independent practice. He appears primarily before the Hon’ble Supreme Court of India, Delhi High Court and the National Consumer Disputes Redressal Commission.

Written by myLaw

[Video] Judicial pendency: What’s the big problem?

Why did the Chief Justice of India have a “breakdown” about the impossible burden facing the judiciary? Is the judiciary doing nothing about the massive backlog of pending cases at the courts? Are the courts really that slow in India? What is the problem, anyway? Will appointing new judges fix the problem? There are no simple, straightforward answers (or questions) when it comes to judicial pendency in India, but here is a video in which we have tried to make the issue much clearer.

Written by myLaw

Courts fail in assessment of compensation

Most people who lived in Delhi during the late nineties would remember this horrific incident of mistaken identity. The Delhi police shot and killed two innocent men in the middle of the day in one of Delhi’s busiest areas. The incident took place on March 31, 1997, at Barakhamba Road, near Connaught Place (New Delhi’s central business district) at 2:30 pm. Thirteen policemen, led by the Assistant Commissioner of Police Satyavir Singh Rathi, surrounded and shot at a car with AK-47s and revolvers, without prior warning, on the suspicion that one of the persons in the car was a wanted criminal. There were three unfortunate people in the car. Two of them died on the spot, while the third suffered grievous injuries.

The investigation of the incident was handed to the CBI, who in its usual style took its own sweet time in prosecuting the case. Eventually, ten of the thirteen policemen, including Satyavir Singh Rath, were convicted under Section 302 of the Indian Penal Code, 1860 and sentenced to life imprisonment by an order of the trial court dated October 24, 2007.

Mercifully, the appeal process was slightly more expedient than the Trial Court’s efforts. On September 18, 2009, the Delhi High Court upheld the conviction of the policemen and the officers, and on May 2, 2011 the Supreme Court dismissed the appeals of the convicted policemen (Satyavir Singh Rathi v. State through CBI, 2011 (5) SCALE 339). In doing so, the Supreme Court also observed that at no point of time did any of the policemen attempt to apprehend the suspected criminal, or attempt to verify whether one of the persons in the car was in fact the wanted criminal. The Supreme Court also observed that the shooting and firing was so indiscriminate that two of the policemen present at the incident were injured due to the friendly fire.

The Delhi High Court

The Delhi High Court

In addition to this prosecution conducted by the State, in 1997 the widows of the two deceased men filed writ petitions in the High Court of Delhi claiming Rupees two crore each from the Union of India and the Delhi Police for the wrongful killing of their husbands, (See, WP (C) Nos. 4756 and 5405 of 1997, titled Neema Goyal v. Union of India and Another). Due to the fact that the writ petitions were related to an on-going state prosecution, the writ petitions could not be disposed of until the guilt of the accused in the murder trial was confirmed. The prosecution attained finality only on May 2, 2011 when the Supreme Court upheld the decisions of the Delhi High Court and the Trial Court.

Justice S. Muralidhar of the Delhi High Court delivered a judgment disposing of the writ petitions of the widows on July 4, 2011, holding that “the liability of the State to compensate victims of lawlessness by its agents and employees is well settled. The Supreme Court has consistently rejected the defense of sovereign immunity as creating an exception when violations of fundamental rights are committed by the State. It is also well settled that in matters involving violation of fundamental rights by law enforcement officials, the strict liability principal will apply and the State must pay monetary compensation to the victims of such violence as a public law remedy under Articles 32 or 226.”

Furthermore, Justice Muralidhar also took strong note of the fact that even after the conviction of the police personnel in 2007, not one of them was dismissed from service; in fact they were only dismissed from service after the High Court confirmed the conviction of the accused police personnel. However, Satyavir Singh Rathi was not removed from service even at that stage, and not even after the Supreme Court had confirmed his conviction and dismissed his appeal on the May 2, 2011. The Court learnt that, in terms of Rule 11(1) of the Delhi Police (Punishment and Appeal) Rules, 1980, an official of the Delhi Police may continue to remain in service even after his conviction if the first appeal filed by him remains.

Justice S. Muralidhar Image above from the website of the Delhi High Court.

Justice S. Muralidhar
Image above from the website of the Delhi High Court.

The Court took strong exception to the fact that the ten police officers who committed cold-blooded murder, stayed on the rolls of the Delhi Police for a period of ten years after they committed the crime and for a further period of two to three years, after they were convicted by the Trial Court. The Court directed the Ministry of Home Affairs to institute an appropriate inquiry by a senior level officer, to inquire into the facts and circumstances under which dismissal of these men were delayed and further directed that the said Rule of the Delhi Police Rules be expediently amended.

Coming back to the issue of compensation, it is a settled position that compensation may be given in such circumstances, however it is on the issue of quantum of compensation that our legal system enters its hyper-technical and murky best. The judgment disposing of the writs cites the case of D.K. Basu v. State of West Bengal, (1997) 1 SCC 41, wherein it was inter alia held that “in the assessment of compensation, the emphasis has to be on the compensatory and not on punitive element”.

Following the above mentioned principle and formulae for compensation laid down by the courts in the previous cases, wherein the age, income and number of dependants of the deceased are considered relevant factors, the High Court arrived at a grand sum of Rs. 15,00,000/- each as compensation to the widows of both the deceased men.

This is the point at which the law and the courts fail, and fail miserably. The deaths of the victims happened in 1997, final relief was given to the families in the form of a final conviction and compensation only in the year 2011. In 1997, one of the victims was earning Rs. 95,000/- per annum. No matter what formulae through legal theory you throw at anyone, it belies all common sense and logic that Rs. 15,00,000/- is sufficient compensation.

The legal position that punitive damages should not be awarded in such situations is preposterous. This is a fit case for punitive damages, and heavy ones at that. The police, without so much as verifying whom they were shooting in cold blood, opened fire on one of the busiest streets of the city in the middle of the day. Any number of people could have been injured, and yet, our legal system cannot award punitive damages against them. Punitive damages are by definition meant to deter similar actions by the person against whom such damages are awarded, in future. Would it not therefore be logical, to levy punitive damages against law enforcement agencies in such cases, to ensure that such agencies in the future will ensure that their employees and agents refrain from behaving in such a negligent and callous manner?

 

(Aditya Shamlal is a New Delhi-based advocate.)

 

Written by myLaw

More proactive conservation, not less

On April 2, 2013, the Supreme Court of India ordered Sterlite Industries (India) Limited to pay Rupees 100 crores in punitive fines towards damage caused to the environment by its copper smelting plant in Tuticorin, Tamil Nadu. The matter arose from an appeal against an order of the Madras High Court in 2010, directing the closure of the plant. Considered a major contributor to India’s copper economy, the plant is situated very close to the proposed Gulf of Mannar Marine National Park and its manufacturing process is known to produce toxic effluents. Even though the amount of the fine is second only to Union Carbide’s Bhopal settlement, the order is actually a step back from the progressive environmentalism that was the Supreme Court’s hallmark through the 1990s.

