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  • Reservation not fundamental right: SC refuses to hear pleas by TN parties

    What did the Hon’ble Supreme Court rule?

     

    • Article 16 (4) and 16 (4-A) are in the nature of enabling provisions, vesting a discretion on the State Government to consider providing reservations, if the circumstances so warrant.
    • It is settled law that the State Government cannot be directed to provide reservations for appointments in public posts.
    • Similarly, the State is not bound to make reservations for Scheduled Castes and Scheduled Tribes in matters of promotions.
    • The judgment added that it is for the State Government to decide whether this was necessary.

    What do the precedents say?

    • There are several major Supreme Court judgments that have, in the past, ruled that Articles 15(4) and 16(4) does not provide a fundamental right per se.
    • A five-judge apex court bench, as early as 1962 in the R. Balaji v. the State of Mysore had ruled that Article 15(4) is an “enabling provision”, meaning that “it does not impose an obligation, but merely leaves it to the discretion of the appropriate government to take suitable action, if necessary”.
    • The court was hearing a challenge to an order passed by the erstwhile state of Mysore reserving 68 percent of seats in engineering and medical colleges for educationally and socially backward classes and SCs and STs.
    • Five years later, in 1967, another five-judge bench in A. Rajendran v. Union of India reiterated this position, holding that the government is under no constitutional duty to provide reservations for SCs and STs, either at the initial stage of recruitment or at the stage of promotion.
    • Article 16(4), it said, does not confer any right on the citizens and is an enabling provision giving discretionary power to the government to make reservations.
    • The position went on to be reiterated in several other decisions, including the nine-judge bench ruling in Indra Sawhney v. Union of India (1992) and the five-judge bench decision in M Nagaraj v. Union of India (2006).

    What does the judgment mean?

    • Reservations are not rights: The latest judgment is a reminder that affirmative action programs allowed in the Constitution flow from “enabling provisions” and are not rights as such.
    • Not a new legal position: This legal position is not new. Major judgments- these include those by Constitution Benches-note that Article 16(4), on the reservation in posts, is enabling in nature.
    • The state is not bound to provide reservation: In other words, the state is not bound to provide reservations. But if the state provides reservations, it must satisfy the following two criteria-
      • For the backward class: It must be in favor of sections that are backward.
      • Inadequately represented: And inadequately represented in the services based on quantifiable data.

    Consequences of this judgment

    • Possibility of the unequal system: Some may even read into this an inescapable state obligation to extend reservation to those who need it, lest its absence renders the entire system unequal.
    • Possibility of perceptible imbalance: For instance, if no quotas are implemented and no study on backwardness and extent of representation is done, it may result in a perceptible imbalance in social representation in public services.

    Why reservation needed?

    • To correct the historical injustice faced by backward castes in the country.
    • To provide a level playing field for backward section as they can not compete with those who have had the access of resources and means for centuries.
    • To ensure adequate representation of backward classes in the services under the State.
    • For advancement of backward classes.
    • To ensure equality as basis of meritocracy i.e all people must be brought to the same level before judging them on the basis of merit.

    Argument Against Reservation

    • Reservation in state services led to divisions and enmity among government employees, vitiating the atmosphere at workplace.
    • Eradication, not perpetuation of caste was the objective of the reservation policy but Caste Based Reservation only perpetuate the notion of caste in society.
    • Reservation was introduced to ensure that the historically underprivileged communities were given equal access to resources but irrespective of the economic progress they continue to remain socially disadvantaged.
    • Reservation destroys self-respect, so much so that competition is no longer on to determine the best but the most backward.
    • Reservations are the biggest enemy of meritocracy which is the foundation of many progressive countries.
    • It has became a tool to meet narrow political ends through invoking class loyalties and primordial identities.
    • The dominant and elite class within the backward castes has appropriated the benefits of reservation and the most marginalised within the backward castes have remained marginalised.
    • Reservation has become the mechanism of exclusion rather than inclusion as many upper caste poors are also facing discrimination and injustice which breeds frustration in the society.

    Way forward

    • Meanwhile, calls for reform and ret­hinking reservation policies get louder; one question is whether there’s a need to continue with reservation and if benefits have reached targets.
    • The challenge for India is that while many sections of the society remain disadvantaged, political action has resulted in the relative discrimination within reserved groups.
    • As the reservation pie grows larger, in effect, it becomes a method of exclusion rather than inclusion.
    • It is time that India has to make a critical assessment of its affirmative action programs.
    • Simplification, legislative sunsets, and periodic reviews should be important principles in the redesign.

