Broad arguments that suggest that socio-economic rights have no role to play in the globalized era

There have been two broad arguments that are often raised to suggest that there is no role for socio-economic rights in the globalized era.

First, it is argued that a globalized world is one where there is no State regulation and in such a world it is inconceivable to impose positive duties on States.

Such an argument is an unrealistic explanation of what globalization entails. The assumption that globalization requires deregulation is mistaken. The World Trade Organization (“WTO”), the protector and promoter of globalization, itself imposes duties upon States to regulate certain activities. For instance, the TRIPS agreement of the WTO imposes positive duties on States to impose a “Product Patent” regime. In some situations, States are required to impose countervailing duties on manufacturers as part of their “anti-dumping” commitments.

Furthermore, globalization is based on efficiency in production and better work conditions and a better educated work force (which can be created only by the State enforcing the socio-economic rights of welfare and education) lead to an increase in efficiency of production. [1]

Second, it is argued that only those human rights that further globalizations ought to be enforced and that socio-economic rights, being expensive to implement imposes impediments to globalization (arising out of increased labour costs and taxation).

Such an argument takes a narrow view of what globalization is and what the effects of socio-economic rights are. This argument assumes that the costs of enforcing socio-economic rights outweigh the benefits. This is not true. In the long run, enforcing socio-economic rights creates a better educated and more productive work force as elucidated above.

Moreover, globalization needs to be looked at as a means to the end of achieving welfare and welfare is achieved only when the capabilities of individuals (to use Sen’s terminology) increases and people have more realizable options before them.[2]

Thus, the arguments that are used to suggest that socio-economic rights have no place in the globalized world are more in the realm of fantasy than reality. However, this does not mean that globalization does not cause difficulties with respect to enforcing socio-economic rights. The next section analyzes these difficulties.

Concerns to a socio-economic rights regime caused by globalization

Impediments to socio-economic rights being given an important places in the globalized economy can be divided under two broad heads :

A)    The Race to the bottom argument

The argument is as follows:

Every country looks to build on what its strengths are. Just as countries that are highly technology driven seek to overhaul rivals by further improving their technology, economies that thrive on labour intensive manufacturing seek to develop a comparative advantage over other similar economies by further reducing labour costs. In other words, everything else (political stability, transportation, infrastructure such as roads) being the same, big businesses set up their manufacturing units in countries where the labour is cheapest. This provides these “cheap labour countries” an incentive to make labour even cheaper by further lowering standards (like lowering the minimum wage). This would lead to a race to the bottom.

Ian Begg[3] and others like Hall and Soskice[4] argue that there is no proof of a race to the bottom and that countries adapt to reach an equilibrium. However, these thesis are either premature (Hall and Soskice’s article was written in 2001 where the effects of globalization were not fully known) or based on a study of the first world (Ian Begg) and are not persuasive with respect to the problems faced by the third world. The race to the bottom argument continues to be a very realistic argument. After all, a country that has a high rate of unemployment would rather attract foreign companies that would recruit locals who would otherwise be unemployed, albeit for a very low wage.

As a solution, it has often been suggested that a “social clause” be included under the WTO, which lays down certain minimum standards as regards labour conditions. Infact USA and France threatened not to ratify the WTO Agreement without the imposition of a social clause that laid down certain minimum standards.[5] However, this was opposed by the third world countries on the basis that this would reduce their comparative advantage which was cheap labour. What then is the solution?

Solution-

The solution lies in using the profits of a successful business in improving labour conditions. This solution is based on understanding how economies develop.

As Sachs elucidates[6], a country develops only when resources are invested in higher education and technological innovation. According to him, there are 5 different types of growth- a) Endogenous growth- where a country is technologically well off and continuous improvement in technology leads to a continued increase in efficiency (like USA), b) Catching up growth- For a country to catch up with the leaders, technology has to diffuse through and this should be coupled with home-grown innovation (like China) and for this to take place there needs to be investment in higher education and technology, c) Resource based growth- The strength of the economy depends on whether there is a resource boom or failure. Technological growth will help reduce this dependence (for instance genetically modified seeds may produce higher yields even with less rain), d) Malthusian decline- These countries have excess population which is largely uneducated and hence there is no technological development. The way for these countries to come up is through basic education, e) Economic isolation- These countries are landlocked and blocked from trade routes but manage to succeed through focus on Information Technology (eg- parts of India like Hyderabad and Bangalore).

What we can see is for a country to move from one stage of development to the next, what is essential is development in higher education and technology.

This also ties in with the Standard Theory of Changing Comparative Advantage propounded by Krueger and Leamer.[7] Based on this theory all countries initially export only primary products like agricultural products. With the capital arising from profits in trade in primary products, countries may adopt two different approaches based on the availability of raw materials in the country. If the country is rich in raw materials the capital is used to extract these raw materials. Trade in these raw materials leads to an increasing capital that flows back into the same country. A raw material deficient country would use the capital to become industrialized and would enter the manufacturing sector. Capital would further increase due to the trade in manufactured products. This increased capital is then invested in technological innovation which leads a country to the pinnacle of development.

Therefore, for a country to move from one stage of development to another, it is essential that the capital increase from the previous stage is invested in the further development of the country.

However, where all the big businesses that ultimately rake in the profits are based on the first world and all the manufacturing is in the third world, no further development of the third world countries take place. In other words, all the world’s capital accumulates in the first world to improve conditions drastically for the relatively fewer employees present whereas all the cheap labour accumulates in the third world countries with no capital being invested to improve the conditions of work.

The solution therefore lies in ensuring that there is a more uniform spread of capital and labour.

One method is for States to step in and impose heavy taxes on manufacturing. However, States may be hesitant to take this step due to the race to the bottom argument.

A second alternative is to make labour mobile. In the third world, labour is cheap because supply far exceeds demand. If labour is mobile, a number of the labourers in poorer countries would move to countries where the conditions for work are better. This would reduce the supply in the poorer countries thereby making labour more expensive. In other words, there will be a migration of labour to the capital intensive areas. This theory is backed by statistical estimates by Bob Hamilton and John Whalley.[8] The proof of this theory also lies in the success of the EU regime, which is possibly the only area in the world where labour is truly mobile.

B)    The Institutional problems-

Policies/ regulations of major international institutions like the WTO, IMF and World Bank cause countries to disregard enforcement of socio-economic rights.

(i) Substantive problems-

The WTO imposes obligations on States to treat nationals of all other States on par with eachother (Most Favoured National clause) and no less favourably than they treat their own nationals (National Treatment Clause). This could lead to a potential problem where foreign nationals could be indirectly discriminated against where local businesses are rewarded by States for adopting a pro-human rights stance (like in South Africa, businesses are given benefits if they have “black” employees and blacks are defined with reference to apartheid. Since similar benefits will not be available to foreign business who would not have as many “black” employees, it could be argued that these businesses are being treated less favourably).

Solution-The solution lies in interpreting the WTO provisions in the light of human rights treaties’. Article XX of the GATT, 1994 provides an exception for among other things measures that are necessary to protect human health, public morals etc. While this has been given a narrow interpretation in the Tuna Dolphin case, a broader interpretation may be given, in the light of Article 31(c) of the Vienna Convention on the Law of Treaties (which states that international treaties should be interpreted in light of the relevant rules of international law). Such an approach was taken in the Shrimp Turtle case.

(ii) Problems of power politics-

A number of provisions of the WTO Covered Agreements have said to have come about only because of arm twisting by the developed world. One such instance was the provision for including Product Patents.[9]

Similarly, the IMF and World Bank, which are dominated by first world representatives, are known to impose “anti- human rights” conditions on third world countries in order to grant them loans.

Solution-The only solution is for the third world countries to put up a united front and there is evidence of this already happening with some success (for instance the provision for compulsory licensing was introduced only because of insistence from the third world block).

Conclusion

Thus, globalization and socio-economic rights are not necessarily antithetical to each other; however unless the problems identified in this essay are addressed the current globalization era could act as an impediment to the successful enforcement of socio-economic rights.

[2]J Sachs ”Globalisation and Patterns of Economic Development” [2000] 136 Weltwirtschaftliches Archiv Review of World Economics 579 -597.

[3] Iain Begg, Juraj Draxler,  Jørgen Mortensen Is Social Europe Fit for Globalisation? A study of the social impact of globalisation in the European Union (March 2008).

[4] P Hall and D Soskice ”An Introduction to Varieties of Capitalism” in P Hall and D Soskice (eds) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (OUP Oxford 2001).