The idea of situating a copper smelting plant at the SIPCOT Industrial Complex should have raised red flags in 1994 when the Tamil Nadu Pollution Control Board (“TNPCB”) first issued the No Objection Certificate to Sterlite. The twenty-one islands that comprise the protected marine ecology of the Gulf of Mannar existed in the area long before Sterlite’s plant was set up. Placing an entire industrial complex in the area was a bad move to begin with but then again, that was the 1990s. The government was keen on reducing delays caused by prolonged licensing procedures and the focus was on opening up the public sector to international technology and tilting the balance in favour of higher production and economic growth.

Under Section 35(1) of the Wildlife (Protection) Act, 1972, this group of twenty-one islands were to be notified as a National Park by the State Government of Tamil Nadu. Such a notification would grant protection to an ecologically fragile area from human activities such as industry and traffic. The Chief Wildlife Warden of Tamil Nadu sent the request for such a notification to the State Government on April 30, 2003. Ten years since, the State Government is yet to make this notification for an area that is recognisably in need of conservation.

One of the various grounds on which the Supreme Court has set aside the high court’s order of closure is that the high court had over-ruled the clearance granted to the Sterlite plant by the Ministry of Environment and Forest of the Government of India (“MoEF“). While it is arguable that the high court’s decision to upset an executive decision was ill-considered, the Supreme Court’s appreciation of the matter turns not on the facts at hand, but rather its understanding of the concept of judicial review in the context of environmental law. The court quoted from Environmental Law edited by David Woolley to put forward the argument that judicial review in environmental law would be justified only if the action of the executive was patently illegal, beyond logical reasoning of the parameters of applicable legislation, or conducted without following the due process of law. Further, procedural impropriety would attract judicial review only if it had resulted in gross injustice.

This strict interpretation of the concept of judicial review runs completely contrary to the need of precautionary foresight that is one of the fundamental principles of environmental law today. Proactive conservation — the idea of refraining from those activities, the long-term impact of which are not known today — plays a very important role in preserving our natural heritage. Following the reasoning of the Supreme Court on the other hand, as long as the administrative machinery in charge of the conservation of the environment acts within the four walls of the law, it has discharged its duties. For instance, this judgment would bar relief against authorities in a situation where environmental damage has occurred despite following the procedure laid down by law. Applying such a carved-in-stone conception of judicial review also flies in the face of the Supreme Court’s judicial activism in cases such as the Ganga pollution case and the Bichchri case.

This has grave implications for the multi-dimensional and dynamic nature of the environment and indeed, environmental law. It was the need for foresight that gave birth to the precautionary principle and the idea of intergenerational sustainability in 1990. There was recognition that a government agency may not be capable of ascertaining the impact of a particular action on the environment, even half a decade after the action and that it may be possible that the negative consequences of such an action are not known at the time the action was taken. It is precisely for these reasons that precautionary restraint must be exercised. In the current context, the MoEF had cleared the project almost two decades ago based on information that was available at that point. While there may not be a statutory requirement to do so, there is no law that prevents it from revisiting the decision based on later developments.

The gravest problem with the Sterlite judgment however, is neither the restricted approach to judicial review nor the inadequate application of the principles of conservation. It is the unacknowledged, and therefore unpunished, cascade of errors and slip-ups by every entity involved. For instance, the TNPCB reduced the requirement of a green belt of 250 metres around Sterlite’s plant as stated in its NOC dated August 1, 1994 to 25 metres based on a representation by Sterlite. While stating that this reduction is lawful and did not violate any applicable legislation, the Supreme Court failed to recognise the fact that there was nothing stopping the National Environmental Engineering and Research Institute (“NEERI”), the foremost independent environmental monitoring and auditing agency in the country, or the TNPCB from undertaking a study to confirm — or deny as the case may be — the wisdom of this move. In fact, NEERI conducted specific-condition based research and provided reports to the TNPCB and the Tamil Nadu State Government on the situation in 1998, 1999, 2003 and 2005. The TNPCB, the State Government, and the Madras High Court however, did not feel the need to re-evaluate a decision taken almost twenty years ago.

Till 1994, environmental impact assessment (“EIA”) was not a mandatory requirement for commencing industrial activity. The January 1994 notification under the Environment (Protection) Act, 1986 changed this situation. Under this notification, Sterlite carried out and filed a Rapid EIA report on the basis of data collected over one month. Under this notification, a public hearing regarding the proposed industry was not a mandatory requirement and was only required if the relevant authorities felt the need. Sterlite’s Rapid EIA report did not include information on a public hearing.

By 2010, when the Madras High Court heard the matter, it had not occurred to either the TNPCB or the High Court itself, to order a complete EIA report that would include a public hearing. The Supreme Court was technically correct in striking down the high court’s finding that the Rapid EIA conducted while granting clearance to Sterlite in 1994 reflected inadequate application of mind on the part of the authorities. Technically, Sterlite had complied with the prevailing EIA requirements and there was arguably no legislative mandate to conduct an EIA after clearance and the onset of industrial operations, including a public hearing.

That the Rapid EIA procedure did not include a public hearing of the communities in and around the area most likely to be affected by the industry shows the complete lack of proactive conservation in the entire process by the administrative machinery of the time. In the twenty years that have elapsed since, there is no mention of any extensive EIA carried out in respect of Sterlite’s copper smelting plant, let alone a public hearing about the issue.

Apart from fines commensurate with the fined entity’s ability to pay, this ruling presents other important lessons. It is time to accept that the reactive administration of environmental issues is not enough. The essence of conservation lies in proactive measures and it is no longer adequate for governmental authorities to act after the fact. Decisions taken based on current information must be revisited in light of the changing environment, the accumulative impact of activities, improved scientific knowledge and testing procedures, and the evolution of jurisprudence that provides for more protection to those most affected by such decisions.

Most of all however, we need to learn that the environment is changing faster than anticipated and if overworked and understaffed government and judicial offices are not provided better and more efficient resources to deal with these changes, an already fragile system is sure to teeter over an edge. Even a hundred crore rupees would not be able to put it right.

 

(Suhasini Rao-Kashyap is part of the faculty at myLaw.net)

Written by myLaw

Revisiting interim injunctions after the IIPM-related URL block

On February 14, India’s Department of Telecommunications issued instructions to Internet Service Licensees to block access to seventy-eight URLs from India. Seventy-three of these URLs are related to the Indian Institute of Planning and Management (“IIPM”), a business school headquartered in New Delhi, and its director, Arindam Chaudhuri. IIPM had become controversial over the last few years because of media investigations into claims made in its advertisements about job placements and quality of education and also because of its attempts to suppress a critical article that had appeared in Caravan, a magazine. Apar Gupta, a New Delhi-based partner at Advani and Co., spoke with us about the order.