  • Guidelines for Import of Exotic Species

    The Ministry of Environment Forest and Climate Change (MOEFCC) has issued an advisory saying people importing “exotic live species” will have to make a voluntary disclosure.

    Practice questions for mains:

    Q. What are Zoonotic Diseases? Discuss how the illicit trade in wildlife has resulted in the spread of zoonotic diseases of the scale of the ongoing COVID-19?

    What is the new Advisory?

    • According to the advisory, the phrase “exotic live species” includes “animals named under the Appendices I, II and III of the Convention of International Trade in Endangered Species of Wild Fauna and Flora”.
    • It does not include species from the Schedules of the Wildlife (Protection) Act 1972.
    • This will create a process where all imports will be screened.
    • As of now, the imports are being made through the Director-General of Foreign Trade and State Forest departments are not kept in the loop.
    • For new “exotic live species”, the importer should obtain a no-objection certificate from the Chief Wildlife Warden (CWLW) of the State.
    • For existing species, stocks shall be declared by the owner/ holder (stock, as on 1 January 2020) to the Chief Wildlife Warden (CWLW) of the concerned State or UT.

    Why need such advisory?

    • Many exotic species of birds, reptiles and amphibians are imported into India for commercial purposes.
    • Some of the most sought after exotic species in India are Ball python, Scarlet Macaw, sea turtles, sugar glider (Petaurus breviceps), marmoset and grey African parrots.
    • These imports were happening through the Director-General of Foreign Trade (DGFT), but they were beyond the purview of the forest departments and the chief wildlife wardens weren’t aware of them.
    • Wildlife experts have long been asking for stringent laws and guidelines to document and regulate numbers of exotic species being kept as pets by individuals and breeders in India.

    Significance

    • The move comes as the outbreak of coronavirus (COVID-19) has raised global concern about illegal wildlife trade and zoonotic diseases.
    • Often these species are illegally trafficked into the country to avoid lengthy documentation and scrutiny.

    Issues with guidelines

    • Matters such as the spread of invasive species as well as zoonotic diseases had not been taken care of in the advisory.
    • There is a growing domestic trade in exotic species of wildlife that is unfortunately not listed under the various appendices of CITES (such as sugar gliders, corn snakes).
    • Hence limiting the scope of the latest advisory to only those species covered under CITES drastically limits the scope of the advisory itself.
    • It does not have the force of law and could potentially incentivize illegal trade by offering a long amnesty period.

    Back2Basics: CITES

    • CITES stands for the Convention on International Trade in Endangered Species of Wild Fauna and Flora.
    • It is as an international agreement aimed at ensuring “that international trade in specimens of wild animals and plants does not threaten their survival”.
    • It was drafted after a resolution was adopted at a meeting of the members of the International Union for Conservation of Nature (IUCN) in 1963.
    • It entered into force on July 1, 1975, and now has 183 parties.
    • The Convention is legally binding on the Parties in the sense that they are committed to implementing it; however, it does not take the place of national laws.
    • India is a signatory to and has also ratified CITES convention in 1976.

    CITES Appendices

    • CITES works by subjecting international trade in specimens of selected species to certain controls.
    • All import, export, re-exports and introduction from the sea of species covered by the convention has to be authorized through a licensing system.

    It has three appendices:

    • Appendix I includes species threatened with extinction. Trade-in specimens of these species are permitted only in exceptional circumstances.
    • Appendix II provides a lower level of protection.
    • Appendix III contains species that are protected in at least one country, which has asked other CITES Parties for assistance in controlling trade.

  • National Institutional Ranking Framework (NIRF) ‘India Rankings 2020’

    The National Institute Ranking Framework (NIRF) ranking list has been released by the Ministry of Human Resource Development (MHRD).

    Practice question for mains:

    Q. What is NIRF? Discuss the parameters and methodology used in the ranking. Also, discuss its key features and limitations.