[5] Joachim Betz and Raj Kumar Sen, ”The International Debate on the Introduction of a Social Clause and Indian Labourer”, Indian Labour in the Post Liberalization Period; “Materials and Cases on Labour Law 1”, Compiled by Prof kalpana Kannabiran and Dr. N.Vasanthi,p.151.

[6] J Sachs ”Globalisation and Patterns of Economic Development” [2000] 136 Weltwirtschaftliches Archiv Review of World Economics 579 -597.

[7] Kyn Andeson, “Environmental and Labour Standards”, edited by Anne O Krueger, “The WTO as an International Organization”, 1^st ed.2003, p.234.

[8] Bob Hamilton & John Whalley, ” Efficiency and Distributional Implications of Global Restrictions on Labour Mobility”, 14 J. DEV. ECON. 61, 70 (1984)

[9] Fatoumata Jawara & Aileen Kwa, “Behind the Scenes at the WTO”, 1^st ed.2003

Framework for enforcing arbitral awards against States

While there are many systems under which enforcement may be sought against a State, the most common are enforcement under ICSID and under the New York Convention (“NYC”).

The ICSID Convention governs enforcement of all investment treaty arbitrations. There are limited grounds for challenging an ICSID award but the controversial “violation of public policy” is not one of the grounds. An award that is not challenged/ upheld during the challenge has to be enforced in a State as if it were a final judgment of a Court in that State (Article 54). However, Article 55 clearly implies that enforcement of an ICSID award in a State is subject to the domestic law on the issue of sovereign immunity in that State.

An arbitration award which falls under the NYC may also be against a state. An award may not be enforced in a State if it violates the “public policy” of that State (Article V(2)(b) of the NYC) . Furthermore, enforcement of an award under the NYC is also subject to the domestic sovereign immunity laws.

These (Sovereign Immunity and Public Policy) are among the primary obstacles that defendants face while enforcing awards against States. The latter is not specific to enforcement against a State party.

Furthermore, other dilatory tactics may also be used. For instance Article VI of the NYC provides that where an award is challenged at the seat of the arbitration, a stay may be obtained in another country that is a signatory to the NYC pending determination of an annulment application. However, this essay focuses on the two main impediments that exist with respect to enforcement of awards against States.

Obstacles within this framework.

Thus, the main obstacles to enforcement of an award against a State are

1. Sovereign immunity as provided for by the laws of the country where enforcement is sought.

Most countries have moved from a system of absolute sovereign immunity to restrictive sovereign immunity. In most jurisdictions, attachment of a sovereign State’s non-commercial property is not permitted. However, within the different regimes that incorporate this concept there are subtle differences to be noted. For instance, Section 3 of the UK Sovereign Immunity Act 1978 has a far narrower definition of “commercial property” compared to Section 1603 of the Foreign Sovereign Immunities Act of USA.

Execution is possible against non-commercial property only if the State has waived its sovereign immunity. Such a waiver can be contained in the treaty itself.

However, as laid down in LETCO v. Liberia and F G Hemisphere v Democratic Republic of Congo respectively a waiver of sovereign immunity at the dispute resolution stage or participation in an arbitration proceeding do not by themselves result in a waiver of sovereign immunity for the purpose of execution.

Courts are known to adopt a very pro-sovereign immunity approach. This is perhaps because they expect similar reciprocation from other States. A hint of the problems that sovereign immunity poses to successful litigants is elucidated by the enforcement proceedings of the Noga awards against Russia in France. Three different properties were sought to be attached: the Russian embassy bank accounts, a Russian ship and a Russian military plane. Despite the fact that the Russians had expressly waived their sovereign immunity with respect to execution, the execution was rather surprisingly unsuccessful.

The French Court held that bank accounts belonging to embassies were “diplomatic” assets and despite the broad wording of the waiver, it did not specifically refer to waiver of sovereign immunity with respect to “diplomatic” assets. Hence the waiver did not extend to the attachment of such assets.

The ship was not permitted to be attached on the basis that it was owned by a University which was distinct from the Russian Government. This was despite the fact that the Constitution of the University stated that all property owned by the University was owned by the Government.

The attachment of the airplanes was unsuccessful as pursuant to a tip-off the airplanes flew off before attachment.

What this episode indicates is that Courts often provide surprising logic to take a pro-sovereign immunity stance.

2. The public policy of the country where enforcement is sought

Art.V(2)(b) of the NYC provides that recognition and enforcement of an arbitral award may be refused if the competent court finds that recognition of enforcement would be “contrary to the public policy of that country”. Generally countries have construed “public policy narrowly”. The most notable is the US Supreme Court in Parsons and the ECJ in Krombach -v- Bamberski. However, you have decisions like that of the Turkish Court in Osuuskunta Matex VS v TEK General Directorate where the court refused to recognise an award rendered in Zurich on the basis that it perceived the tribunal to have failed to comply with the parties’ choice of procedural law and that this constituted a violation of public policy.

This problem of enforcement is not specific to enforcement of an award against a State and may be applicable against individual/ corporate defendants as well.

Methods of overcoming these obstacles

A practical solution to the issue of sovereign immunity is to include in the relevant contract or treaty with the state a clause expressly waiving immunity from execution. ICSID recommends a model clause to this effect. However, in the case of ICSID arbitration this is not in the individual litigants hands and is left to his home State. Often States are not comfortable with such clauses as they will end up being reciprocal in nature.

Moreover, even such clauses will not prevent Courts from taking stances like they took in the Noga awards enforcement case.

The solution to solve the “public policy” problem is to choose a jurisdiction for enforcement where “public policy” is given a narrow interpretation (like USA). However, this again is not possible at all times and depends on whether the defendant possesses assets in these jurisdictions.

To conclude, it is possible on some occasions for litigants to overcome the obstacles that are present while enforcing an award against States. Often, though, the story of the enforcement of Noga awards against Russia in France is repeated.

While Rob Steen believes that this world cup will decide the future of the Umpire Dispute referral System (“UDRS”) system and that the future use of the UDRS will be left to fate and not reason, I to the contrary believe that Sachin Tendulkar and Co raise a valid though badly articulated argument against the system.  While I believe that the UDRS does help reduce umpiring errors, there are some flaws that need to be ironed out for the UDRS to be a truly fair system. This piece is aimed at analyzing the UDRS from a lawyer’s lens.

(While the aid of third umpires may be used by the on-field umpires for calls relating to run outs and whether the ball reached the boundary, this piece focuses on referrals made by players and focuses on the most contentious of such referrals, i.e.  leg before wicket (“LBW”) decisions.)

The UDRS system

So, how does the system function?

Every team, is permitted to make two unsuccessful challenges per innings, i.e. each team may dispute an umpire’s decision every innings- the batting team with respect to a decision of “Out” and the fielding team with respect to a decision of “Not Out”. When an umpire’s decision is disputed, a consultation process begins between the on-field umpire and the third umpire.

The Third Umpire then reports to the on-field umpire whether his analysis supports the original call, contradicts the call, or is inconclusive.  The consultation involves the on-field umpire asking the third umpire questions which give the answer- Yes or No. Questions that require the third umpire to answer “based on a series of judgments” cannot be asked. These questions would include questions such as “Was that LBW ?”.

However, even if the on-field umpire does not ask a question, the third umpire shall provide the on field umpire with all factual information which may influence the decision. Firstly, the third umpire needs to check whether the delivery is fair, i.e. whether it was a no ball (both because of over stepping and height restrictions). The third umpire, should then convey the answer to the on-field umpire so long as he knows what the answer is (using the available technology) with a “high degree of confidence”.  Where he does not have a “high degree of confidence” in his answer, he should report that the replays are inconclusive. The Regulations stipulate when a third umpire ought to have a “high degree of confidence”.

Based on this information, the on-field umpire makes the final decision: either re-signalling a call that he believes is good or revoking a call that is being reversed.

The problems with the system and a tentative solution

The potentially troublesome standard is the standard for measuring when the third umpire ought to have a “high degree of confidence” with respect to LBW decisions. Some aspects of this rule are uncontroversial.