Apar Gupta

Apar Gupta

Edited extracts from the transcript of the interview:

Mr. Gupta said that the order was not a misuse of the Information Technology Act, 2000, as had been suggested by several people. In a public statement, Mr. Chaudhuri had confirmed that the blocking order had been passed under Rule 10 of the Information Technology (Procedure and Safeguards for Blocking for Access of Information by Public) Rules, 2009. Under this rule, when a court sends an order for the blocking of a website, the designated officer has to make such an order. “The crux of the matter is that it is not a determination by the executive or by the Department of Telecom. It is a determination by a court and the Department of Telecom is only complying with that court direction.”

Even though the order itself has not been made public, based on statements made by Mr. Chaudhuri on public platforms, Mr. Gupta speculated that a case was filed in a Gwalior court by one of IIPM’s channel partners and that an interim injunction had been sought on the basis that the content on these websites was defamatory. He said that this instance could provide an insight into how interim injunctions are significant because cases stretched in Indian courts for long periods.

“At the stage of trial itself, if it is in a district court, it may stretch for five to eight years. Probably, even in the high courts, I have seen cases stretch on for quite some time — and this is when parties complete their pleadings, evidence denial admission has been completed, and final arguments are preferred.” In a sense, Mr. Gupta said, the interim injunction determines the status of the plaintiffs and the defendant for a long time.

Order 39, Rules 1 and 2 of the Code of Civil Procedure, 1908 states that a plaintiff, on filing a case, may be entitled to a temporary injunction or an interlocutory order, where there is any property which is in dispute and is in danger of being wasted, damaged, or alienated; or the breach may be repeated during the course of the pendency. Specifically in cases of defamation, courts apply restraint in granting interim injunctions. The Delhi High Court most recently used the ingredients suggested in Bonnard v. Perryman, [1891] 2 Ch. 269 in Tata Sons Limited v. Greenpeace International. “The case essentially goes towards stating that in a case of libel or slander, the courts will be reluctant in granting an interim injunction when the defendant can effectively plead any defence to such libel. For instance if the defendant can show that there is a good probability that it can plead that the publication was in public interest and it was truthful, then the court will be hesitant in granting an interim injunction.” Mr. Gupta struck a note of caution when he said that the Bonnard rule is limited to defamation and that it was not an absolute rule because there was no pronouncement by the Supreme Court that the rule should be applied compulsorily in cases of defamation, where suits are filed by parties and interim injunctions are granted. However, there are pronouncements to this effect from the Bombay, Calcutta, and Delhi High Courts.

A caricature of Arindam Chaudhuri

A caricature of Arindam Chaudhuri

Mr. Gupta also speculated that since many of the defendants have stated publicly that they did not receive any court summons or any notice of the injunction, the injunction was an ad interim injunction, which is granted towards preserving the status towards the next date of hearing itself. Such an injunction continues date by date and not for the entire pendency of the case. If that were the case, the court has been satisfied by the plaintiff’s plea that more damage would be caused by the next date of hearing. “This seems somewhat doubtful because, from all the URLs which have been publicly disclosed and blocked, it has come to light that the content was posted way back on 2003 and 2004. These are fairly old URLs and this is one factor, which will work against any interim injunction.” The injury had been in the knowledge of the plaintiff for enough time to not be able to show that it will cause some damage during the pendency of the trial. This is because of the judicially created three-fold criteria used when granting such an injunction. “These are that there should be a prima facie case which should be demonstrated by the plaintiff, that based on the documents filed before it, it has a good chance to succeed ultimately. Secondly, there should be irreparable injury if the content is allowed to exist or the property is allowed to be used in a certain manner by the defendant. Thirdly, the balance of convenience should also lie in the defendant’s favour. This means that there will be no grave injury, which will be caused to the defendant on the contrary, if such an injunction is granted.” However, since these three ingredients are judicially created, courts often do not reason them out and do not establish each prong for the grant of an interim injunction.

When an interim injunction is granted to a plaintiff, a defendant can firstly, file an appeal against the grant of an interim injunction, and secondly, under Order 39, Rules 3 and 4, file an application for vacation of that injunction. A lot of defendants also file applications under Order 7, Rule 11, which is for rejection of the plaint. “Now, under Order 7, Rule 11, a lot of time they take grounds such as there is some lack of jurisdiction inherent in the court or that it is barred by some provision of law. That may be somewhat relevant in the IIPM case because what it seems is that it has been filed in Gwalior even though IIPM, Arindam Chaudhuri, and the owners of a lot these websites reside in Delhi. Of course, a lot of which is relevant in this case also relies on the outcome of the Caravan case which was first filed in Silchar in Assam, but then the owners of Caravan then approached the Supreme Court in a transfer petition.”

Mr. Gupta concluded by saying that interim injunctions need to be better reasoned, and are not as well reasoned as they may have been because the three ingredients required to grant them are judge created.

 

(Aju John is part of the faculty at myLaw.net)

Written by myLaw

Lessons on effective legal counsel from the Mohammad Afzal trial

The image of Justice is from a photograph of the Norwich Union building in London, seen in mira66's photostream on Flickr. The image of the noose is from the Valkry Productions photostream on Flickr. Both the images have been published under a Creative Commons Attribution 2.0 Generic License.

The image of Justice is from a photograph of the Norwich Union building in London, seen in mira66’s photostream on Flickr. The image of the noose is from the Valkry Productions photostream on Flickr. Both the images have been published under a Creative Commons Attribution 2.0 Generic License.

Justice is more tenuous in political trials because the language and the logic of the law affect values of democracy and liberty. In such situations, a heavier burden is cast upon the judiciary to ensure that the rule of law is not corrupted by injustice. An equal responsibility is cast upon the lawyer who is defending a terror-accused. A lawyer’s role in such trials is not confined to procedure; rather, he is required to resist the claims of the State’s natural and inevitable superiority.

As a student intern in the chambers of Kamini Jaiswal who had briefed Ram Jethmalani in the case of the attack on Parliament on December 13, 2001, I was able to take a very close look at the matter. State (N.C.T. of Delhi) v. Navjot Sandhu @ Afsan Guru was no ordinary case. The Supreme Court regarded the incident as one of waging war against the State. Mohammad Afzal was convicted of criminal conspiracy, sent to the gallows, and executed last week. Nothing less, the Supreme Court had held, could have satisfied the “collective conscience of society”.

The judgment has been criticised for being a study in prejudice and should be studied carefully to understand “effective legal aid”. Senior Advocate Indira Jaising, who had filed the curative petition against the judgment in the Supreme Court, has described in detail how Mr. Afzal received no assistance from the lawyers the court practically thrust upon him in 13 December – A Reader: The Strange Case of the Attack on the Indian Parliament (Penguin, 2006). Mr. Afzal was illegally picked up by the police, tortured in custody, and made to narrate a confession before television cameras. To insist, in such circumstances, that the right to counsel becomes applicable only from the time “proceedings” start in court would be the surest way to ensure a travesty of justice.

