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Daily Editorial Analysis 30th Sep 2020
Saroj SinghRead in Hindi
Editorial 1: A Wage Code that is a Hasty Composition
On September 23rd Parliament passed three Bills that complete the government's codification of 29 labour laws into four codes.
New codes are Code for Wages 2019, Industrial Relations Code, the Social Security Code and the Occupational Safety, Health and Working Conditions Code, 2020.
The three Bills that merge 25 laws were passed by the Lok Sabha on September 22nd.
The first of the four codes proposed by the government, the Code on Wages, was passed by Parliament in 2019.
Labour and Employment Minister Santosh Kumar Gangwar said the passage of the Bills would balance the needs of workers, industry and other stakeholders.
Prime Minister Narendra Modi, on his part, has said the Code on Wages, 2019 would expand the coverage of workers in all industries in the unorganised sector.
He told that old Minimum Wages Act covered only 30% of the total workforce.
He also said that while there were 10,000 slabs of minimum wages that existed, they would now be reduced to 200 slabs.
Consolidated Code of Wages Act
The Code on Wages, 2019seeks to consolidate and simplify four legislations into a single code.
These legislations are the Payment of Wages Act, 1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965 and Equal Remuneration Act, 1976.
The Payment of Wages Act regulates the payment of wages to certain classes of persons employed in the industry.
The Act guarantees payment of wages on time and without any deductions except those authorised under the Act.
The Minimum Wages Act 1948sets the minimum wages that must be paid to skilled and unskilled labours.
The Payment of Bonus Act, 1965 provides for the payment of bonus to persons employed in certain establishments, employing 20 or more persons.
The bonus should be calculated on the basis of profits or on the basis of production or productivity and matters connected therewith.
Equal Remuneration Act, 1976 provide for the payment of equal remuneration to men and women workers.
It also provides for the prevention of discrimination, on the ground of sex, against women in the matter of employment.
While the previous four pieces of legislation had a total of 119 sections, the new Code has 69 sections.
Considering that the repealed legislation each had a definition section, inspectors, penalties, a competent authority, an appellate authority, and rule-making powers, any consolidation will impact their length.
Further, all requirements for enforcing the Act, have been relegated to the Rules.
Section 67 had authorised the framing of rules relating to as many as 38 provisions of the Act.
As a result, the delegated pieces of legislation (Rules) will be bigger than the Code.
This is no way to condense prior pieces of legislation.
Old Provisions, New Challenges
All four repealed pieces of legislation were enacted historically at different points in time and to deal with different situations.
The combining of asymmetrical laws into a single code is not an easy task and will only create its own set of new problems.
Barring a few new concepts, the new Code retains almost all provisions.
These are features such as the procedure for fixing a minimum wage, the limit for fines and deductions in wages, minimum and maximum bonus, calculation of allocable and available surplus, as well as gender-neutral consideration in fixing wages.
The Code will have the same definition of the term "worker"
For a change, a person employed in a supervisory capacity drawing up to ₹15,000 will also be considered a worker.
In the (erstwhile) Minimum Wages Act, to fix minimum wage in employment which has more than 1,000 workers to be first included in the Schedule.
Thereafter, minimum wages will be fixed as per law.
The new Code has repealed the necessity of having a minimum number of workers and the inclusion of such employment into the schedule.
The central government will have the power to fix a "floor wage".
Once it is fixed, State governments cannot fix any minimum wage less than the "floor wage".
It is unwarranted since many States always fix minimum wages higher than the existing rates, depending upon the employment and workforce involved.
The concept should be for a binding minimum wage and not have dual wage rates, a binding floor wage and a non-binding minimum wage.
On MGNREGA
There was a conflict between the minimum wages fixed by the State governments for agriculture workers.
There were cases as to whether the Minimum Wages Act would have an overriding effect over the provisions of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005.
Several High Courts have placed the Minimum Wages Act to override MGNREGA.
That has been set to rest by excluding MGNREGA from the purview of the Code on Wages.