    About NIRF

    • The NIRF is a methodology adopted by the Ministry of HRD to rank institutions of higher education in India.
    • The Framework was approved and on 29 September 2015.
    • There are separate rankings for different types of institutions depending on their areas of operation like universities and colleges, engineering institutions, management institutions, pharmacy institutions and architecture institutions.
    • The ranking framework evaluates institutions on five broad generic groups of parameters, i.e. Teaching, Learning and Resources (TLR), Research and Professional Practice (RP), Graduation Outcomes (GO), Outreach and Inclusivity (OI) and Perception (PR).

    Why need such rankings?

    • Rankings help universities to improve their performance on various ranking parameters and identify gaps in research and areas of improvement.
    • The ranking is necessary for transparency and healthy competition.

    Highlights of the 2020 rankings

    • IIT Madras retains 1st Position in Overall Ranking as well as in Engineering,
    • Indian Institute of Science, Bengaluru tops the University list.
    • IIM Ahmedabad tops in Management Category and AIIMS occupies the top slot in Medical category for a third consecutive year.
    • Miranda College retains 1st position amongst colleges for a third consecutive year.
    • Maulana Azad Institute of Dental Sciences, Delhi secures 1st position in “Dental” category, dental institutions included for the first time in India Rankings 2020.

  • NITI Aayog bats for Border Adjustment Tax (BAT)

    A notable NITI Aayog member has favoured imposing a Border Adjustment Tax (BAT) on imports to provide a level-playing field to domestic industries.

    Note how BAT is different from the Custom Duties on imports. Refer to our B2B section.

    What is the proposed Border Adjustment Tax?

    • BAT is a duty that is proposed to be imposed on imported goods in addition to the customs levy that gets charged at the port of entry.
    • It is proposed to be a non-creditable levy on imported goods. The idea is to bring similar goods in the imported and domestic baskets at par.

    Why need BAT?

    • Generally, BAT seeks to promote “equal conditions of the competition” for foreign and domestic companies supplying products or services within a taxing jurisdiction.
    • The Indian industry has been complaining to the government about domestic taxes like electricity duty, duties on fuel, clean energy cess, mandi tax, royalties, biodiversity fees that get charged on domestically produced goods as these duties get embedded into the product.
    • But many imported goods do not get loaded with such levies in their respective country of origin and this gives such products price advantage in the Indian market.

    Will it be WTO compatible?

    • Countries that are members of Geneva-based global watchdog WTO have locked the upper limits of customs levies for product lines that they trade-in.
    • Any additional duty that gets imposed by WTO members are scoffed upon and in many instances, extra customs duties led to countries being dragged to international arbitration under WTO.
    • Commerce Ministry believes that the proposed extra customs duty through the Border Adjustment Tax is compatible with global trade norms.
    • Officials maintain that Article II: 2(a) of GATT allows for import charge that is equal to the internal tax of the country with respect to a “Like Product” or an item from which the imported product is made. Legal opinion on the proposed levy has also been taken.

    Back2Basics: Customs Duty

    • It refers to the tax imposed on the goods when they are transported across international borders.
    • The objective behind levying customs duty is to safeguard each nation’s economy, jobs, environment, residents, etc., by regulating the movement of goods, especially prohibited and restrictive goods, in and out of any country.

    Customs duties are charged almost universally on every good which are imported into a country. Some of these are:

    •      Basic Customs Duty (BCD)
    •      Countervailing Duty (CVD)
    •      Protective Duty
    •      Anti-dumping Duty etc.

  • Nature Index, 2020

    India has ranked twelfth, globally in science research output as per the recently-released Nature Index table 2020. The top five positions have gone to the United States of America, China, Germany, United Kingdom and Japan.

    Note: This nature index has nothing to do with nature conservation. It has only mentioned the rankings of research institutes in natural and physical sciences.

    What is the Nature Index?

    • The Nature Index is a database of author affiliation information collated from research articles published in an independently selected group of 82 high-quality science journals.
    • It serves as an indicator of high-quality research in the Natural and Physical Sciences.
    • The database is compiled by Nature Research, a division of the international scientific publishing company Springer Nature that publishes academic journals.
    • The index provides a close to the real-time proxy of high-quality research output and collaboration at the institutional, national and regional level.