Mr. Afzal had provided the special court (“trial court”) with a list of four lawyers and wanted to be represented by any one among them. The trial court recorded that all four had refused, but did not record their grounds for refusal. On May 17, 2002, the day the trial started, Seema Gulati, an advocate he had never met before, was assigned to him. Ms. Gulati easily conceded that the prosecution had prima facie evidence to frame charges, and not only that, admitted, without demanding any formal proof, all the crucial documents and items recovered that would later become the basis of Mr. Afzal’s conviction.

There is more. On July 2, 2002, Ms. Gulati, without giving any reasons, withdrew her vakalatnaama in favour of Mr. Afzal and decided to appear for S.A.R. Geelani, another accused in the same case. She assigned the case to her junior Niraj Bansal, whom the court, for “reasons” which are befuddling at best, appointed as amicus curiae, a “friend of the court”. The reason cited was that Mr. Bansal had the experience of handling cases under the Terrorist and Disruptive Activities (Prevention) Act, 1987. Mr. Afzal was being tried under the Prevention of Terrorism Act, 2002 and charged with “Waging War against the State” under Section 121-A of the Indian Penal Code, 1860. When there was a dire need for a lawyer to withstand the prosecution’s onslaught, the court cherry picked a “friend”.

Mr. Afzal’s repeated pleas that he had no confidence in Mr. Bansal’s performance and his requests for another lawyer went unheeded. With no option but to cross-examine most of the witnesses himself because most of Bansal’s questions were perfunctory at best, he was deprived of a basic right by a court.

In an atmosphere charged with hate and prejudice in the aftermath of the attack, if a lawyer who appeared for any of the accused conducted his duties in a cavalier manner or did not oppose the prosecution’s case tooth and nail on every question of fact and law, it would have been nothing short of forming an insidious allegiance with the prosecution. Inherently disabled from proving the State wrong, the accused would never be able to believe in equality before the law.

The right to effective legal counsel

The Supreme Court of the United States held in 1963 in Gideon v. Wainwright that the right to effective counsel is one of the fundamental tenets of liberty and justice. The right to free legal aid is a fundamental right, indeed a core part of the right to life and personal liberty. In light of the manifestly violent injustice meted out to Mr. Afzal however, unless the courts arrive at a flawless understanding of “effective legal aid”, the lives and liberties of the accused and the very foundations of criminal justice, democracy, and the rule of law would remain in jeopardy.

In the present jurisprudential framework, bearing in mind the tactics adopted by the police and prosecution, an accused needs, and is entitled to, a lawyer from the very moment he is arrested or detained. The machinations of prosecutorial malice, which are put to work much before the commencement of proceedings, have a crucial bearing on the outcome of a trial. Moreover, it is trite that in a criminal case, “what is lotted at the trial stage cannot be blotted on appeal”, because appellate courts deal with questions of law, not fact — unless of course, there is a retrial. Mr. Afzal’s pleas for a retrial were steadfastly rejected and even the curative petition (filed to remedy gross miscarriages of justice) was summarily dismissed.

Until the Gujarat High Court’s judgments in Labhu Laxman v. State of Gujarat (1999) and Dineshbhai Dhemenrai v. State of Gujarat, Indian law only recognised the right to “free legal aid” and did not bother about the effectiveness of such aid. In both these cases, the court had followed the precedent set by the U.S. Supreme Court in Strickland v. Washington (1984). Though not the first to deal with the right to counsel, Strickland was the first to lay down a “test” for effective representation.

Much before that, in Powell v. Alabama (1932), the United States Supreme Court had allowed the right to counsel to three black teenagers who had been charged with rape and robbery of white women and sentenced to death, because it was considered an “essential jurisdictional prerequisite” to depriving a person of his life or liberty.

In 1945, in Diggs v. Welch, the D.C. Circuit Judge held regarding the standard of a counsel’s assistance that assistance of counsel would not be regarded as effective if it reduced the trial to a “farce and mockery”. This was obviously too high a threshold to judge counsel’s incompetence, hence in McMann v. Richardson (1970), it was clarified that the right to counsel meant reasonably effective and competent assistance by the lawyer. The brightest beacon remains Gideon v. Wainwright, where Justice Hugo Black pronounced that an accused’s right to counsel is one of the fundamental principles of liberty and justice.

In Strickland, the court laid down a two-pronged test. The accused must show (1) deficient performance on the part of counsel and (2) that this deficient performance prejudiced the defense so seriously that it deprived him of a fair trial. The Court went on to stress that the evaluation of the counsel must be very “deferential” and that a strong presumption would be drawn that the counsel’s assistance was reasonable and effective. It does not require explanation that these standards were loaded against the accused and that adhering to them would result in “punishment by procedure”. Strickland however, laid down some basic duties for counsel including the duty to advocate the case and the duty to consult with the accused on important decisions.

The Strickland standards and Mr. Afzal’s trial

The Supreme Court of India, in Mr. Afzal’s case, blindly applied the Strickland standards, without examining if such precedent really fit the case. Further, in one of the most astounding displays of institutional self-referentialism, the Supreme Court went on to perpetrate a higher violation. It found nothing wrong with Ms. Gulati’s conduct and instead held that she had “exercised her discretion reasonably”. As for the complaints regarding Bansal’s lackadaisical approach, the Court was content to follow the “deferential” path of Strickland. The prosecution submitted a list of questions that Mr. Bansal had asked during cross-examination. Without even examining those, the Supreme Court condemned Mr. Afzal by ruling that he had received a fair trial.

This abdication of duties by all the courts compelled me to remember Alexis de Tocqueville’s words: “It is a strange thing what authority the opinion of mankind generally accords to the intervention of courts. It clings even to the mere appearance of justice long after the substance has evaporated; it lends bodily form to the shadow of the law.”

 

 (Aju John is part of the faculty at myLaw.net)

Written by myLaw

Can live updates from a cricket match be proprietary?

In November 2012, Justice Valmiki Mehta of the Delhi High Court ruled in Star India Private Limited v. Piyush Agarwal and Others that Star India could not claim copyright over cricket-related updates by virtue of its contract with the Board of Control for Cricket in India (“BCCI”). Star India is the exclusive media rights holder for the BCCI’s international and domestic cricket matches. The court ruled that while the BCCI might have copyright claims over audio and visual recordings of a cricket match, it does not have any copyright over information pertaining to the match once it comes in the public domain.

Ananth Padhmanabhan

Ananth Padhmanabhan

“After two minutes, the content or information in the broadcast can be commercially exploited by any person”, the court had held, determining when these updates would enter the public domain. Further, in the case of “crucial momentary events” like the fall of a wicket, the information enters the public domain within seconds. The case is now being argued before a Division Bench of the Delhi High Court. Ananth Padmanabhan, a Chennai-based advocate and the author of Intellectual Property Rights – Infringement and Remedies, spoke with us about the case.

