Applications for the LAMP Fellowship 2025-26 will open on December 1, 2024. Sign up here to be notified when applications open.
Compulsory voting at elections to local bodies in Gujarat Last week, the Gujarat Local Authorities Laws (Amendment) Act, 2009 received the Governor’s assent. The Act introduces an ‘obligation to vote’ at the municipal corporation, municipality and Panchayat levels in the state of Gujarat. To this end, the Act amends three laws related to administration at the local bodies- the Bombay Provincial Municipal Corporation Act, 1949; the Gujarat Municipalities Act, 1963 and; the Gujarat Panchayats Act, 1993. Following the amendments, it shall now be the duty of a qualified voter to cast his vote at elections to each of these bodies. This includes the right to exercise the NOTA option. The Act empowers an election officer to serve a voter notice on the grounds that he appears to have failed to vote at the election. The voter is then required to provide sufficient reasons within a period of one month, failing which he is declared as a “defaulter voter” by an order. The defaulter voter has the option of challenging this order before a designated appellate officer, whose decision will be final. At this stage, it is unclear what the consequences for being a default voter may be, as the penalties for the same are to be prescribed in the Rules. Typically, any disadvantage or penalty to be suffered by an individual for violating a provision of law is prescribed in the parent act itself, and not left to delegated legislation. The Act carves out exemptions for certain individuals from voting if (i) he is rendered physically incapable due to illness etc.; (ii) he is not present in the state of Gujarat on the date of election; or (iii) for any other reasons to be laid down in the Rules. The previous Governor had withheld her assent on the Bill for several reasons. The Governor had stated that compulsory voting violated Article 21 of the Constitution and the principles of individual liberty that permits an individual not to vote. She had also pointed out that the Bill was silent on the government’s duty to create an enabling environment for the voter to cast his vote. This included updating of electoral rolls, timely distribution of voter ID cards to all individuals and ensuring easy access to polling stations. Right to vote in India Many democratic governments consider participating in national elections a right of citizenship. In India, the right to vote is provided by the Constitution and the Representation of People’s Act, 1951, subject to certain disqualifications. Article 326 of the Constitution guarantees the right to vote to every citizen above the age of 18. Further, Section 62 of the Representation of Peoples Act (RoPA), 1951 states that every person who is in the electoral roll of that constituency will be entitled to vote. Thus, the Constitution and the RoPA make it clear that every individual above the age of 18, whose name is in the electoral rolls, and does not attract any of the disqualifications under the Act, may cast his vote. This is a non discriminatory, voluntary system of voting. In1951, during the discussion on the People’s Representation Bill in Parliament, the idea of including compulsory voting was mooted by a Member. However, it was rejected by Dr. B.R. Ambedkar on account of practical difficulties. Over the decades, of the various committees that have discussed electoral reforms, the Dinesh Goswami Committee (1990) briefly examined the issue of compulsory voting. One of the members of the committee had suggested that the only effective remedy for low voter turn outs was introducing the system of compulsory voting. This idea was rejected on the grounds that there were practical difficulties involved in its implementation. In July 2004, the Compulsory Voting Bill, 2004 was introduced as a Private Member Bill by Mr. Bachi Singh Rawat, a Member of Parliament in the Lok Sabha. The Bill proposed to make it compulsory for every eligible voter to vote and provided for exemption only in certain cases, like that of illness etc. Arguments mooted against the Bill included that of remoteness of polling booths, difficulties faced by certain classes of people like daily wage labourers, nomadic groups, disabled, pregnant women etc. in casting their vote. The Bill did not receive the support of the House and was not passed. Another Private Member Bill related to Compulsory Voting was introduced by Mr. JP Agarwal, Member of Parliament, in 2009. Besides making voting mandatory, this Bill also cast the duty upon the state to ensure large number of polling booths at convenient places, and special arrangements for senior citizens, persons with physical disability and pregnant women. The then Law Minister, Mr. Moily argued that if compulsory voting was introduced, Parliament would reflect, more accurately, the will of the electorate. However, he also stated that active participation in a democratic set up must be voluntary, and not coerced. Compulsory voting in other countries A number of countries around the world make it mandatory for citizens to vote. For example, Australia mandates compulsory voting at the national level. The penalty for violation includes an explanation for not voting and a fine. It may be noted that the voter turnout in Australia has usually been above 90%, since 1924. Several countries in South America including Brazil, Argentina and Bolivia also have a provision for compulsory voting. Certain other countries like The Netherlands in 1970 and Austria more recently, repealed such legal requirements after they had been in force for decades. Other democracies like the UK, USA, Germany, Italy and France have a system of voluntary voting. Typically, over the last few elections, Italy has had a voter turnout of over 80%, while the USA has a voter turnout of about 50%. What compulsory voting would mean Those in favour of compulsory voting assert that a high turnout is important for a proper democratic mandate and the functioning of democracy. They also argue that people who know they will have to vote will take politics more seriously and start to take a more active role. Further, citizens who live in a democratic state have a duty to vote, which is an essential part of that democracy. However, some others have argued that compulsory voting may be in violation of the fundamental rights of liberty and expression that are guaranteed to citizens in a democratic state. In this context, it has been stated that every individual should be able to choose whether or not he or she wants to vote. It is unclear whether the constitutional right to vote may be interpreted to include the right to not vote. If challenged, it will up to the superior courts to examine whether compulsory voting violates the Constitution. [A version of this post appeared in the Sakal Times on November 16, 2014]
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
Sources: RBI scheme guidelines; Economic Survey 2016-17; PRS. |
Legislative Measures
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