    India’s achievements

    • Globally the top-rated Indian institutions in this list are CSIR, a group of 39 institutions at the 160th position and IISc Bangalore at the 184th
    • Three of the autonomous institutions of the DST have found their place among the top 30 Indian Institutions.
    • Keeping out CSIR, which is a cluster of institutions, IACS Kolkata is among the top three institutions in quality Chemistry Research in India.
    • NCASR Banglore ranks 4th among academic institutions in life sciences, 10th in Chemistry and Physical Sciences, 10th among Indian academic institutions, and 469th in the global ranking.

  • Species in news: Indian Gaur

    The first population estimation exercise of the Indian gaur carried out in the Nilgiris Forest Division has revealed that more than an estimated 2,000 Indian gaurs inhabit the entire division.

    Try this question from CSP 2012:

    Q. Which one of the following groups of animals belongs to the category of endangered species?(2012)

    (a) Great Indian Bustard, Musk Deer, Red Panda and Asiatic Wild Ass

    (b) Kashmir Stag, Cheetal, Blue Bull and Great Indian Bustard

    (c) Snow Leopard, Swamp Deer, Rhesus Monkey and Saras (Crane)

    (d) Lion-tailed Macaque, Blue Bull, Hanuman Langur and Cheetal

    Indian Gaur

    • The Indian Gaur also called the Indian bison is one of the largest extant bovines found in India.
    • It is native to South and Southeast Asia and has been listed as Vulnerable on the IUCN Red List since 1986.
    • The global population has been estimated at maximum 21,000 mature individuals by 2016.
    • It declined by more than 70% during the last three generations, and is extinct in Sri Lanka and probably also in Bangladesh.
    • In Malaysia, it is called Seladang and Pyaung in Myanmar. The domesticated form of the gaur is called Gayal (Bos frontalis) or Mithun.
    • They are highly threatened by poaching for trade to supply international markets, but also by opportunistic hunting, and specific hunting for home consumption.

  • Lonar Lake colour changes to pink

    The colour of water in Maharashtra’s Lonar Lake, formed after a meteorite hit the Earth some 50,000 years ago, has changed to glaring.

    Make a note of all saltwater lakes in India. Few of them are Pulicat, Pangong Tso, Chilika, and Sambhar Lakes etc.

    About Lonar Lake

    • Lonar Lake, also known as Lonar crater, is a notified National Geo-heritage Monument, saline (pH of 10.5), Soda Lake, located at Lonar in Buldhana district, Maharashtra.
    • It was created by an asteroid collision with earth impact during the Pleistocene Epoch.
    • It is one of the four known, hyper-velocity, impact craters in basaltic rock anywhere on Earth.
    • It sits inside the Deccan Plateau—a massive plain of volcanic basalt rock created by eruptions some 65 million years ago.
    • Its location in this basalt field suggested to some geologists that it was a volcanic crater.

    Why there’s a color change?

    • The salinity and algae can be responsible for this change.
    • There is no oxygen below one meter of the lake’s water surface.
    • There is an example of a lake in Iran, where water becomes reddish due to increase in salinity.
    • The level of water in the Lonar Lake is currently low as compared to the few past years and there is no rain to pour fresh water in it.
    • The low level of water may lead to increased salinity and change in the behaviour of algae because of atmospheric changes.

  • Eye-Opener Coming Up! Catch the First Basic Polity Prelims Test (13th June) to Re-imagine How You Look At UPSC Prelims

    Click here to enroll for the Prime Prelims TS 2021

    What was it that initially made Great Britain bleed but subsequently helped it to secure a smashing victory in the second world war? Enigma it was. Alan Turing built the “Turing Machine” that helped decrypt the seemingly unbreakable German Code. Then something very astonishing followed. Great Britain exploited the loopholes of the Enigma itself and the Germans lost without having the slightest hint of Enigma being compromised.

    For a UPSC Aspirant, isn’t the “unpredictable” paper setting pattern of UPSC a modern-day Enigma? But what if there was a “Turing Machine” that could break into this “Unbreakable” code of UPSC? For your amusement, there is one.

    Talking about UPSC Civil Services Prelims, mock test series has become a Categorical Imperative. But which one truly breaks the “UPSC Enigma”? How about one made by Frontline Warriors themselves (Veteran Aspirants) who have successfully cleared prelims five or six times consecutively? Isn’t the collective wisdom of these “Alan Turings” the closest version of a “UPSC Turing Machine”?