Edited extracts from the transcript of the conversation.

Ananth Padmanabhan said that there was no copyright protection for live scores because copyright only protected expression. “So if you are asserting copyright, you have to see if there is any particular way in which you are presenting the scores. For instance, if Wisden comes out with a book which combines the scores by certain players and has a certain rating based on that etcetera, that is a different story altogether and you can get copyright protection to the limited extent of the specialised or the particular kind of expression in that book. Now that’s not the case here.”

Instead of looking at the case from the perspective of copyright, it had to be seen in terms of what the BCCI and Star Cricket contend to be “mobile rights”. He recalled that a situation of this nature had come up before the Madras High Court in 2005, when he was an intern with Senior Advocate Arvind Datar. The only difference was that the cricket series was happening in Pakistan and that the Pakistan Cricket Board (“PCB”) had administered the mobile rights, which were nothing more than giving a telecom operator, the right to disseminate live scores by S.M.S.

“Of course people are interested in live sports but here we need to make a distinction between proprietary value of information and the mere fact that people are interested in something.” Mr. Arvind Datar was appearing on behalf of the telecom operator licensed by the PCB to administer the mobile rights. To defend protection for live scores and to stop other operators from disseminating such scores, they used the concept of “hot news”, a judicially fashioned property right.

The term was first used by the Supreme Court of the United States in International News Service v. Associated Press, 248 U.S. 215. The facts in that case were that due to the time difference, the agents of one of the newspapers on the coast that was behind on time, would procure the news papers that had already been released on the other coast and relay it to them by telephone. “So you basically get a time advantage because otherwise you would only know what had happened on the other coast, twelve or eight hours later. So you make use of the fact that this information has now been already published by someone and you get the information because it is out in the public domain and now you of course commercially exploit it. That’s the key part here, the commercial exploitation part”.

The argument was that “hot news” was information which had commercial value and which was sought to be exploited by a competitor. The U.S. Supreme Court recognised this right and granted an injunction — a time-bound restraint on newspapers on the other coast from publishing such information. This doctrine evolved in United States in various contexts but most importantly in the context of sports. There are decisions relating to golf associations and golf publications.

Proprietary information? Image above is from Wikimedia Commons. This image has been published under a Creative Commons Attribution-ShareAlike 3.0 Unported License.

Proprietary information?
Image above is from Wikimedia Commons. This image has been published under a Creative Commons Attribution-ShareAlike 3.0 Unported License.

The single judge, Justice Bhanumati, who is now a fairly senior judge of the Madras High Court, rejected the argument but was impressed with the arguments on “hot news” — especially those made by Mr. Bharat Raman, who had appeared for the BCCI. Finally, the injunction was denied on the narrow grounds that since it was a series lasting a mere two weeks, the grant of interim relief would have amounted to the grant of final relief.

The case before the Delhi High Court, pending before a Division Bench now, is similar. “Justice Valmiki Mehta’s order is a very well-reasoned one. One of the criticisms has been that he has not considered the implications of quasi property while adjudicating this matter. The judgment does not extensively deal with the point of hot news.”

Mr. Padmanabhan said that the case was interesting because it was very conceptual and went to the very basis of property rights. The court will have to decide on the basis of the meaning of property. “Is property something that is recognised by law or something that is recognised by business? Today, Star’s argument primarily seems to indicate the latter — that mobile rights are a business practice and people are acquiring them for substantial sums of money. As a result of such activity, it must be protected as property.”

“Coming back to common law, my understanding of property rights is that you can’t ascribe proprietary value to something merely because there is economic value. There must be something beyond that. Generally, you don’t ascribe the character of property under common law to any kind of good.” Finally therefore, Mr. Padmanabhan said, you have to examine the intangible goods that are recognised and protected as property. “We recognise protection for certain rights which are mentioned in the different IPR statutes, and maybe in some cases, we recognise protection for goodwill in some cases. So there are a few of these intangible property rights that the law recognises.” He said that he instinctively felt that the claim would, for a start, need to establish that it fell within these brackets. If not, courts would be reluctant to grant an interim injunction. “Courts will be reluctant to award interim relief on the argument that because people are investing so much, you ought to protect it.”

 

(Audio transcribed by Sohini Singh.)

(Aju John is part of the faculty at myLaw.net)

 

Written by myLaw

A plea to the Saket Bar

 By Tennille Duffy

 

For several days, protestors gathered in parts of central Delhi. Photographs by Shilpi Boylla

For several days, protestors gathered in parts of central Delhi.
Photographs by Shilpi Boylla

Two days before charges were presented in the new fast-track District Court at Saket in New Delhi, the Saket District Bar Council announced that its advocates would refuse to represent the accused in the Delhi gang rape case. The accused will still receive representation by way of lawyers appointed by the government, but the representatives of the Saket Bar miss the point when they argue that their boycott will help ensure speedy justice in the case. The absence of a good and vigorous defence may contribute to a speedy trial, but in no way can it ensure justice. A good defence is one of the most vital ingredients in the criminal justice system and it is essential for ensuring that the justice that everyone in the nation is, rightly, screaming for, is done.

Doing justice is not just about locking people up after a show of a trial. Real justice is done when all parts of the system come together and work properly. This means that all the attendant checks, balances, and protections — including a proper defence — must come into play. It is the professional obligation of members of the Bar to uphold the system. Does the Saket Bar think that it only needs to operate some of the time? Is their faith in the very system they work within, so weak that they refuse to take part in it?

The truth is that India has, for better or worse, inherited an adversarial system of criminal justice from the British legal tradition. Two parties — the prosecution and the accused, represented by their lawyers — come together, in front of an impartial judge, and argue the case. In this system, lawyers defend people accused of both petty and heinous crimes every day. That is their job and it plays a vital part in ensuring the guilty are punished. Perhaps it’s not always a pleasant job, but it is an important one.

Indeed, the tradition of the Bar is to see it as a mark of the honour of the profession that advocates conduct themselves dispassionately and that everyone has access to representation, without fear or favour. One of the first lawyers to breathe life into this principle was John Cooke. Courageously, he agreed to conduct the prosecution of King Charles I in 1649 for crimes of high treason related to the English Civil Wars. A monarch had never been tried before a court of law before – this was a monumental moment in legal history, and in the history of the Bar. In the end, John Cooke paid for his principles with his life. He was charged with regicide under Charles II, and hanged, drawn, and quartered in 1660.

John Cooke paid with his life for prosecuting the King. Image above is originally from Wikipedia Commons.

John Cooke paid with his life for prosecuting the King.
Image above is originally from Wikipedia Commons.