Enforcement Provisions
However, foremost in the labour code will be its enforcement provisions and the sanctions behind it.
The Code has created an omnibus inspector-cum-facilitator who will act as per the inspection scheme framed by the government.
According to section 51, He will advise employers and workers to comply with the provisions of the code and may carry out inspections as may be assigned by the government.
As for the claim mechanism, Section 45 stipulates that they will be heard and determined by an authority who is not below the rank of a "Gazetted Officer".
A government official without a legal and administrative background can hear such claims.
However, any dispute regarding the bonus will continue to go before the Industrial Tribunal.
The new Industrial Relations Code Bill contemplates a two-member Tribunal.
As against the decision of the Gazetted Officer, one can prefer an appeal to an appellate authority that must be one rank higher than the competent authority (Section 49).
Neither the Code nor the Rules (presently, draft Rules) prescribe the qualifications and experience required for the appointment of the competent authority.
Provisions of Penalty
The penal provisions found in earlier labour legislation never had an impact on employers.
In People's Union for Democratic Rights and Others vs. Union Of India & Others, 1982 case, the Supreme Court of India observed
"If violations of labour laws are going to be punished only by meagre fines, it would be impossible to ensure observance of the labour laws and the labour laws would be reduced to nullity. They would remain merely paper tigers without any teeth or claws."
A new provision (Section 52) has been introduced where an officer will be notified with power to impose a penalty in the place of a judicial magistrate.
That officer should not be of rank below the rank of an undersecretary to the government
Violation of Article 50?
An essential judicial function is now sought to be vested with the executive in contravention of Article 50 of the Constitution.
According to Article 50, the State has been mandated to separate the judiciary from the executive in public services.
A similar provision (Section 21 of the Bonded Labour System (Abolition) Act, 1976) which empowered revenue officers designated as executive magistrates to try offences under the Act was struck down by the Division Bench of the Madras High Court (Gajendran, 2014).
A review filed by the central government was dismissed (2018).
The Division Bench had observed: "On enforcement of the Code (Criminal Procedure), there has been a complete separation of Judiciary from the Executive to implement the mandate under Article 50.
By merging the judicial function in the executive, the basic structure of the Constitution is affected.
Justice and fair trial cannot be ensured by the Executive Magistrates in as much as they are not required to be legally qualified and trained persons and in actual practice are required to perform various other functions.
In other words, it is clear that the Executive Magistrate has no role to play in conducting judicial trial and recording judicial decisions.
Apart from providing for compounding of offences (Section 56), the Code also exempts employers from penal provisions.
They can be exempted if they were able "to prove that they had used due diligence in enforcing the execution of the code and it was the other person who had committed the offence without his knowledge, consent or connivance".
There is nothing particular in this Code that it will have wider coverage.
Similarly, as minimum wages mostly help the unorganized worker, the 200-slab categorization may not have much of an impact.
The Code on Wages has neither succeeded in the consolidation of laws nor will it ever achieve the claims made by the Prime Minister.
https://www.thehindu.com/opinion/lead/a-wage-code-that-is-a-hasty-composition/article32726499.ece
https://www.thehindu.com/news/national/parliament-passes-three-key-labour-reform-bills/article32675729.ece
https://labour.gov.in/wageboard/information-payment-bonus/
Editorial 2: The Perils of State Overreach
On September 25th, the Permanent Court of Arbitration at The Hague ruled that India's retrospective demand of tax was "in breach of the guarantee of fair and equitable treatment".
An Investor-State Dispute Settlement (ISDS) tribunal, constituted under the India-Netherlands bilateral investment treaty (BIT), has ruled that India's imposition of tax liability amounting to ₹22,000 crore on Vodafone is in breach of India's BIT obligations.
The court has also asked India not to pursue the tax demand any more against Vodafone Group
Vodafone Case
In May 2007, Vodafone had bought a 67% stake in Hutchison Whampoa for $11 billion.
