The elections for the next Vice-President of India are underway today.  The current Vice President Dr. Hamid Ansari will complete his second five-year term on August 10, which is in a few days.  While the BJP-led NDA’s candidate is Mr. Venkaiah Naidu, Dr. Gopalkrishna Gandhi is the joint candidate fronted by 18 opposition parties led by the INC.  In this post, we take a closer look at the constitutional mandate and role of the Vice-President of India and how the elections for the post will play out today.

Constitutional mandate as Vice President

The Vice-President is the second-highest constitutional office in India.  He acts as the President in the absence of the incumbent President, and is the ex officio Chairman of Rajya Sabha.  As an indication of his bipartisanship and apolitical character, the Vice-President does not hold membership of any political party or any other office of profit.   Further, given his constitutional stature, the statements given by the Vice President assume national significance.  The outgoing Vice President’s statements on issues like press freedom and welfare of minority communities led to several media debates and attracted widespread attention.

Vice-President’s role as Chairman of the Rajya Sabha

As Chairman of Rajya Sabha, the Vice President is the final authority on the interpretation of the Constitution and the Rules of Procedure for all house-related matters.  His rulings constitute binding precedent.  He also determines whether a Rajya Sabha member stands to be disqualified on grounds of defection.  Such powers make him an important stakeholder in the functioning of our parliamentary democracy.

The Vice President is also vested with powers to improve the functioning of the Upper House.  There have been several instances where the current Vice President has used his powers to address issues ranging from improving the productivity of question hour, reducing prolonged disruptions, maintaining decorum in the House, to facilitating discussion on issues of national importance.

Addressing disruptions: In March 2010, the Vice President ordered seven MPs to be evicted from the House for causing disruptions during the discussion and passage of the Women’s Reservation Bill.  More recently, in December 2015, the Vice President called for an all-party meeting during the last leg of the then ongoing Winter Session to discuss the matter of continuous disruptions in the House.  The remaining three days of the session after the all-party meet recorded 79% productivity, while the House had recorded overall productivity of 51% that session.

Functioning of Question Hour: In another instance, in November 2014, the Vice President issued a direction to conduct question hour from 12 noon to 1 pm instead of the originally allocated first hour of the day.  This was seen as an attempt to address the issue of low productivity of question hour mostly due to disruptions at the start of the day. However, question hour productivity has not shown any significant improvement yet, with continuing disruptions.

Parliamentary Privilege: Parliamentary privilege refers to rights and immunity enjoyed by Parliament and MPs, which may be necessary to effectively discharge their constitutional functions.  When disregarded, the offence is called a breach of privilege and is punishable under law. The Chairman is the guardian of these privileges and can also issue warrants to execute the orders of the House, where necessary.  In 1967, one person was held to be in contempt of Rajya Sabha for throwing leaflets from the visitors’ gallery of the House.  The then Vice President, in accordance with the resolution of the House, had sentenced the person to simple imprisonment, till the conclusion of that session.

The Chairman’s consent is required to raise a question of breach of privilege.  He also has the discretion whether to refer it to the Privileges Committee, and whether to accept the committee’s recommendations.  In October 2015, the current Vice President had referred the matter of a member’s controversial “terrorists in Parliament” remark to the Privileges Committee upon receiving complaints from several opposition MPs.

Role in Parliamentary Committees and other institutions

Parliamentary committees review proposed laws, oversee activities of the executive, and scrutinise government’s expenditure.  The Vice President nominates members to various Parliamentary Committees, appoints their Chairmen and issues directions to them.  The Vice President also nominates members of the Rajya Sabha on various bodies such as the Haj Committee, the Institute of Constitutional and Parliamentary Studies, Courts of several universities such as JNU, etc. He is also on the three-member Committee which nominates the Chairman of the Press Council of India.

So, how is the Vice President elected?

Unlike Presidential elections, MLAs do not have a vote in these elections.  Dr. B R Ambedkar had explained why during the constituent assembly debates: “The President is the Head of the State and his powers extend both to the administration by the centre as well as of the states… But when we come to the Vice-President, his normal functions are merely to preside over the Council of States.  It is only on a rare occasion, and that too for a temporary period, that he may be called upon to assume the duties of a President”.

Therefore, the Electoral College for the Vice- Presidential elections consists of all 790 MPs.  The elections are conducted using the system of single transferable voting that results in (approximately) proportional representation.  The voting is done through secret ballot implying that parties cannot issue whips to their MPs and anti-defection laws do not apply.

Each voter has one vote with the same value of 1.  Every voter can mark as many preferences, as there are candidates contesting the election.  It is necessary for at least the first preference to be marked.  A candidate needs to win a required number of votes (or the quota) to be elected.  If no one achieves the required quota after the first round of counting the first preference votes, the candidate with the lowest votes is eliminated.  His votes are then transferred to the second preference mentioned (if any) on the votes he received.  If no one achieves the required quota again, the process is repeated till either:

  1. a candidate achieves the required quota, or
  2. all candidates, except one, are eliminated.