For a batsman to be given out LBW,

a)      The ball must have pitched in line with the stumps or outside the off stump (the ICC Regulations which lay down on what basis a third umpire should take a call are uncontroversial).

b)      The ball must hit the batsman in line with the stump. The batmsan can be given out LBW if the ball hits him outside the line of off stump but he is not offering a shot. (the ICC Regulations on this issue are uncontroversial. However what is interesting is that for a “not out” decision to be overturned, the evidence provided by technology must show that the centre of the ball hit the pad in line with the stumps, whereas in case of overturning an “out” decision, it must be shown that no part of the ball at the time of interception with the pad is in line with the stumps. This means that potentially, a batsman, could be “legally” “out” and “not out” in the same situation, i.e. when a fraction of the ball (and not the centre) hits him in line with the stumps. Such a situation is unnecessary and one uniform rule would work better. However, this does not seem to be the major concern that the Indian team has.)

c)       The ball must go onto hit the stumps. While the ICC Regulations do attempt to ensure that the “benefit of doubt” goes to the batsman, there is one aspect that can be modified to make the system further fool proof.

Rule 3.3 (i) of the ICC Regulations on the Third Umpire Decision Review System states:

“i) Specifically when advising on LBW decisions, the requirement for a high degree of confidence should be interpreted as follows:

…

iii  With regard to determining whether the ball was likely to have hit the  stumps:

-If a “not out‟ decision is being reviewed, in order to report that the ball is     hitting the stumps, the evidence provided by technology should show that     the centre of the ball would have hit the stumps within an area demarcated   by a line drawn below the lower edge of the bails and down the middle of the outer stumps.

However, in instances where the evidence shows that the ball would have     hit the stumps within the demarcated area as set out above but that the         point of impact is greater than 250 cm from the stumps, the third umpire shall notify the on-field umpire of:

a) The distance from the wickets to the point of impact with the  batsman b) The approximate distance from point of pitching to point of  impact c) Where the ball is predicted to hit the stumps.

In such a case, the on-field umpire shall have regard to the normal cricketing principles concerning the level of certainty in making his decision as to whether to change his decision.

– If an “out‟ decision is being reviewed, in order to report that the ball is         missing the stumps, the evidence of the technology should show that no           part of the ball would have made contact with any part of the stumps or         bails.

Clearly, the ICC recognizes that an LBW decision has important subjective elements. That is the only reason why factors a), b) and c) above have been specified. Given this subjectivity, it is fallacious to leave the ultimate decision making to the on-field umpire, based on information provided by the third umpire.

Where the technology suggests that the ball is hitting the stumps, and the on-field umpire does not get to form his subjective opinion by looking at replays, it is highly unlikely that the on-field umpire will take a stand contrary to the decision reached objectively by following technology. In other words, the on-field umpire is not likely to consider factors such as how far away the ball is from the stumps at the point of impact, the amount of spin/ swing etc.

This is possibly where India’s objection to the UDRS system stems from. In the India-Sri Lanka test series in 2008, there were a couple of instances where Sachin Tendulkar was initially given not out (following an LBW appeal) but the decision was then overturned. While the technology use- Hawk Eye suggested that the ball would hit the stump, traditionally most umpires would have decided that there was enough turn on the ball and the batsman was sufficiently forward for them to decide that there was sufficient doubt and the umpire would have granted the batsman the benefit of the doubt.

The ostensible objection of the BCCI is that when a batsman plays a shot, there is a legitimate expectation in the mind of the batsman that the traditional LBW rule will apply. However, with a lot of the subjectivity of the traditional rule being removed, the rule that the “batsman gets the benefit of doubt” has been largely diluted.

In order to tackle this valid objection, the solution seems to lie in a rule that has been applied uncontroversially for run outs and stumpings. In case of run outs and stumpings, the third umpire gets to view the video in slow motion and take a call (the final call) on the decision. Imagine how absurd it would be if the third umpire had to clarify a bundle of facts and the on-field umpire take a decision based on these facts. The solution therefore is for the third-umpire to look at slow motion videos and use whatever technology that is available and then take the final subjective call rather than convey a bundle of facts to the on-field umpire who does not get a chance to see the videos. The technology can be used to form a de-minimis test, i.e. if Hawk Eye says that the ball will not hit the stumps, then automatically the batsman is “Not out”. However, if Hawk Eye suggests otherwrise, then the third umpire should look at the slow motion video, consider other subjective factors and then decide after applying the traditional rule that “the benefit of doubt should go to the batsman”.

Such a rule will ensure that technology is used to aid decision making while still not making decision making mechanical. After all part of the charm of cricket lies in the human involvement at every stage!

I firstly elucidate five differences that are believed to exist between CPRs and SERs and with the examples of case laws I analyze which of these differences are in fact true.

I, then argue with the help of case law as to how this classification is artificial.

For the purpose of this essay, I focus on cases decided in South Africa, India, Europe, USA, Brazil and Canada.

THE TRADITIONAL CLASSIFICATION

Traditionally, it is believed that there are number of factors that distinguish CPRs from SERs. I list below each of these perceived differences and analyze the correctness of each. For the purpose of this essay, I refer to people who believe such a difference is true as traditionalists.

First, the traditionalists state that CPRs are negative in nature whereas SERs are positive in nature, i.e. CPRs are restrictions on State actions whereas SERs require positive State action for their implementation.

Traditionalists argue that CPRs impose duties of restraint on the State[1]and that there can be no positive duties that flow from them.

In Canada, for instance, the right to life is worded in the form of a negative right. Section 7 of the Canadian Charter states “Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice”- clearly a provision that indicates that the right is a negative right. The right to health has been read into this provision in Canada.

That there exists a negative duty is uncontroversial as recognised in R. v. Morgentaler[2] where it was held that a legislative provision which prohibited abortion led to an increased health risk for the mother and hence violated the mandate of Section 7 of the Canadian Charter.

In the Canadian context, while the right to health itself has never been held to be a positive right, it has given rise to positive obligations arising out of the right to equality. Where such a right is provided to certain sections of society, there is a positive obligation arising out of the right of equality to extend the same right to all other sections of society, as held in Eldridge v. British Columbia[3]. In this case the Canadian Supreme Court held that the petitioners who were a group of deaf applicants, were entitled to being provided sign-language interpreters in the publicly funded health-care system. The Court held that the Government had a positive obligation under the Canadian Charter to address the needs of disadvantaged groups, such as persons with disabilities.

The fact that positive obligations can flow out of ostensibly negative rights becomes clear by an analysis of Indian case law. In India, it is believed that the CPRs are contained in the Chapter titled “Fundamental Rights” and that these include rights such as the right to life enshrined in Article 21. The wording of Article 21 seems to justify this point of view. Article 21 states “No person shall be deprived of his right to life or personal liberty except by the procedure established by law”. However, the Indian Supreme Court has taken the view that this right is not a negative right and State inaction could also result in denial of this right. For instance, the Supreme Court, in Consumer Education and Research Centre v. Union of India[4] held that right to life meant a right to a meaningful life and that a meaningful life was not possible without having a right to healthcare. The case dealt with the right to healthcare of workmen in the asbestos industry and in order to reach the conclusion that it did, the Court read in provisions of Articles 39, 41 and 43 (which directed the State to provide for healthcare) which were all non-enforceable Directive Principles of State Policy (“DPSP”) into Article 21 in order to widen the scope of Article.

The Indian Supreme Court adopted a similar approach with respect to the right to education in Mohini Jain vs. State of Karnataka[5]. While holding that charging of capitation fees by professional colleges is not permissible, the Court declared that the right to education flows directly from the right to life and that the dignity of an individual cannot be assured unless it is accompanied by the right to education. The Court followed a similar methodology and read the non-enforceable DPSP (Article 45, which imposes upon the State a non-enforceable duty to among other things provide for education of the disadvantaged sections of society) into Article 21.

Conversely, rights that are often believed to be SERs can be framed in such a way that they give rise only to a duty of restraint. The best example is the case of right to education under the European Convention on Human Rights (“ECHR”). Article 2 of the ECHR First Protocol states that the right to education cannot be denied by the State; in other words the only obligation on the State is a duty of restraint. While interpreting this provision the European Court of Justice in Belgian Linguistic Case (No 2)[6] expressly declared that this provision does not require a State to take positive measures to promote education.

In this light the distinction does not hold good.

Second, it is argued that while CPRs are realized immediately, SERs are realized progressively. Linked to this difference is the argument that while CPRs are justiciable, SERs should not be so due to their programmatic realization.

While this argument often does hold good, it blurs because there are a few CPRs which are also progressively realized- for instance the right to fair trial- which requires a complex structure of Courts to be built which is not done overnight.

However, an argument that traditionalists make that progressive realization of SERs make it difficult to assess whether the SER has been breached does not logically lead to the conclusion they make, i.e. that it is impossible to assess breach of a SER.