    Now, Let me speak about the test in question. It’s the first test of the newly launched Prelims Test Series for 2021 by CivilsDaily. It’s a Basic Polity Test. Let’s see how it is the first step towards breaking the “UPSC Enigma”:

    1. CD Special Questions:

    These questions are special due to their;

    • Mind-Twisting Nature (Deceptive questions that fool you exactly as UPSC does in the real exam)
    • Exclusiveness (These Perspectives / Themes are only available in CD tests). 

    Have a look –

    Q.1) Consider the following statements with reference to Political parties:

    1. The Constitution of India explicitly recognizes political parties as power-wielding institutions.
    2. The Constitution of India provides criteria to determine National Party Status.

    Which of the statements mentioned above is/are correct?

    a. 1 only

    b. 2 only

    c. Both 1 and 2 

    d. Neither 1 nor 2

    Try guessing the right answer to this seemingly simple question.

    2. Tikdams:

    These are Logical Solving Techniques that help you attempt questions despite having little or no idea about the question. It’s almost like getting a master key to the prelims paper. Have a look –

    Q.2) Consider the following statements regarding a joint sitting of Parliament:

    1. The provision of joint sitting is not applicable to a Constitutional Amendment Bill.
    2. In the absence of the Speaker of Lok Sabha, the Chairman of Rajya Sabha presides over the Joint Sitting.

    Which of the statements given above is/are correct?

    a. 1 only

    b. 2 only

    c. Both 1 and 2

    d. Neither 1 nor 2

    The test explains this basic question by using a Technique we call “Master Shifu” (assuming you don’t know the correct answer).

    3. Evidence-Based Question Framing:

    To keep close to the real demand of the exam. Have a look –

    Q.3) Which of the following is/are not the Directive Principles of State Policy based on Socialist principles?

    1. Free legal aid to the poor.
    2. Participation of workers in the management of industries.
    3. Protection and improvement of the environment.

    Select the correct answer using the codes given below:

    a. 1 and 2 only

    b. 2 only

    c. 2 and 3 only

    d. 3 only

    Now, UPSC has asked multiple questions on the orientation of DPSPs. You can’t afford to err on a probable question that may be asked on similar lines.

    4. Is the test really BASIC?

    Framing random questions irrespective of the difficulty level of the tests is like serving the same wine in different bottles. Have a look –

    Q.4) Consider the following articles of the Indian Constitution:

    1. Article 16
    2. Article 29
    3. Article 14

    Which of the above articles reveal the Secular character of the Indian state?

    a. 1 only

    b. 2 and 3 only

    c. 1 and 3 only

    d. 1, 2 and 3

    The motive to incorporate such questions in the basic test is to garner a general idea of the topics before you as an aspirant are mentally ready to face the advanced tests.

    5. Conceptual vs Factual Categorisation:

    It lets you realize your comparative strength in different types of questions. Have a look –

    Q.5) Consider the following statements with reference to Directive Principles of State Policy:

    1. The basic aim of DPSPs is to set up political democracy.
    2. They put positive obligations on the state.

    Which of the statements mentioned above is/are correct?

    a. 1 only

    b. 2 only

    c. Both 1 and 2

    d. Neither 1 nor 2

    Now, this is a basic Conceptual question. If you get this wrong, you need to rework the concepts of DPSPs.

    Now, look at this question –

    Q.6) Which of the following statements with reference to the Emergency Powers of the President is/are correct?

    1. He can declare National Emergency even before the onset of war.
    2. He must be communicated in writing for declaration of National Emergency by the Union Cabinet.
    3. He can suspend Fundamental Rights during the National Emergency.

    Select the correct answer from the codes given below:

    a. 1 only

    b. 2 and 3 only

    c. 1 and 3 only

    d. 1, 2 and 3

    This is a plain factual question. If you get this wrong, you need to memorize Emergency Provisions even more meticulously.

    So come be a part of our “UPSC Enigma” Breaking Endeavour. Like Great Britain, we shall emerge VICTORIOUS.

    Click here to enrol for the Prime Prelims TS 2021

  • Crisis of today should not blind us to the crisis of tomorrow

    Covid-19 pandemic has overwhelmed the governments across the world. And the destruction caused by it would impact not only our present but the future as well. So, what this means to our climate future? First and foremost, it will leave the governments with less fund to invest for the greener outcomes. What would be the other impacts? And how can we avoid turning blind eye to the crises waiting for us in the near future? Read the article to know…

    Cyclones amid pandemic-what do it signal?