The upcoming Vice Presidential elections

Let us now determine the quota required for victory in today’s election. The total value of votes of the electoral college is divided by two, and one is added (to ensure a majority) to the quotient to determine the quota. Hence, the quota is calculated as:

Quota    = 790/2 + 1 = 395 + 1= 396

The candidate who gets 396 votes will win the election.  If no candidate gets to this mark, the second and further preferences may be counted until the mark is reached or all candidates, but one, are eliminated.

We know the number of seats held by each party in Parliament. Let us assume that all MPs vote along their party line.  The position of the NDA and UPA is depicted in the figure below at the two ends of the chart.  All other major parties and independents are marked in the middle.

VP quota

We observe that, while the BJP falls short of the quota by 58 votes, the shortfall can be overcome if NDA allies TDP, Shiv Sena, Shiromani Akali Dal, LJP and PDP support its candidate.

With the voting taking place this morning, the outcome and results will become clear by later today.  It is hoped that the new Vice President will uphold the twin constitutional mandates as the second highest constitutional functionary and the Chairman of Rajya Sabha, just as his distinguished predecessors have done.

The increasing Non-Performing Assets (NPAs) in the Indian banking sector has recently been the subject of much discussion and scrutiny.  Yesterday, the Supreme Court struck down a circular dated February 12, 2018 issued by the Reserve Bank of India (RBI).  The RBI circular laid down a revised framework for the resolution of stressed assets.  In this blog, we examine the extent of NPAs in India, and recent events leading up to the Supreme Court judgement.

What is the extent and effect of the NPA problem in India?

Banks give loans and advances to borrowers. Based on the performance of the loan, it may be categorised as: (i) a standard asset (a loan where the borrower is making regular repayments), or (ii) a non-performing asset. NPAs are loans and advances where the borrower has stopped making interest or principal repayments for over 90 days.

As of 2018, the total NPAs in the economy stand at Rs 9.6 lakh crore.  About 88% of these NPAs are from loans and advances of public sector banks.  Banks are required to lend a certain percentage of their loans to priority sectors.  These sectors are identified by the RBI and include agriculture, housing, education and small scale industries.[1]  In 2018, of the total NPAs, 22% were from priority sector loans, and 78% were from non-priority sector loans. 

In the last few years, gross NPAs of banks (as a percentage of total loans) have increased from 2.3% of total loans in 2008 to 9.3% in 2017 (see Figure 1). This indicates that an increasing proportion of a bank’s assets have ceased to generate income for the bank, lowering the bank’s profitability and its ability to grant further credit.

Figure 1: Gross NPAs (% of total loans)

Source: Reserve Bank of India; PRS

What has been done to address the problem of growing NPAs?

The measures taken to resolve and prevent NPAs can broadly be classified into two kinds – first, remedial measures for banks prescribed by the RBI for internal restructuring of stressed assets, and second, legislative means of resolving NPAs under various laws (like the Insolvency and Bankruptcy Code, 2016).

Remedial Measures

Over the years, the RBI has issued various guidelines for banks aimed at the resolution of stressed assets in the economy. These included introduction of certain schemes such as: (i) Strategic Debt Restructuring (which allowed banks to change the management of the defaulting company), and (ii) Joint Lenders’ Forum (where lenders evolved a resolution plan and voted on its implementation).   A summary of the various schemes implemented by the RBI is provided in Table 1. 

Table 1: Non-legislative loan recovery framework

Loan restructuring

  • Banks internally undertake restructuring of loans, if the borrower is unable to repay the amount.  This involves changing the terms of repayment, which includes altering the payment schedule of loans or interest rates.

Corporate Debt Restructuring

  • Allows for restructuring of a borrower’s outstanding loans from more than one bank.  This mechanism is available if the borrower’s outstanding loans are more than Rs 10 crore.[2]

Joint Lender's Forum

  • Lenders evolve an action plan to resolve the NPA of a defaulter.[3]  If 60% of the creditors by value, and 50% of the creditors by number agree, a recovery plan will be implemented.[4]

5:25 Scheme

  • Banks can extend loan term to 25 years based on cash flow of projects for which the loan was given.  Interest rates and other terms of the loans may be readjusted every five years.[5]

Strategic Debt Restructuring

  • Banks convert their debt into equity to hold a majority of shares in a company.  This allows banks to change the management of the defaulting company.[6]

Sustainable Structuring of Stressed Assets

  • Allows for conversion of a part of the outstanding debt to equity or preference shares if: (i) project for which loan was taken has commenced operations, and (ii) borrower can repay over 50% of the loan.[7]

Sources: RBI scheme guidelines; Economic Survey 2016-17; PRS.