The modern value of the defence lawyer’s job is reflected in rules of advocacy that exist around the world. In particular, there is an obligation upon an advocate — provided they have the time and expertise — to take any case. Taken from the long-standing English ‘cab rank’ rule, it is adhered to in jurisdictions from Canada to Australia, and reflected in Rule 1 of the “Rules on an Advocate’s Duty Toward the Court” in the Bar Council of India Rules. This Rule reads, in part, “An advocate is bound to accept any brief in the courts or tribunals or before any other authority in or before which he proposes to practise.”

The Indian legal system requires proof beyond reasonable doubt, and holds to the presumption that people are innocent until proven guilty. This is spoken of as the ‘golden thread’ that runs through the criminal justice systems of the common law world, thanks to the House of Lords judgment in Woolmington v. DPP, [1935] UKHL 1. The often-repeated maxim to justify these principles is that ‘it is better that one hundred guilty men go free than one innocent man go to gaol’.

Another way to think about this maxim is perhaps more appealing to the demands for justice being made in India right now. Suppose the police were to get it wrong, and the mistake was not picked up because an innocent accused did not receive a proper defence. The consequence is not just that an innocent man might go to gaol. Another terrifying consequence is that the truly guilty man would still be out there.

We know enough about the police in India to know that they sometimes get it wrong. Sometimes, they frame people and leave the real culprits free. Sometimes, even judges are subject to improper influences. A fiercely independent Bar that provides a vigorous defence to everyone helps ensure that the real culprits are brought to justice.

It also helps to ensure that the trial is conducted smoothly and that the chances for an appeal are limited. Indeed, a good defence lawyer will provide clients with realistic advice about the strength of the case against them. This improves the chances that a guilty accused will plead guilty. A good defence lawyer will abide by the rules of advocacy and evidence and not make a mockery of court proceedings, nor allow their client to. A good defence lawyer is not interested in ‘getting their client off’ at all costs, but in representing their client fairly and within the bounds of the law. This should not impede the guilty being found guilty and being appropriately punished.

As with most worthwhile things in life, there is no short cut in this case, or any other criminal trial. Justice must be reached through the proper process and if a good defence is provided, we can all be much more certain that the right man, the guilty man, is behind bars and not still living free, having escaped the consequences of his horrendous acts.

So I make this plea to the Saket Bar – please do not boycott these accused, or any accused. Instead, work to make sure that every accused before the courts has the best defence possible. Campaign for the improvement of legal aid in India. Recognise your professional responsibility to uphold and improve this system of justice as best you can. Not necessarily because these accused deserve it, but because in this and in every single case, the citizens of India deserve the best criminal justice system possible.

Written by myLaw

The SLP court of India

Last week, Nick Robinson, a Visiting Fellow at the Centre for Policy Research in New Delhi, released a paper titled “The Indian Supreme Court by the Numbers”, along with the Azim Premji University’s Law, Governance and Development Initiative. Mr. Robinson, who has been collecting data about the functioning of the Supreme Court for some time now, has analysed them and the gaps in the court’s data. He spoke with us about the findings of his research.

Edited extracts from the transcript of the interview

In 2006, when Nick Robinson was working as a clerk to the Chief Justice of India at the Supreme Court, he discovered that judges’ offices regularly received statistical information. “Over the next several years, I tried to collect the data as the years went by and developed a bit of a relationship with the court to do that.” Through that process, Mr. Robinson discovered interesting data that spoke about the Supreme Court of India, but he also saw that there was data that the court did not collect.

Nick Robinson

Nick Robinson

The breakdown of precedent?

“This is from the judiciary’s own numbers and if you look between 2005 and 2010, you will see that the disposal rates in the lower courts only grew by about four per cent […], a very small amount. And yet in the high courts, the disposal rate grew by about twenty-five per cent. Of those cases that were disposed and appealed up, the Supreme Court’s admission docket grew by about fifty-two per cent. And then the Supreme Court accepted for regular hearing about seventy per cent more matters.”

Mr. Robinson emphasised two inferences from these numbers. Firstly, he said, litigants are going up towards the top of the system. “They are trying to get into the Supreme Court or the high court first if they can, and bypass the lower courts.” Secondly, while one would expect that the Supreme Court would be dismissing many of these appeals saying they are not good cases because the high courts have decided them well, the Supreme Court’s acceptance of these matters has increased. The explanation for this was worrying.

“One of the most possible explanations is that the system of precedent within the judicial system is breaking down. You have all these different panels of Supreme Court benches and one of two things might be happening. Either it may be that the high court judges are not following the precedent set by the Supreme Court and that’s why the Supreme Court has to accept more cases, or alternatively, it could be that because there are so many benches at the Supreme Court, they are having difficulty in keeping a cohesive jurisprudence and the Supreme Court judges are themselves not following their own precedent and that gives a lot of incentive to appeal because you figure as a litigant… well, I got this decision that was somewhat adversely against me at the high court level, why don’t I go to the Supreme Court and maybe I’ll get a bench that looks somewhat beneficially on my case.”

“An SLP court”

“What we find is that the court has increasingly become an SLP court – most petitioners do not get their cases certified by the high court before appealing. In 2011, about eighty-five per cent of the cases were SLPs. And it is also important to understand that when you talk to people of the Indian public, they often think that the Supreme Court is overloaded by writ petitions filed under the Supreme Court’s original jurisdiction for fundamental rights. And many of these cases, like Public Interest Litigations make the news but the writ petitions only account for about two per cent of the Supreme Court’s docket.” This is a far cry from the sixties or the seventies where writ petitions would account for up to forty per cent of the Court’s docket.

A question that arises from these figures concerns the importance of these SLPs – are they really worth the Court’s time? “These are people who are appealing, asking for the Supreme Court to give special leave, and it is telling that most of these are being decided by usually two-judge benches or occasionally three-judge benches. And so I don’t think they generally involve important questions of constitutional law or cleaning up precedent around civil or criminal issues. Very few of these cases are actually reported and in fact there has been a severe decline in the number of five-judge benches. So if you look back at the court’s docket in the 1960s, the Supreme Court might dispose of over a hundred five-judge benches in any given year but these days, on the basis of the statistics I have between 2005 and 2009, the Supreme Court on average disposed of about 6.4 five-judge benches a year. Some years, they disposed of zero. These are supposed to be the benches where any substantial question of constitutional law is decided and I think it is telling that in some years, there have been zero such benches.”

According to the text of the Constitution, any substantial question of constitutional law should be decided by a bench of five judges or more. Statistics however, show that there have not been enough five-judge benches. “A lot of substantial questions of law of general importance seem to be getting decided by benches of three judges or sometimes even two judges. This might just be a new reality, but then if this is the new reality, it seems that you would want to amend the Constitution to reflect that.”

Twenty per cent of regular hearing matters between 2005 and 2011 (one-fifth of the docket) comprised of service and labour matters. Fourteen per cent were tax matters and about thirteen per cent involved property. “If you walk into a courtroom, you’re much more likely to hear a civil servant from Jabalpur complaining about his pay grade than you are to be hearing some major question of constitutional law.”