There is no doubt that negative duties are easier to enforce than positive duties. As Sandra Fredman observes, firstly, positive duties require continuous monitoring as they are programmatic in their enforcement. Secondly, duties of restraint are enforceable free of cost which is not so with respect to duties arising from SERs. Thirdly, enforcement of SERs requires an evaluation of a number of choices which are sometimes better made by policy makers.

However, this does not mean that only duties of restraint should be enforced. Whether or not a positive right has been enforced can be judged by keeping the following criteria in mind.

a)      Sufficiency of the measures taken to implement the right- the Courts can assess if the State is taking reasonable measures to enforce a positive duty by looking at the expenditure made towards the enforcement of the right and comparing it with the total government spending.

b)      Efficiency of enforcing the measures- An SER is not enforced efficiently where a sum is allocated for enforcing the right but in reality the Government does not spend that amount on enforcing the right.

c)      Equity of the measures- if a measure is applied unequally, i.e. a measure that ought to be applicable to all classes is not implemented vis a vis one particular class, then the Government is clearly in breach of its duty. This factor is best explained by the case of Eldridge v. British Columbia[7] which has already been explained earlier in this essay.

In the context of right to health, whether the right is being progressively realized can possibly be analyzed by monitoring indicators such as maternal mortality rate, child mortality rate etc and monitoring each of these in terms of fixed parameters such as with respect to development in rural areas, development with respect to certain socio-economic strata etc.

Hence it is fallacious to argue that SERs ought not to be enforced because they are programmatic in their realization and hence the enforcement is more difficult.

Third, CPRs are resource free, whereas implementation of SERs is resource dependant.

At a broader level of generalization, this distinction holds good. However, this distinction blurs in the light of decisions that hold that certain SERs like the right to emergency healthcare have to be enforced by the State irrespective of the resources available. In Paschim Banga Khet Mazdoor Samity v. State of West Bengal[8], the Indian Supreme Court held that the State’s responsibility to provide emergency treatment was not subject to financial constraints. In this case, a man fell from a train and suffered serious head trauma. None of the public hospitals treated him due to lack of hospital beds. The issue before the Court was whether inadequate medical facilities for emergency treatment constituted a denial of the right to life. The Court directed the State to increase the number of clinics around the country to treat serious injuries, and to create a centralized communication system among State hospitals so that patients could be transported immediately to the facilities where space is available. The Court recognized that this involved substantial expenditure but that this duty was not subject to financial constraints.

Thus, while it is true that enforcement of SERs may be resource heavy, that does not mean that

Fourth, individuals have rights against the State to enforce CPRs. Very often this right is missing in cases of SERs.

This distinction is not true in the sense that individuals do have the right to enforce SERs. However, the nature of such an enforcement is different. In most cases of enforcement of CPRs, the remedy is to prohibit a State action and hence the petitioner gets what he claims in his prayer. However, in case of SERs, the nature of the right is such is that all it requires is State action. Therefore, right to healthcare may not include the right to a particular drug, but it requires only the right for the State to take reasonable action towards providing the healthcare.

This necessarily flows from the fact that SERs provide individuals with the right to ensure that the State is taking reasonable measures to comply with the obligations that arise out of the right.

In cases where Courts have interpreted a right to free health care to mean a right to demand for specific medicines for individuals, this has led to undesired consequences on the country’s economy. This was the case in Brazil, where the budgetary allocations got distorted due to the maintainability of individual demands. Moreover, since right to free medication was available to all, those with greater access to Courts, i.e. the richer sections, were able to get their rights enforced ahead of those with lesser access, i.e. the poorer sections.

Hunt, on the other hand observes that right to healthcare would be a boon and not a bane, if implemented in a manner that favours the disadvantaged. Hunt advocates a model where the right to healthcare is looked at as a policy measure adopted with the active participation of the affected members of a community. This presumably means not providing the right to health as an individualized right to medicines of the rich.

The South African model is a happy integration of both the Brazilian model and Hunt’s model, whereby the right to emergency healthcare is an individualized right that cannot be denied and the other components of the right to healthcare follow Hunt’s model.[9]

Despite the neutral wording of the South African Constitution, it can be said that the approach of the South African Courts is quite the opposite as that of the Brazilian Courts and the Indian Courts as well. In Soobramoney v Minister of Health[10] the petitioner had suffered from heart disease and renal failure and he had been refused life long dialysis on the basis that due to the shortage of dialysis machines, there was a policy to provide dialysis machines only to people who did not suffer from heart disease. He therefore claimed that his right to life and emergency healthcare had been violated. The State argued that since the petitioner was not affected by an “emergency”, the State was not mandated to provide him life long dialysis. The Constitutional Court upheld the State’s argument as the State had a discretion to decide what policy to adopt and that such policy depended on the funds available. In the present case the policy had been formed in a transparent manner and was hence valid.

Fifth, CPRs are determinate whereas SERs are not and hence enforcement of latter is difficult

While this may be so in many cases, the Indian Supreme Court’s interpretative strategy indicates that even ostensibly determinate CPRs like the right to life does not have a fixed content. Often the content of an ostensibly determinate CPR merges with that of a SER. For instance, the right to life in India, worded in the form of a negative right, now includes the right to education and right to healthcare.

Even in cases of SERs courts have attempted to make the right determinate by laying down certain standards. For instance, the New York Court in Campaign for Fiscal Equity Inc v State of New York[11] laid down that the right to education would include sound basic education, which in turn meant basic literacy, calculation and verbal skills that were necessary to make children function productively in society and exercise some of their CPRs like the right to vote. The right would also include ‘minimally adequate’ physical facilities and the right to be taught by adequately trained teachers.

THE DISTINCTION- A MYTH

The entire distinction is a myth. CPRs and SERs feed into eachother and SERs are required for the realization of CPRs. For instance, if the right to healthcare is so not available when a citizen is ailing, how does one expect such a citizen to exercise his right to vote? As recognized by the ICESCR General Comment, education is the means by which the socially and economically disadvantaged sections of society can be empowered to improve their quality of living (and hence be in a position to exercise their CPRs).

Similarly, CPRs aid the realization of SERs as well. For instance, if politicians are accountable to the electorate for famine relief, how will the accountability be possible without the freedom of expression which includes within its ambit the freedom of press?

A number of the distinctions between CPRs and SERs, though true at a broader level of abstraction, tend to blur when we look at specific exceptions. In the light of this view, I believe that every right must be looked at as one which has a positive element and negative element to it. In other words it may be said that every right is a combination of SER and CPR elements.

I would like to conclude by echoing Shue’s views that every right potentially gives rise to three types of duties- duty to avoid (or duty of restraint), duty to protect (duty to prevent) and duty to aid (duty to fulfil). Duties of restraint refer to duties of the State not to do certain acts; duties to protect to the duty of the State to protect one individual from the actions of others and the duties to fulfil to the positive duties of the State. While such a classification is accurate, the traditionalists’ view cannot be said to be so.

[2] [1988] 1 S.C.R. 30

[3] [1997] 3 S.C.R. 624.

[4] (1995)3 SCC 42.

[5] AIR 1992 SC 1858.

[6] (1968) 1 EHRR 252 (European Court of Human Rights)

[7] [1997] 3 S.C.R. 624.

[8] 1996(4) SCC 37

[9] Section 27 of the South African Constitution.

[10] [1998] 1 SALR 765 (CC)

[11] 2006 NYSlipOp 02284 (Appellate Division, First Department).

India Inc. is increasingly adopting permutations and combinations of the merger-demerger route in a bid to enhance value, consolidate businesses and achieve the elusive synergy of operations. The recent demerger of Grasim’s cement division into its wholly owned subsidiary Samruddhi and therafter Samruddhi’s merger into Ultratech is but one example. The icing on these court approved schemes is of course, the significant tax benefits prescribed under the Income Tax Act, 1961 (IT Act). Demergers and mergers satisfying certain specified conditions are exempt from tax on capital gains- both on the transfer of assets as well as on the transfer/issue of shares in consideration of the demerger/amalgamation.