    • The very language used to describe the effects of climate change is now being deployed, correctly, to shape our understanding of a covid-ravaged near future: poverty, the failure of markets, uncertainty, and an overwhelmed government.
    • In less than a month, we have been given a glimpse of how the climate crisis can yank at the seams of a state already undone.
    • We saw Cyclone Amphan transform from a tropical storm to one of the largest cyclones South Asia has ever seen in a matter of hours, aided by warmer than usual waters in the Bay of Bengal.
    • We also saw Cyclone Nisarga barrel down on Maharashtra, the second pre-monsoon cyclone to hit the west coast in 127 years.
    • Governments would have been hard-pressed to deal with such extremes even in the best of times.

    So, how COVID-19 would impact response to climate change?

    •  There are two strands of opinion.
    • The optimistic one sees this as a moment to remake our states and societies in a measured response.
    • This includes directing economic packages to areas that increase our resilience to natural disasters and technologies that reduce our emissions.
    • This could be an opportunity to reinforce sustainable behaviour — fewer morning commutes and less air travel, for example.
    • The other strand is more dire, arguing that this will amount to a lost decade or two as our attention is focused on keeping the teetering ship of economy afloat.
    • In this reading, present concerns will trump preparations for an uncertain future.
    • Between these two strands there is consensus that we are at a critical juncture.
    • What we do now will determine the flow of events decades into the future.

    What our climate future holds?

    We will have to face the following 3 problems in the future owing to the Covid-19 pandemic today.

    1. Scarcity of funds

    • It has been two months since India’s lockdown, and we know enough to have a rational conversation about our climate future.
    • Perhaps the most important news relates to public and private debt.
    • The government has raised its borrowing limit, states will need to borrow more to tide over shortfalls and the private sector has seen returns from investments dry out.
    • All three are already heavily indebted, meaning the cost of capital for future borrowing will only grow.
    • That leaves limited fiscal room to finance the building blocks of resilience: everything from grain to health, employment schemes, irrigation, efficient water systems and river management infrastructure.
    • It could mean that efforts to reduce our energy emissions are left without patient pools of long-term capital.

    2. Underdeveloped knowledge infrastructure

    • The knowledge infrastructure needed to react to climate change might be left similarly underdeveloped.
    • Climate change distinguishes itself from other policy fields in the wide range of analytical tasks it demands, from predicting weather trends to understanding how specific seed varieties react to droughts.
    • Thinking about climate change requires a lot of people exploring varied questions simultaneously.
    • That involves funding an ecosystem of thinkers from diverse disciplines.
    • Only the state can provide for multi-year studies, institutional support and the like.
    • These are inherently long-term investments and only really start paying off over decades.
    • It means that hamstrung investment in coming years will leave a knowledge vacuum in the future.

    3. Impact on the psychology of the government

    • The Indian government, reacting to a million crises erupting across the economy, will be hard-pressed to plan for a hazy but sinister future.
    • Promises of a greener, less turbulent future will falter against the turbulence of today.
    • This instinct will be shared by governments across the world.
    • This might well numb the effects of the global climate negotiation architecture.

    Way forward

    • Crafting a response that carefully balances present and future will take a great deal of collective effort.
    • Foremost, it will require policy ideas that deliberately marry employment and industrial priorities with green outcomes.
    • Ideas such as pushing to manufacture solar equipment or electric vehicles in India should, at some point, coalesce into something that looks like a climate plan for the country.
    • This task will fall to universities, NGOs, think tanks and individuals working together in disciplined debate.

    Consider the question “Do you agree with the view that the corona crisis would adversely impact our efforts towards mitigating the impact of climate change? Giver reasons in support of your argument.”

    Conclusion

    We should be careful not to drag ourselves through one crisis only to emerge into another longer, less predictable, and unstoppable one. So, balancing the present problems and their solutions with an eye on a certain and stable future is the need of the hour.

  • Faults in section inserted for the suspension of IBC amid pandemic

    Following the lockdown, the government announced the suspension of some provision of IBC to soften the blow of economic crisis. Section 10A was inserted to suspend the provision. But it giver rise to other questions. What are these questions? Read the article to know…

    What changes were made?