The origin of matters

The Supreme Court keeps track of admission matters according to the state from which they come from. “Once you collect those statistics, you can then look at how many cases were decided by each high court of the country and what per cent of cases from each high court were appealed to the Indian Supreme Court. So you’ll see that for example, in 2011, there was about an eleven per cent chance that a case from the Delhi High Court would be appealed to the Supreme Court. And at some level that makes sense because you just have to walk down the street. Meanwhile, if you were in Madras or if you were in Orissa, there is only about a one per cent chance that a case decided by a high court there would be appealed to the Supreme Court. And you will see that all the states which have the higher per cent of cases being appealed to the Supreme Court are either geographically situated close to Delhi like Punjab and Haryana or Uttaranchal or wealthier states like Bombay and Maharashtra. This is where the higher appeal rates come from. And then states that are farther away like Madras or states that are poorer like Orissa, or Jharkhand, or Bihar, have much lower appeal rates. I think what it shows in part is just the expense of bringing a case to the Supreme Court – of hiring the lawyers and of travel costs for litigants as well.”

While the Supreme Court tracks the high courts from where admission matters originated, Mr. Robinson was not able to get the numbers for regular hearing matters. “The reason you would want to see this is it might be that eleven per cent of cases from the Delhi High Court get appealed, but then most of them are not accepted for regular hearing. My suspicion though, is that probably an equivalent number are accepted for regular hearing from any given state. What we would want to look at is if there were any states for which there was a disproportionately high acceptance rate. That might indicate that that High Court isn’t following precedent as well, maybe there are questions about corruption or political biases in that court.” Mr. Robinson said that the Supreme Court should not only be taking mare cases from those courts but should also be taking other action.

Wealth in matters

While the court does not keep track of how wealthy the litigants are, one can get a sense of what type of people are accessing the Supreme Court when you look at the kind of matters that are being appealed and accepted most often by the Supreme Court. Labour and service matters involve at least the middle class or wealthier litigants. Cases that involve tax, company law, and arbitration tend to be accepted at a higher rate than other kind of matters. “It’s difficult to know exactly what this means. You might be able to draw the conclusion that the Supreme Court favours wealthy litigants but it may also be that wealthier litigants may be savvier litigants. They are repeat players before the Court. They may also have a better sense of what types of cases may be accepted by the Court. So they don’t bring cases that are likely to be rejected.”

New areas of enquiry

“As the Working Paper points out, there are still several holes in the Supreme Court’s data set. I’m hoping that one of the things this data does is — with other people who are calling for the Supreme Court’s and the overall judicial system’s tracking of statistics — is we might be able to get more robust data and also different kinds of data, to keep track of things like miscellaneous matters, which now aren’t really kept track of in the Supreme Court. It would also be nice to break this data down and look at individual judges and track how they decide matters at the Supreme Court. Many of the high courts have similar data sets that they use for internal purposes and it would be nice to go and get those data sets and see what is going on at the high courts and then what is going on at the lower courts, to try to put together a complete and holistic picture of what is happening at the Supreme Court, the high courts, the lower courts, and the judicial system overall, and then begin thinking of doing some basic cost-benefit analyses on when the Supreme Court accepts as many cases as it does, what are the effects of that on the resource allocation that has to happen at the Supreme Court, what are the effects of that on the cohesiveness of its jurisprudence, what are the effects of that on being an open and accessible court for a country that still often thinks that it has to go to the Supreme Court because it doesn’t always trust the high courts.

 

 (Aju John is part of the faculty at myLaw.net)

Written by myLaw

Supreme Court’s Fiat judgment makes a business decision

By Vahini Harish

In Commissioner of Central Excise v. M/s Fiat India Private Limited, the Supreme Court rejected sale price as the basis of Fiat’s assessment of excise duty saying that the wholesale price submitted did not reflect the true price of the car. The company had sold its Uno range of cars at a price lower than the cost of production so that, as a new entrant into the Indian market, it could increase its market share.

In July 2000, in a fundamental departure from the concept of “assessable value” on which excise duty had been payable, new regulations had introduced the concept of “transaction value”. This permitted excise to be levied on the basis of different prices paid by different unrelated buyers so long as they were based on commercial considerations alone.

Manish Mishra, an Executive Director at Khaitan & Co., spoke with us about the Supreme Court’s decision.

Mr. Manish Mishra

Mr. Manish Mishra

The transcript of the interview

myLaw.net (ML): Can we begin by getting a brief background into this case?

Manish Mishra (MM): Before we get into the facts of the case, it will be better to touch upon the extant legislative framework on the basis of which this ruling was passed by Supreme Court.

Till the year 2000, excise valuation was governed by the concept of Assessable Value (“AV”). AV refers to a notional value that reflects the wholesale price of a product manufactured and sold by an assessee. Thus, this concept of AV provided excise authorities with a lot more freedom in regard to determining the prices of products and they could even resort to notional pricing in certain cases.

In July 2000, the concept of Transaction Value (“TV”) was introduced. TV pertains to a situation where each transaction is considered distinct from the other. As long as the parties to the transaction, that is the buyer and seller, were independent and not related, the price for each such transaction between them would be considered to be the TV. This TV formed the basis on which excise duty was [required to be] paid. This was the major shift in the basis of valuation from the concept of AV to TV.

Having said that, it is necessary to know that principles of valuation have always been contentious. Till 1994, excise duty was charged on specific rates, for instance, it was charged on the basis of per kg, per litre, or per unit of the product sold. In this specific rate regime where duty was based on the per unit value of the manufactured goods, litigation and disputes began to increase.

The problem with the specific rate regime was that sometimes the products were of very high value, but the excise duty on them was not commensurate with their real value as the excise authorities charged only a specific portion as duty. AV was introduced in 1994 to ensure that excise authorities get a percentage of the value of the good that the manufacturer is clearing from his factory.

However the concept of AV also introduced a lot of subjectivity with respect to pricing of goods and in order to overcome this problem of subjectivity, TV was introduced. In TV regime, the excise authorities go into to each transaction rather than rely on notional pricing. So far as no extraneous commercial consideration is involved, and parties to the transaction are independent, the price decided by the parties for a particular transaction is called the TV and excise duty is calculated on the basis on this TV.

Fiat had sold its Uno cars in India at a discount on the cost of production.

Fiat had sold its Uno cars in India at a discount on the cost of production.

ML: Can you give us an example of transaction value?

MM: Say I am a chemical manufacturer. I have two customers X and Y who are unrelated to me. The prices I share or sell to both are based purely on commercial considerations. Say to X, I charge or trade my goods at Rs. 100 per litre or Rs. 100 per unit. To Y, I resort to a price based on my marginal costing and give him a better discount, thereby charging him only Rs. 85 per litre. As per the concept of TV, each of the above transactions is independent of the other and the price I have charged to each customer is treated as the TV in each case. Accordingly, I would have two different TV for each of the above transactions on the basis of which two different rates of excise duty would be calculated in the above case.