Let’s focus on demergers first. Section 2(19AA) of the IT Act defines a tax neutral demerger inter alia, as follows:
(i) all the property of the undertaking and liabilities relatable to the undertaking become property of the resulting company by virtue of the demerger;
(ii) such property and liabilities are transferred at book value;
(iii) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis;
(iv) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become share-holders of the resulting company or companies by virtue of the demerger;
(v) the transfer of the undertaking is on a going concern basis;

Interpretation of the above conditions has been insufficient so far. Avaya Global Connect v.  ACIT (discussed previously here) remains important even though it only tersely examined the demerger conditions. The issue here was whether a demerger where no consideration was paid to the demerged company/its shareholders would satisfy conditions (iv) and (v) mentioned above. The undertaking had a negative net worth, owing to which no consideration was paid and the scheme had already been approved by the concerned High Court. Despite these, the Mumbai ITAT held that only a demerger satisfying all the conditions mentioned would be considered tax neutral. “The legislature is deemed to have foreseen all possible contingencies and yet has thought it fit to impose the above conditions for qualifying as a demerger for the purpose of section 47(vib). There cannot be any presumption regarding omission by the legislature to provide for a situation where the consideration is not in the form of allotment of shares in the resulting company to the shareholders of the demerged company. A matter which should have been, but has not been provided for in a statute cannot be supplied”. While this transaction was ultimately not taxed since the capital gains could not be computed, the ITAT’s approach indicates that as regards the demerger conditions, a strict, literal interpretation is favoured.

Thus, it’s implied that only those demergers would be considered tax neutral where (i) consideration is present- for ‘no one ever hands over a division or an undertaking for nothing’; (ii) such consideration is only in the form of proportionate allotment of shares to the demerged company’s shareholders. This conclusion without more reasons to support itself, is on shaky ground. Let’s now briefly shift spotlight to relevant portions of the amalgamation definition enumerated in Section 2(1B) of the IT Act:

Amalgamation, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that—

(iii) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation

From the above, it seems that condition (iii) is mandatory for an amalgamation to be considered tax neutral. But from a mere reading, can it be said that (iii) gets satisfied when a wholly owned subsidiary X merges with its parent Y? For one, there are no other shareholders in X (i.e. apart from Y, so Y’s entire shareholding in X will be excluded for the purposes of (iii)) to become shareholders of Y ‘by virtue of the amalgamation’. Fortunately, a Circular clarifies this by way of an illustration. Thus, a merger of a subsidiary into a parent will be considered an amalgamation, if the other conditions mentioned in Section 2(1B) are satisfied. The crux of this view was also supported by a decision of the Authority for Advance Rulings (AAR) in Hoechst GmbH.

Given this interpretation of the amalgamation definition, where the impossibility of performance of a condition is recognised, why should the demerger definition be treated any differently? Why should all the conditions of Section 2(19AA) be insisted upon at all times? It certainly seems from Avaya, that consideration in the form of shares must now be issued even where an undertaking is demerged to a wholly owned subsidiary. Why should tax neutrality be denied to a demerger where (all other conditions being satisfied) the shareholders have expressly agreed that the subsidiary will not issue shares to them, and the High Court has sanctioned such a scheme? In any case, the shareholders indirectly control the subsidiary through their holding in the parent. Some clarification from the Mumbai ITAT would have certainly helped.

It may next be argued that the Mumbai ITAT in Avaya was merely following the general rule that tax statues should be interpreted strictly. However, this does not mean that each and every provision of the IT Act should be interpreted as it is- the Apex Court has noted that this general rule of interpretation only means that no one should be charged to tax unless he clearly falls within the four corners of the statute provisions. In other words, only the charging sections have to be interpreted strictly; if the words are clear and unambiguous, they have to be given full effect to irrespective of any equity considerations and the court here cannot add or subtract words to the text of the statute. The Mumbai ITAT presumed that the legislature while prescribing the demerger conditions had taken into account all possible situations- the legislature does not make omissions. But the legislature also does not intend what is inconvenient and unreasonable, especially given that the intention behind 2(19AA) was to promote demergers in the backdrop of a changing business environment. The Mumbai ITAT should have taken into account the facts of the particular case and interpreted the provisions of Section 2(19AA) so as to avoid any absurdity.

Maybe the Mumbai ITAT was guided in its decision by the spirit of tax evasion. Intra-group mergers-demergers are now being seen by the Tax authorities as a method of transfer of capital assets within the group companies without paying any tax on capital gains. The recent Gujarat High Court decision is a clearer example of this approach. Here, the passive infrastructure assets of Vodafone Essar Gujarat Limited (VEGL), along with those of group companies were sought to be demerged to another company Vodafone Essar Infrastructure Limited, (VEIL) which would ultimately be controlled by the VEGL’s shareholders. Pursuant to the demerger, VEIL would be merged with an independent company Indus Towers Limited. However, here the court was concerned only with the demerger scheme. No consideration was payable to VEGL/its shareholders for the demerger. The Tax authorities raised objections to the sanctioning of the scheme citing, inter alia, tax evasion- the sole purpose of VEIL’s existence was to hold the passive infrastructure assets before the merger, hence this was contrary to public interest. VEGL pointed out that the transaction had a definite business purpose and cited numerous examples where similar schemes (i.e. demerger of an undertaking to a subsidiary without consideration) had been sanctioned in the past. Despite these (and not in the least because of VGEL’s unclear arguments) the Court merely said, without giving reasons that VEGL’s demerger scheme was on a different footing and could not be sanctioned under the Companies Act, 1956, inter alia, owing to tax evasion. An appeal is being heard even as this post is published.

If tax evasion is the underlying consideration of courts, then every other transaction is in danger of being interpreted as one evading tax-even when a strict approach to Section 2(19AA) is adopted. Take this example- supposing a listed company P incorporates a wholly owned subsidiary Q with a small paid up capital. P proposes to demerge one of its undertakings with a substantial value to Q. Q, in consideration of this demerger will issue shares to P’s shareholders on a proportionate basis. However, the value of P’s shareholders’ shareholding in Q will be small (for example if P’s shareholders held shares in P in the ratio 1:4, they would be issued Q’s shares in that ratio but their total holding in Q would be around 20%). On a literal reading Section 2(19AA) conditions are satisfied- but the Tax authorities may very well challenge such a transaction for tax evasion as well.
There is thus, a definite need for clarity regarding mergers and demergers under the IT Act. The Mumbai ITAT in Avaya did not elaborate on its interpretation of Section 2(l9AA) and the considerations that guided it, thereby losing out on a good opportunity of bringing some clarity to the demerger provisions. What it did however was to indicate a shift in approach of courts towards intra-group mergers-demergers and resuscitate the tax avoidance-tax evasion debate. The locus classicus on demerger under the IT Act/ Direct Taxes Code is still awaited. Or maybe an Income Tax circular. Whichever comes first.

I realize that attempting to prepare an exhaustive list of legal developments in 2010 is an exercise in futility. Given the space restraints I face, not only will it not do justice to these developments, it will also put to sleep any reader who is not deeply passionate about the law. I have therefore decided to identify and briefly analyze what I believe are the most eventful and influential “legal” events of 2010.

The Legislative development of the year

2010 has seen the Indian Government take two important measures to further the commercial law reform which was initiated in 2009.

a. The Commercial Division of High Court Bill, which is based on the 188^th Law Commission Report and which was passed by the Lok Sabha towards the end of 2009, was referred by the Rajya Sabha to the Select Committee on Personnel, Public Grievances, Law and Justice. The Bill, which was a reaction to criticism by foreign Courts and media of the delays occurring before Indian Courts, sought to expedite adjudication of commercial disputes of value of Rs. 5 crores or above- under the proposed Act commercial disputes are to be resolved within a time span of one year.

While majority of the members of the Select Committee gave the green signal, there were a couple of opinions within the Select Committee that might adversely impact the passing of the Bill.

First, it was suggested that the Act, if passed, would result in numerous cases which are now being filed before the District Courts being transferred before the Commercial Division of High Courts, resulting in an overload of cases in the High Court.

Second, it was argued that the Act, if passed, may violate the right to equality guaranteed by Article 14 of the Constitution of India as the Act would result in treating people seeking to resolve disputes of larger values differently from those seeking to resolve disputes of lower value.

In my view, both these criticisms are unfounded. In reality, most commercial disputes of such large value do not get resolved at the District Court level and go up on appeal before the High Court. Hence the case load before the High Court is not going to increase drastically because of the proposed Act. This Act would also meet the constitutional challenge- the Legislature has the discretion to classify disputes based on its value in order to meet a policy objective, i.e. to expedite adjudication of high value commercial disputes.

b. The Law Ministry issued a Consultation Paper suggesting amendments to the Arbitration and Conciliation Act, 1996 to address, among others, the problem of excessive judicial interventions in arbitrations- both domestic and international. The Consultation Paper proposes among other things, that Indian Courts will not have jurisdiction to interfere (except for providing interim relief) where the arbitration is conducted outside India. i.e. where the “place of arbitration” is  outside India; Indian Courts cannot appoint an arbitrator or set aside the award. Furthermore, in cases of “Commercial Disputes of specified value” as defined in the Commercial Division of High Courts Bill, this power would stand automatically delegated to an arbitral institution. Moreover, a fixed time frame (of sixty days) for processing applications for appointment of arbitrators has also been specified.