Legislative Measures

  • The Insolvency and Bankruptcy Code (IBC) was enacted in May 2016 to provide a time-bound 180-day recovery process for insolvent accounts. When a default occurs, the creditors or debtor may apply to the National Company Law Tribunal for initiating the resolution process. Once the application is approved, the resolution process will have to be completed within 180 days (extendable by 90 days) from the date of approval.  The resolution process will be presided over by an insolvency professional to decide whether to restructure the loan, or to sell the defaulter’s assets to recover the outstanding amount.  If a timely decision is not arrived at, the defaulter’s assets are liquidated.
  • The Banking Regulation (Amendment) Act, 2017: The amendment allows RBI to direct banks to initiate recovery proceedings against defaulting accounts under the IBC.  Further, under Section 35AA of the Act, RBI may also issue directions to banks for resolution of specific stressed assets. 

In June 2017, an internal advisory committee of RBI identified 500 defaulters with the highest value of NPAs.[8]  The committee recommended that 12 largest non-performing accounts, each with outstanding amounts greater than Rs 5,000 crore and totalling 25% of the NPAs of the economy, be referred for resolution under the IBC immediately.  Proceedings against the 12 largest defaulters have been initiated under the IBC. 

What was the February 12 circular issued by the RBI?

Subsequent to the enactment of the IBC, the RBI put in place a framework for restructuring of stressed assets of over Rs 2,000 crore on or after March 1, 2018.  The resolution plan for such restructuring must be unanimously approved by all lenders and implemented within 180 days from the date of the first default.  If the plan is not implemented within the stipulated time period, the stressed assets are required to be referred to the NCLT under IBC within 15 days.  Further, the framework introduced a provision for early identification and categorisation of stressed assets before they are classified as NPAs.

On what grounds was the RBI circular challenged?

Borrowers whose loans were tagged as NPAs before the release of the circular recently crossed the 180-day deadline for internal resolution by banks. Some of these borrowers, including various power producers and sugar mills, had appealed against the RBI circular in various High Courts. A two-judge bench of the Allahabad High Court ruled in favour of the RBI’s powers to issue these guidelines, and refused to grant interim relief to power producers from being taken to the NCLT for bankruptcy. These batch of petitions against the circular were transferred to the Supreme Court, which issued an order in September 2018 to maintain status quo on the same.

What did the Supreme Court order?

The Court held the circular issued by RBI was outside the scope of the power given to it under Article 35AA of the Banking Regulation (Amendment) Act, 2017.  The Court reasoned that Section 35AA was proposed by the 2017 Act to authorise the RBI to issues directions only in relation to specific cases of default by specific debtors.  It held that the RBI circular issued directions in relation to debtors in general and this was outside their scope of power.  The court also held that consequently all IBC proceedings initiated under the RBI circular are quashed. 

During the proceedings, various companies argued that the RBI circular applies to all corporate debtors alike, without looking into each individual’s sectors problems and attempting to solve them.  For instance, several power companies provided sector specific reasons for delay in payment of bank dues.  The reasons included: (i) cancellation of coal blocks by the SC leading to non-availability of fuel, (ii) lack of enough power purchase agreements by states, (iii) non-payment of dues by DISCOMs, and (iv) delays in project implementation leading to cost overruns.  Note that, in its 40th report, the Parliamentary Standing Committee on Energy analysed the impact of the RBI circular on the power sector and noted that the ‘one size fits all’ approach of the RBI is erroneous. 

 

 

[1] ‘Priority Sector Lending – Targets and Classification’ Reserve Bank of India, July 2012, https://rbi.org.in/scripts/NotificationUser.aspx?Id=7460&Mode=0

[2] Revised Guidelines on Corporate Debt Restructuring Mechanism, Reserve Bank of India, https://www.rbi.org.in/upload/notification/pdfs/67158.pdf

[3] ‘Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)’, Reserve Bank of India, February 26, 2016, https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8754&Mode=0

[4] Timelines for Stressed Assets, Press Release, Reserve Bank of India, May 5, 2017, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10957&Mode=0

[5] Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries, RBI, July 15, 2014, https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9101&Mode=0

[6] Chapter 4, The Economic Survey 2016-17, http://unionbudget.nic.in/es2016-17/echap04.pdf

[7] ‘RBI introduces a ‘Scheme for Sustainable Structuring of Stressed Assets’’ Press Release, Reserve Bank of India, June 13, 2016, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=37210

[8] RBI identifies Accounts for Reference by Banks under the Insolvency and Bankruptcy Code (IBC), Reserve Bank of India, June 13, 2017, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=40743