Whereas in the concept of AV, you would not have different rates of excise duty for each transaction as the authorities would have gone into the concept of representative pricing. The excise authorities can say that the fair price for the product is say Rs. 100 or Rs. 85 only and accordingly require that I pay excise duty on both the transactions at the same value to both persons.

ML: Why did the Supreme Court reject Fiat’s declared sale price? What was the rationale? Theoretically, isn’t the sale of the product something that should be decided by manufacturers, given their industry expertise?

MM: When Fiat launched the Uno car, it was sold at a price less than its cost of production as Fiat wanted to gain entry into Indian market and compete with existing manufacturers who were operating in the market at that time. To ensure that they get significant market share, Fiat resorted to a pricing that was determined, after factoring a significant discount on their cost of production. Hence they had losses on each sub-sale. The excise authorities questioned this sale price determined by Fiat as it was less than the cost of production as well as less than the normal price of cars sold at that time.

The Supreme Court was of the view that for such a long time, no person would continue to sell his product at a loss. We are looking at a period of over five years here. The Supreme Court felt that the transaction was not one based purely on commercial considerations and hence this price was not acceptable.

ML: Do you think this amounts to making business decisions for Fiat?

MM: Yes. Once it has been established that there is no extraneous commercial relationship between the parties and [that] prices are at arm’s length, such [a] price cannot be questioned by the excise authorities. By laying down more considerations in this regard as to what would constitute extra-commercial consideration and what would not, the court is interfering with the company’s pricing policies. The Supreme Court saying that the present prices resulting in loss for you and that no one would sell in loss for so long, giving discounts beyond the market practice, amounts to [setting] aside the principle of TV itself and that is why this judgment has come as a surprise to most followers of law. It creates issues for the industry as a whole with respect to future pricing strategies.

It is a common market entry strategy to introduce a product at a discount and as your market share increases, you can increase prices. But such pricing strategies will be called to question on the basis of this judgment.

It is a laid down principle that prices that are independent of any other considerations must be accepted as the TV price for calculation of excise duty. If you talk about a fair or open or fair market situation, no law should dictate the price being charged by one person to another as long as there is no other relationship in question and they are independent persons.

The pricing between independent persons should be determined between such persons and that is why TV was introduced in the first place. If this judgment is to be followed strictly, it makes the concept of TV redundant.

ML: Why would this judgment make TV redundant?

MM: TV itself says that where there [are] no other commercial considerations, pricing is at arm’s length and transaction is on principal-to-principal basis, then such price will be accepted as TV.

What the Supreme Court is doing is going one step further trying to lay down some principles as being extra-commercial consideration. If you want to resort to a price that is less than [the] cost of production for some particular reason – this particular reason could be stock clearance, gaining entry into a market, or getting new customer – the Supreme Court decision says that TV is not what you are charging, but it is what you should have been charging.

The problem is that it is always difficult to determine what is the normal price you should be charging for a particular product. Say in manufacture of a car, what would be your cost of production? It would be difficult and will take some time to determine the cost of production for a particular consignment. It is possible to determine the cost of production only after you have closed your accounts and not on day one itself, when you are clearing the cars. Added to this, you need to have a reasonable profit margin. The question then is should this profit margin be company specific or industry specific? Say the company is operating at a fifteen per cent margin and the industry follows a twenty-five per cent profit margin. What should be your profit margin in determining TV, these questions would cerate a certain amount of subjectivity in determining the excise duty.

ML: Does this ruling give the department or revenue authorities the power to subjectively decide the transaction value? Which classes of industry do you perceive will be impacted by this ruling?

MM: As of now, we do not know how the authorities are going to implement the decision. But if major reports are to be believed, certain other automobile manufacturers have been issued notices by excise authorities seeking data on cost and pricing strategies etcetera. Now that is one side of the situation, we do not know as yet whether excise authorities are implementing this decision only in automobile sector or across all sectors.

One gets a feeling on the plain reading of this judgment, that the principles laid down can be applied to all industries across all segments. One has to wait and watch on the manner in which the authorities are going to implement this decision. The other aspect is that a review petition has already been admitted against this order. So you have to keep an eye out on how the matter is enforced at the Supreme Court level itself. It is interesting times for excise valuation. And one has to keep an eye out on what is happening at the Supreme Court as well as see how the department takes a stand on this issue.

ML: Do you think this ratio goes against the established principles of valuation laid down by earlier Supreme Court decisions?

MM: As I stated earlier, this judgment challenges the concept of TV and throws open an era of challenges by authorities. It makes the process of determining TV subjective. Profit margins, pricing strategies, and normal prices of a product can itself be questioned [on the] basis this ruling. Disputes involving determination of the above will arise if this decision is to be implemented.

Industry [is] going to make a representation, [the] Central Board of Excise and Customs (“CBEC”) may issue some clarification or circular. The Supreme Court may itself amend its own decision because the review petition has been admitted. And it is not the final word as yet as it has created a certain element of uncertainty as far as valuation is concerned.

ML: How do you think this decision would apply in a unified Goods and Service Tax (“GST”) regime where sale, manufacture, and service would be subsumed under a single levy? Are they compatible, or will there be some incongruity?

MM: GST is a departure from the existing concepts of taxation in the sense that there will be a single tax on each transaction. When there is a single tax, its is likely that there is only one value that will be subject to such tax and such a single value has to be enforced.

I foresee that the valuation principles will have to be changed in the GST regime. And we cannot continue with existing valuation principles where excise duty is based on TV while sales tax is based on sales price. It would be necessary to enforce a single value on which excise duty has to be levied. In a GST regime, we will be living with one value and accordingly this judgment may not be relevant in a GST regime. Having said that, the fact is we are looking at GST in the near future and accordingly are also looking at a single value on which excise duty is payable. I feel it is better we do that today itself so that issues like this does not arise.

If we are talking about payment of excise duty on TV and paying sales tax on sales prices, why not pay excise duty as well on sale prices? This is being done in respect of certain notified products that are chargeable to excise duty on basis of Maximum Retail Price after suitable abatement. Maybe we can move in this direction now itself and move towards a single regime that is easier and simpler to understand and implement for the assessees.

ML: Any final thoughts on the judgment and its implications?

MM: We have to wait and watch on a couple of aspects. One is what happens in the Supreme Court review petition that has been filed and I feel this matter may be referred to a Division Bench. Other is how excise authorities or CBEC reacts to this judgment. Certain letters have been shot out by some of the Commissionerates to some other automobile manufacturers. But this does not give us a trend. A trend would be established when you see what is happening in ten different Commissionerates and what is the guideline or clarification issued by CBEC with respect to this judgment. We need to wait and watch, as the next six months will be interesting as far as excise valuation principles are concerned.

 

(Interview by Akshay Sreevatsa.)

Written by myLaw