While some of the proposed amendments address the main problems faced by arbitration in India, a few of the amendments are potentially controversial and could result in more litigation. (For a more detailed analysis refer to two of my previous posts.)

The “social and political” case law of the year

It was a no-brainer to decide which case would qualify under this head- the Ayodhya verdict. The political statements preceding this judgment and the media debates set the tone for a perfect “settlement-judgment” that too in a case where the parties had failed to settle after attempting to do so for a period spanning decades.

The majority of the judges of the 3 judge bench of the Allahabad High Court (Justices Khan and Agarwal) held that the land should be divided into three equal parts and be divided between the Hindus, Muslims and the Nirmohi Akhara (since this housed the Hindu place of prayer even when the mosque existed). The rationale of the equal division between the Hindus and Muslims was that neither could prove their title to the disputed land and that both have been in joint possession of the disputed land at different times. It would therefore follow that they be granted joint title to the land. It was however clarified that the portion below the central dome where at present the idol in the makeshift temple was kept would be allotted to the Hindus.

There were subtle differences in the reasoning adopted by the two majority judges and interested readers may see the following link for more details.

http://rjbm.nic.in/

While some aspects of the legal reasoning are questionable, this was possibly the only decision that would not have caused communal unrest in the country.

The commercial case law of the year

The decision with the foremost commercial impact this year, in my view, is the decision of the Bombay High Court in Vodafone International Holdings v. Union of India. The Bombay High Court held that transfer of an Indian entity by one non-resident company to another will give rise to an incidence of capital gains tax in India. The High Court took the view that the capital gains arose out of the transfer of a capital asset that was situated in India and hence gave rise to capital gains tax in India. The nexus with India was established by the fact that what were being transferred were not merely the shares of the Indian entity but associated rights including the right to control the company, the right to use the Hutch brand etc.

A detailed analysis of this analysis can be found in the following links:

http://indiacorplaw.blogspot.com/2010/09/vodafone-international-holdings-v-union.html

http://indiacorplaw.blogspot.com/2010/09/some-thoughts-on-vodafone-judgment-case.html

Unless this decision is reversed by the Supreme Court, Vodafone could find its pockets lighter by $ 1.7 billion.

The question of the year

The success of Nira Radia as a “lobbyist” has raised concerns similar to those raised in USA in the late 1800’s and early 1900’s. The debate in USA came to an end when it was declared that lobbying was part of the “right to petition” and consequently, in 1995, the Lobbying Disclosure Act was enacted requiring lobbyists to register with the Government and make certain disclosures. The disclosures were made more stringent with the enactment of the Legislative Transparency and Accountability Act of 2006. Consequently, lobbyists are supposed to submit detailed reports on their activities and these reports are made available to the public. Lobbyists are also prohibited from doling out gifts to the legislators. USA has therefore succeeded in eradicating some of the harmful effects of lobbying by legitimizing lobbies.

The question that has arisen post the Radia saga is whether India should follow the US model and attempt to minimize the impacts of this inevitable evil? Would legitimization of lobbies and controlling some of their activities lead to elimination of the worst harms caused by lobbyists? These questions are likely to form part of media and legislative debates in 2011- I personally believe that we need to adopt the US model.

Judicial scandal of the year

Though not in the same league as the scandal in 2009 relating to Justice P.D.Dinakaran (and fortunately so) the recent controversy relating to the inaction taken by the then Chief-Justice of India (Justice K.G.Balakrishnan) (“CJI”) pursuant to a report sent by the then Chief-Justice of the Madras High Court (Justice H.L. Gokhale) informing the CJI about a Cabinet Minister (A.Raja), attempting to influence one of the judges of the Madras High Court (Justice Raghupathi), shows that something is rotten in the judiciary. Justice Gokhale claims that he attached with his report, a copy of the letter sent to him by Justice Raghupathi, which mentioned the name of A.Raja with details of how the Minister tried to influence him. Justice Balakrishnan on the other hand says that nothing about the Minister was mentioned. Clearly, there is a contradiction in the versions of the judges involved.

Quote of the year

“If I had to live my life all over again, as a lawyer, and the brief came to me and I had foreknowledge of everything that later came in, I would not have accepted the case. I think I was described along with others as a fallen angel. I am no angel, of course, but nor am I a devil. But fallen angel would perhaps sum up what others thought of this whole episode.”

- Fali Nariman, in his autobiography “Before Memory Fades”, on the one brief he regrets accepting (Bhopal Gas tragedy)

The Criticaltwenties Law and Judiciary team takes this opportunity to wish you all a happy new year.

This issue is best analyzed by breaking it down into the following questions:

1. Is the judiciary competent to enforce socio-economic rights (“SER”)?
2. If so, upto what extent can the judiciary interfere in the enforcement of SER before it starts performing the role of the Legislature/ Executive?

Competence of judiciary to enforce SER

This can be split into two further issues, i.e.

1. Are SER enforceable at all or are they merely ideals that the Legislature must seek to promote.
2. If SER are enforceable should it be the judiciary who enforces them.

These two issues are considered together. I have stated below the arguments against enforcement and more specifically judicial enforcement of SER followed by the counter-arguments (in italics).

First, it may be argued that it is inevitable that SERs will clash with an individual’s civil and political rights (“CPR”) and the easiest solution to this conflict is to enforce only CPR that give rise to duties of restraint. Fuller argues that law cannot perpetrate actions of creation as these lead to reordering of the rights of a system. It can only provide creative actions by preventing destructive actions. This conflict of rights is largely avoided when law does not enforce SER. The rationale is that when the State plays an active role in promoting collective good, it is at the expense of the rights of certain individuals.

However, the solution does not lie in not enforcing SER. A conflict can also arise between the CPRs of two individuals. For instance, prohibition of murder is justified although it can be argued that it amounts to a restriction on the liberty of the murderer.

The solution therefore lies in reconciling conflicts rather than not enforcing SER. The Indian Courts, have adopted this approach as elucidated in the case on conflicts between the Directive Principles of State Policy  and Fundamental Rights. One of my earlier posts elucidates the jurisprudence on this point.   

What the Indian experience shows is that it is possible to reconcile conflicts between rights and merely because there is a likelihood of a conflict between SER and CPR, a stand that this potential conflict would be avoided by not granting and enforcing SER, is not justified.

Secondly, it may be argued that it is impractical to enforce SER as these rights are expensive to enforce and are not immediately realized.

These are valid concerns, but again these do not justify not enforcing SER. A number of CPR’s like right to free trial are also resource heavy and involve programmatic realization.

However, the cost and programmatic realization of SER are factors that need to be taken into account while discussing the restrictions on judicial enforcement of SER (discussed in the next section).

The third argument relates to whether the judiciary is the appropriate institution to enforce SER.

1. The democracy argument- Waldron argues that empowering judges to decide on policy issues amounts to disrespecting the democratically elected representatives of the majority.

 However, Waldron’s argument is based on two mistaken presumptions (as pointed out by Sandra Fredman):

First, that justiciability means that judges have the final say on the policy issue. The judges can promote decision making relating to policy issues without being the ultimate decision maker. It is conceded that the Parliament which is accountable to the electorate is the institution that has the duty of drafting legislative policy and that if the Court does take decisions on policy matters, it will be overstepping its limits.

Second is the assumption that the Parliament and Executive make policy decisions based on effective participation with the citizens. This is a flawed notion and the judiciary ensures that participation is effective.

1. The competence argument- The argument is that determination of policy issues may require certain amount of specialization and fact finding which judges may not be best equipped to carry out.

 While no doubt true, the Court can still play the important role of ensuring that the bodies more competent than them to take policy decisions act, and act reasonably.

None of the criticisms are strong enough to conclude that SER should not be enforced by the judiciary. There are arguments that overwhelmingly suggest that SER are fundamental to the successful functioning of a State.

First, in the absence of SER many CPR cannot be enjoyed. What use is the right to vote for a person who does not have basic food and shelter?