This included the mobile telephony business and other assets of Hutchison in India.
In September that year, the India government for the first time raised a demand of Rs 7,990 crore in capital gains and withholding tax from Vodafone.
The income tax department said the company should have deducted the tax at source before making a payment to Hutchison.
Vodafone challenged the demand notice in the Bombay High Court, which ruled in favour of the Income Tax Department.
Subsequently, Vodafone challenged the High Court judgment in the Supreme Court.
In 2012 SC ruled that Vodafone Group's interpretation of the Income Tax Act of 1961 was correct and that it did not have to pay any taxes for the stake purchase.
In 2012 Indian Parliament amended the Income Tax Act to circumvent the SC ruling.
Amendment declared that income deemed to be accruing to non-residents, directly or indirectly, through the transfer of a capital asset situated in India is taxable retrospectively with effect from April 1, 1962.
Retrospective taxation allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from time behind the date on which the law is passed.
What is the Bilateral Investment Treaty?
On November 6, 1995, India and the Netherlands had signed a BIT for promotion and protection of investment by companies of each country in the other's jurisdiction.
Among the various agreements, the treaty had then stated that both countries would strive to "encourage and promote favourable conditions for investors" of the other country.
The two countries would, under the BIT, ensure that companies present in each other's jurisdictions would be "at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other".
Shaking the faith of foreign investors
The 2012 amendment dented India's reputation as a country governed by the rule of law and shook the faith of foreign investors.
The BJP, which was in the opposition, vehemently criticised the retrospective amendment calling it "tax terrorism".
But, when the Modi government assumed office in 2014, the government did nothing to change the law.
Like the United Progressive Alliance government, it vigorously pursued the act of fiscal plundering hoping to mobilise sizeable revenue.
Key Lessons for India
First Lesson
The tribunal has ordered India to reimburse legal costs to the tune of more than ₹40 crores incurred by Vodafone in fighting this case.
In other words, the taxpayer's money will be used to pay Vodafone.
So, the important lesson is that all the three organs of the Indian state Parliament, executive, and the judiciary need to internalise India's BIT and other international law obligations.
These organs need to ensure that they exercise their public powers in a manner consistent with international law, or else their actions could prove costly to the nation.
Second Lesson
India should learn that being a country that values the rule of law is an important quality to win over the confidence of foreign investors and international goodwill.
Unleashing tax inspectors to extract money out of foreign investors by constantly changing the rules of the game are not an attribute of liberal democracy.
Third Lesson
It is likely that the government might challenge the award at the seat of arbitration or resist the enforceability of this award in Indian courts alleging that it violates public policy.
If the government indeed follows these options, it would mean that India does not honour its international law obligation.
It would send a deleterious signal to foreign investors reaffirming the sentiment that doing business in India is indeed excruciating.
Fourth Lesson
This ruling might have an impact on the two other ISDS claims that India is involved in with Cairn Energy and Vedanta on the imposition of taxes retrospectively.
Fifth Lesson
It is quite possible that India might use this award to further harden its antagonistic stand against ISDS and BITs.
As is well known, India unilaterally terminated almost all its BITs after foreign investors started suing India for breaching BITs.
The belief in the Indian establishment is that the ISDS regime unduly intrudes into India's sovereignty.
Thus, this decision might be used to strengthen this populist narrative, oblivious of the fact that this case and several others are a result of bad state regulation.
Sixth Lesson
This decision shows the significance of the ISDS regime to hold states accountable under international law when in case of undue expansion of state power.
The case is a reminder that the ISDS regime, notwithstanding its weaknesses, can play an important role in fostering international rule of law.
If the Modi government is serious about wooing foreign investment, India should immediately comply with the decision.
https://www.thehindu.com/opinion/op-ed/the-perils-of-state-overreach/article32726276.ece
https://indianexpress.com/article/explained/retrospective-taxation-the-vodafone-case-and-the-hague-court-ruling-6613799/
Editorial 30th Sep 2020, Download PDF [English]
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