    • In mid-May, the Finance Minister announced that the government was planning to bring in an ordinance to suspend provisions enabling filing of fresh insolvency cases for a period of one year..
    • Finally, on June 5, the government promulgated an ordinance which inserted Section 10A in the IBC.
    • The government said the ordinance was promulgated because the lockdown has caused business disruptions which may lead to default on debts pushing such companies into insolvency.
    • Therefore, it felt that suspending Sections 7, 9 and 10 of the IBC would be the right course of action.

    What are the issues with section 10A?

    • Section 10A provides that “no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from this period, as may be notified in this behalf”.
    • This means that these provisions shall remain suspended from March 25 till September 25, unless extended for another six months, which would extend the suspension up till March 25, 2021.
    • However, the proviso to the section states that no application for insolvency resolution shall ever be filed against a corporate debtor for any default occurring during the suspension period.
    • While the main Section 10A suspends such applications for a limited period, the proviso enlarges the scope to provide complete amnesty under the IBC for any default occurring during such period.
    • The role of a proviso in a statute is to restrict the application of the main provision under exceptional circumstances.
    • However, the proviso here expands the substantive provision in the main section.
    • Further, if the main provision is unclear, a proviso may be given to explain its true meaning.
    • In this case the main provision appears clear, only to be obfuscated by the proviso.
    • The proviso therefore does not appear to be legally tenable.
    • As creditors can still approach courts, and as banks/FIs can still approach Debt Recovery Tribunals, the protection given by this proviso seems illusory.
    • But Section 10A also suspends provisions of Section 10 of the IBC which enables voluntary insolvency resolution.
    • This is difficult to understand as such voluntary insolvency resolution should have been made easier for companies facing distress.

    Painting all defaults with the same brush

    • The ordinance appears to consider every default occurring during the suspension period to be a consequence of the pandemic.
    • There could be cases where defaults were imminent due to other reasons, but which will now still enjoy this protection.
    • The ordinance should have protected only such defaults which may occur as a direct consequence of the pandemic or the lockdown and should have left this determination to the National Company Law Tribunal.
    • Also, a company defaulting on its payment obligations on March 24 (a day before the lockdown started) would not be provided any relief under the IBC as compared to a company defaulting on or immediately after March 25 due to similar reasons.
    • This makes the suspension, in the absence of definition of a COVID-19 default, prima facie arbitrary.

    Issue with increasing the default amount limit

    • Earlier, the government increased the minimum default amount to trigger corporate insolvency resolution from ₹1 lakh to ₹1 crore.
    • This was purportedly done to protect MSMEs from insolvency petitions.
    • However, this also operates against such MSMEs because they will now be forced to approach civil courts to recover undisputed debts below ₹1 crore.
    • The suspension of these provisions would now impact even claims above ₹1 crore for at least six months to a year.

    Conclusion

    The ordinance has opened itself up to a legal challenge on grounds of arbitrariness and untenability of the proviso due to the flaw in its drafting. It is unfathomable how these flaws arose despite the government having ample time to think this through.

    B2BASICS:

     Insolvency and Bankruptcy Code, 2015

    The code contains a clear speedy mechanism for early identification of financial distress and initiates revival/re-organisation of the company if it is viable.

    Timeline

    • The bill proposes a timeline of 180 days to deal with the applications for insolvency resolution with an option of extending it by 90 days for exceptional cases.

    Insolvency Resolution Plan

    • The insolvency resolution plan has to be approved by 75% of the creditors. If the plan is approved, then the adjudicating authority will give its sanction. In case of rejection of insolvency resolution plan, the adjudicating authority will pass an order for liquidation.

    Insolvency Professionals (IPs) & Insolvency Professional Agencies (IPAs)

    • The resolution processes will be conducted by licensed insolvency professionals (IPs).  These IPs will be members of insolvency professional agencies (IPAs).  IPAs will also furnish performance bonds equal to the assets of a company under insolvency resolution.

    Information Utilities

    • Information utilities (IUs) will be established to collect, collate and disseminate financial information to facilitate insolvency resolution.

    Bankruptcy and Insolvency Adjudicator

    • The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies.  The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.
    • The Debt Recovery Tribunal (DRT), which has jurisdiction over individuals and unlimited liability partnership firms. Appeals from the order of DRT shall lie to the Debt Recovery Appellate Tribunal (DRAT).

    Insolvency regulators

    • The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs and IUs.

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