Second, every so called CPR has a SER angle to it. For instance, right to life is violated not only due to positive state action but also when the State refuses to act to provide basic food and shelter. Hence the straight jacketed division of a right into CPR and SER is without any basis.

Third, the Courts, by enforcing SER act in furtherance of democracy. This is explored further in the next section.

From this discussion of pros and cons of judicial enforcement of SER, a few important limitations of the Courts power come through:

1. The resources available to the Executive are an important factor that the Court ought to consider before enforcing a SER.
2. The Court’s role is not to take a final call on policy issues but to ensure that the Parliament/ Executive takes appropriate steps in furtherance of enforcing SER. 
3. Where decisions are better made by a more competent body, the Court should refer these issues to such bodies (like specialized Commissions).
4. The Court’s actions are legitimized only so long as they are in furtherance of democracy.

When is the judicial enforcement of SER in furtherance of democracy?

As discussed, judicial enforcement of SER is legitimized only so long as the action is in furtherance of democracy. According to Sandra Fredman, democracy consists of three values:

1. Accountability- The representatives of the people are accountable to the people and the judiciary, by eliciting reasons for their actions from the Parliament acts in furtherance of this value of electoral accountability.
2. Participation- The judicial process involves participation from all affected parties. Thus where a right is violated, the Court notifies all affected groups to present their case and this brings about deliberation between the groups and the State therefore ensuring that the representatives of the people know the people’s stand point on the issue at hand. South African Courts have also gone further and directed the affected groups and the State to sort out the issues privately and attempt to arrive at a solution.

 The best example is the Rand Properties case[1] which involved a challenge to the State’s eviction of inmates of dilapidated buildings in central Johannesburg. The Petitioners argued that they had a right to housing and demanded that the State provide a suitable alternative before evicting them. The Court required the parties to “engage with each other meaningfully … and in the light of the values of the Constitution, the constitutional and statutory duties of the municipality and the duties of citizens concerned” to resolve the dispute.

 The Court, by its interventions, ensures that these deliberations are on a level playing field as the final result is susceptible to scrutiny by the Court.

 Another stage where deliberation comes in is after the order is passed, where the Court can order that the State report to Court continuously and in cases where the State has failed to keep up to this schedule, the aggrieved parties are permitted to make further representations and engage with the State and the Court on a continuous basis.

 Minister of Health v. Treatment Action Campaign[2] (“TAC case”) is a perfect example of such a method. This case pertained to an action against the policy of the South African Government’s program relating to distribution of antiretroviral drugs(Nevirapine). Despite the the manufacturers being willing to supply the drug free of cost to the Government, the availability of the drug was restricted to two sites in each province effectively reaching out to only 10% of the population. Thus patients who did not have access to one of the two sites in every province, and who could not afford private health care, were left without access to this important drug.

TAC, a non-governmental organization, questioned this unexplainable government policy and claimed that the government programme resulted in a violation of the right to health. The Court ordered the government to remove these unreasonable restrictions on distribution of Nevirapine. The Court also ordered that the counsellors based at public hospitals and clinics be trained with respect to administering Nevirapine. The government was also ordered to plan an effective and comprehensive national programme to prevent Mother To Child Transmission(MTCT) of HIV. In order to ensure enforcement, the Court required that MTCT prevention policy should have time-frames for its implementation and that it must take into consideration the condition of those who cannot afford to pay for medical treatment. Most importantly, the Court required the State to continuously report to it about the implementation of the programme.

3. Equality- Judicial enforcement of SER ensures that the unheard voices of the minority are heard by the Government. The Court ensures that bargaining between the Government and different interest groups are on an equal footing.

Laying down the limits

Where the Court does not consciously limit its role while enforcing SER to that of furthering democracy as explained in the previous section, there is a great likelihood of the Courts stepping onto the Legislature’s shoes and making law. Roach states that the Court should not create policies to enforce rights but must require the government to draft its own policy and submit it to Court along with a timetable for execution. The finalization of this plan must be only after the Court has heard objections from other interested parties.

Once such a policy is framed by a Legislature/ Executive, it is to be interfered with by the Courts in a very restrictive manner, using the principle of deference. According to this principle the Court, while evaluating Executive/ Legislative action (or inaction) should modify the policy framed only the reasons provided are not reasonable.[3] The Court should merely see whether the reasons provided by the Executive justifies its decision; not whether the Court would have reached the same decision. This standard should be applied not only when a Legislative/ Executive policy is tested before the Courts but also by Courts to see if Executive / Legislative inaction is justified.

Courts should also be cautious in interfering with budgetary allocations of the Government. However, Courts can interfere when these budgetary allocations are wholly irrational. According to the example provided by Mureinik, assuming the Government is under a duty to eradicate starvation, if there are no budgetary allocations made towards this end but large budgetary allocation is made towards building a nuclear submarine, the Court would be justified in interfering.

Conclusion

While there is a possibility that Courts may overshoot their powers while enforcing SER, this itself is no reason for the Courts to not enforce these rights. However, a thin line needs to be drawn between judicial restraint and judicial over-activism and so long as this line is drawn, such judicial enforcement of SER will be in furtherance of democracy.

[2] 2002 (5) SA 721 (CC) (S. Afr.)

[3] D Dyzenhaus ”The Politics of Deference: Judicial Review and Democracy” in M Taggart (ed) The Province of Administrative Law (Hart Oxford 1997).

Earlier this year, the Bar Council of India and the Ministry of Law and Justice organised a National Consultation on “Second Generation Reform in Legal Education.”  At this consultation, the Law Minister presented a Vision Statement, proposing a set of ambitious reforms to legal education.

 The government’s commitment to improving legal education is commendable, and one important aspect of legal education that it should consider reforming is evaluation and assessment of students.  Particularly, the government should consider how law schools can improve writing requirements and examinations.

Aside from a small number of national law schools, most schools assess their students with examinations that require memorising legal rules and abstract theoretical concepts.

Another crucial aspect of student assessment at the National Law Schools and a handful of other law schools are research projects, or term papers.  These law schools typically require students to write a research project for every course and, students usually study ten to twelve courses every academic year.  However, students find it difficult to complete so many research papers every year, and feel that they often sacrifice quality for quantity, while professors struggle to evaluate and provide proper feedback on such a large number of lengthy projects.

On the other hand, many traditional law colleges do not require their students to complete any written work.  An effective policy should neither impose unrealistic writing requirements on students and faculty nor leave students without significant experience crafting legal essays.  It should help students to become creative and persuasive writers by providing them with the experience of thoroughly exploring a large body of information and applying their original insights to a problem that interests them.

In order to enhance the quality and inclusiveness of legal education, law school examinations and writing requirements need to be reformed to emphasise the importance of students’ analytical skills.  Two important, connected problems related to professional integrity are academic misconduct and ineffective evaluation in law schools.

This June, Gopal Subramanium, Chairman of the Bar Council of India, released a statement acknowledging the wide prevalence of plagiarism in law schools and proposed that the Bar Council partner with a private firm to develop software that law schools could use to detect plagiarism. This is an important step to promote integrity, but it will be most effective if coupled with the development of methods of student assessment that are less amenable to plagiarism.

With respect to examinations, to prepare legal professionals who can address the challenges accompanying the continuous developments of the Indian economy, more law schools should challenge their students to think critically about contemporary legal issues with problem-oriented examinations.

Evaluation reform is often treated as a technical matter best left to administrators.  However, it should occupy an important position in Second Generation legal education reforms.  Academic evaluation is the primary extrinsic incentive for law students to learn and acquire legal skills.

When students do not receive meaningful feedback or have doubts about the accuracy or reliability of the evaluation of exams and research projects, they become disillusioned with their assignments and are unlikely to take them seriously.  The Bar Council and the Government may design and implement outstanding curricular reforms for law schools, but such reforms will be meaningless unless students are appropriately incentivised to absorb the curriculum.

Because of the relevance of assessment reform to law students, discussing evaluation would provide an opportunity to involve students directly in the national consultation and enhance its legitimacy among all stakeholders.  Reforms to legal education will be most effective when they incorporates examinations that encourage greater creativity and writing requirements that instil research skills.

Inadequate law student evaluation is not a problem limited to India.  In the United States and around the world, a common complaint of law students and practising lawyers is that law school examinations neither prepare students to practice law nor predict whether students will be successful as practicing lawyers.  By developing accurate, reliable and relevant assessments of law students, India can further position itself as a leader in global legal education.

It is particularly important when considering the proposed reforms that they reach all law schools in India.  Currently, most reforms have been experienced at a small group of elite law schools.  In order for the Second Generation of legal reforms to be fully effective while furthering the goal of inclusion, they must permeate through the entire system of legal education.

Speaking at the National Consultation, Prime Minister Manmohan Singh recognised that Indian legal education is characterized by a few “islands of excellence amidst a sea of institutionalised mediocrity. To remedy this mediocrity, the Government and Bar Council must commit themselves to making their vision a reality that includes student participation, better assessment, and broad-based implementation.

I will divide this post into two broad heads: A) Analysis of the case, B) A Few Observations

A)    ANALYSIS OF THE CASE

The short issue before the Supreme Court was whether an application under Section 11(6) (which is contained in Part I of the Act) for the appointment of an arbitrator, is maintainable in a fact situation where:

1. The proper law governing the underlying contract is governed by Korean law (Article 22 of the Agreement between the parties), and
2. The arbitration clause provided that all disputes shall be settled “by arbitration in Seoul, Korea (or such other place as the parties may agree in writing), pursuant to the rules of agreement then in force of the International Chamber of Commerce” (Article 23).

Brief background of the law on the subject

Section 11, under which the application was filed in Dozco, is contained in Part I of the Act. Hence, the application would be maintainable only if Part I applied to the arbitration. Section 2(2) of the Act outlines the scope of applicability of Part I. Section 2(2) provides:

“This Part (i.e. Part I) shall apply where the place of arbitration is in India.”

 The Supreme Court, in Bhatia International v. Bulk Trading S.A.: 2002 (4) SCC 105 (“Bhatia”), declared that this provision does not mean that Part I applies only where the place of arbitration is in India. The Court held that Part I of the Act applies mandatorily to all arbitrations “held in India” and applies to arbitrations conducted outside India unless it is expressly or impliedly excluded. On what constitutes an implied exclusion, the following propositions have been enunciated in Bhatia and subsequently:

1)      Merely specifying the seat of the arbitration to be foreign without specifying the proper law of contract does not amount to an implied exclusion of Part I. (Bhatia International v. Bulk Trading S.A.: 2002 (4) SCC 105)

2)      Merely specifying the proper law of contract to be foreign without specifying the seat of arbitration or proper law of arbitration does not amount to an implied exclusion of Part I. (Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Ltd.: 2008 (10) SCC 308 (“Indtel”) and Citation Infowares Ltd. v. Equinox Corporation: 2009 (7) SCC 220 (“Citation”))

3)      Where both the seat of arbitration is abroad and the law governing the contract is foreign, an implied exclusion of Part I can be presumed according to the dicta of the Delhi and Bombay High Court (Max India Ltd. v. General Binding Corporation (2009) 3 Arb LR 162 (DEL) (DB) (“Max India”), DGS Realtors Pvt. Ltd. v. Realogy Corporation MANU/DE/2115/2009 (“DGS”) and Frontier Drilling A.S. v. Jagson Internatural Ltd  (2003) 3 Arb. LR 548). The Delhi and Bombay High Courts’ views work on the presumption that where the proper law of contract is foreign and seat is abroad, the proper law of arbitration agreement can reasonably be presumed to be foreign.[1]

Issues before the Supreme Court

The Supreme Court had to rule on whether or not Articles 22 and 23 of the Agreement between the parties impliedly/ expressly excluded Part I of the Act. The issue can be broken down into the following two issues:  

1)      Does the underlined phrase of Article 23 imply that the seat of arbitration is Seoul, Korea and hence are the facts of this case analogous to Max India and DGS (where the seat was located abroad and the law governing the underlying contract was foreign) and different from Indtel and Citation (where the law governing the underlying contract was foreign but the seat was not specified)?

2)      If so, were Max India and DGS decided correctly, i.e. is there an implied exclusion of Part I of the Act in such a fact scenario?

 Issue 1

The petitioner argued that because of the bracketed portion, it was possible for the seat to be located anywhere else in the world as well (possibly including India) and in such a situation, where the seat is unclear and the underlying contract is governed by foreign law, following the ratio of Indtel and Citation, an implied/ express exclusion of Part I could not be presumed. 

However, Justice Sirpurkar rejected this argument on the grounds that the bracketed portion does not control the scope of the main clause. The bracketed portion was only meant to provide the tribunal and the parties the flexibility of conducting arbitral hearings in other locations (including possibly in India though this was not expressed in so many words). Conducting hearings in a different location would not alter the seat of the arbitration. Hence the seat of the arbitration would be Seoul.

Issue 2

The Supreme Court differentiated Indtel and Citation on facts and followed the logic applied by the Delhi and Bombay High Courts (without referring to any of their decisions) and held that Articles 22 and 23 read together “expressly” excluded Part I of the Act. There was indeed no reason for the Supreme Court to depart from the sound reasoning of the Delhi and Bombay High Courts.   

B)    A FEW OBSERVATIONS

1. The Supreme Court recognized the fact that the seat of arbitration may be different from the place/ places where the arbitral hearings are conducted- a fact well established in England and many other countries.
2. The Supreme Court has implicitly made an important clarification on the import of the term “where the place of arbitration is in India”. The Supreme Court has indirectly equated the term “place of arbitration” with the concept of seat of arbitration.

 I reach this conclusion by 5 step analysis. Before I go onto this process I will first explain the crux of the issue:

 The Supreme Court in Bhatia had held that if the arbitration was “held in India”, Part I would mandatorily apply and it could not be excluded either expressly or impliedly. The term “held in India” can be understood to be analogous to the phrase “place of arbitration is in India” used in Section 2(2). What was not clear post-Bhatia was whether these two phrases referred to the seat of arbitration or not. It was therefore not clear whether an arbitration would be “held in India” even if the seat was located abroad but a few hearings were conducted in India.

 My 5 step analysis is as follows:

Step 1-An exclusion of Part I is permissible only when the arbitration is not held in India (pursuant to Bhatia).

Step 2- Therefore if there is an exclusion of Part 1(as in Dozco), the arbitration is necessarily not “held in India”.

Step 3- Pursuant to Dozco, Part I stands excluded even when a few hearings may be conducted in India and the seat of arbitration is located abroad.

Step 4- Where the seat of arbitration is abroad and arbitral hearings are conducted in India, the arbitration is not “held in India”.

Step 5- “Held in India” is therefore dependent on the location of the seat and not where individual hearings are conducted.

3. As has been pointed out in other articles, the Supreme Court has controversially held that in the given fact situation Part I is “expressly” excluded. While such a finding does seem to be a bit extreme, it is not likely to have a widespread impact.

4. The Supreme Court approvingly quoted one proposition of law that has been impliedly overruled by a larger bench in Bhatia. The Supreme Court, relied on the following paragraph from Mustill and Boyd, “The Law and Practice of Commercial Arbitration in England”, 2^nd ed.:

“In the absence of express agreement, there is a strong prima facie presumption that the parties intend the curial law to be the law of the ‘seat’ of the arbitration, i.e. the place at which the arbitration is to be conducted, on the ground that that is the country most closely connected with the proceedings.”

This proposition (the “Singer Proposition”) was adopted in NTPC v. Singer: 1992 (3) SCC 551. However, in light of Bhatia, this may no longer be good law. Applying this proposition to the facts of Bhatia, where Paris was the seat of arbitration, the curial law would have had to be French law. However, the Indian Arbitration Act was held to apply. This amounts to an overruling of the Singer Proposition.[2]

 While the Singer Proposition merely forms obiter dicta of Dozco, it does not impact the ultimate decision of the Supreme Court. However the Supreme Court should have analyzed the applicability of the Singer Proposition post-Bhatia, before quoting it with approval.

 CONCLUSION

Dozco provided the Supreme Court with a wonderful opportunity to unambiguously clarify a number of controversial issues pertaining to Bhatia and allied cases. The Supreme Court has not made best use of this opportunity.

[2] For a more detailed analysis of this issue, refer to the heading titled “Position of Law in India: Singer and thereafter” in the chapter titled “PRINCIPLES OF PRIVATE INTERNATIONAL LAW THAT ARE APPLI-CABLE IN INTERNATIONAL COMMERCIAL ARBITRATION” of Anirudh Wadhwa and Anirudh Krishnan (ed.), “Justice Bachawat’s Law of Arbitration and Conciliation”, 5^th ed. 2010)

Since Thana’s post consists of a number of diagrams which are difficult to upload, I have instead provided a link that directs the reader to her article.
Link to article