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Report No. 159

Chapter III

Central Acts Recommended for Repeal/Amalgamation/Amendment

3.1. Proposals received from the Ministry of Finance (Department of Economic Affairs).-

We shall first take up the proposals received from the Department of Economic Affairs, Ministry of Finance in the shape of the "Report of the Expert Group for the Department of Economic Affairs", which were forwarded to the Commission under their letter dated 9-3-98. The said Report sets out, in the first instance, the role of the Department of Economic Affairs and its changed role in the current liberalized economic environment. Since the liberalisation of economic environment is a policy of the Government, the Law Commission has no comments to offer thereon. At the same time, it is necessary to mention that liberalisation should not and cannot involve a total withdrawal of the Government from the economic scene of the country.

Until 1991-92 the Indian economy was, what may be called, a 'command economy where the commanding heights were supposed to be occupied by the public sector. The private sector was closely regulated and had to operate subject to numerous restrictions contained in various enactments in force or enacted from time to time, as the case may be. Probably in the present day world economic scenario, India had no option but to adopt market-oriented or what may be called market-friendly economic policies. The shift was unavoidable. But, it must be said on the basis of experience in this country as well as in the former communist States, that any such shift from a totally controlled and sheltered economy to a market-friendly and liberalised economy ought not to be achieved in a sudden lurch.

It has to be a gradual process. The several large-scale financial irregularities which came to light during the years 1993 to 1997 are perhaps attributable to such an abrupt shift among other causes. While lifting of restrictions which operate as hurdles to increase in production and the growth of industries is welcome, the Government cannot abdicate its role as the regulator of the economy. In the matter of establishment of new industries and/or in the matter of maintaining the standards and qualities of industrial products too, its role is unique and can be performed by it alone.

Import and export policies have to be kept under constant watch and closely monitored and regulated in the interest of a healthy economy and this can be done and ought to be done by the Government. Transparent economic laws and procedures are welcome, but at the same time the establishment of industries depending upon forest produce, non-renewable and irreplaceable natural resources and those giving rise to serious environmental and ecological problems have still to be regulated in the larger interest of the nation including sustainable development and inter-generational equity. Several decisions of the Supreme Court rendered during the years 1994 to 1997 amply bear out the above principles.

Now coming back to the proposals/responses of the Department of Economic Affairs, a reference is made to R.V. Gupta Committee Report, 1994 (Chapter V) which contains several recommendations to amend various provisions of the statutes administered by the Department. It is stated that "most of the recommendations of the Gupta Committee have already been implemented by the Department". In this view of the matter, no purpose will be served by offering any comments on the recommendations mentioned in Chapter V of R.V. Gupta Committee Report.

The proposals sent by the Department then speak of the proposals made by the 'new Expert Group' constituted on 5th November, 1997 under the Chairmanship of the Finance Secretary to review Acts, rules and regulations pertaining to the Department. It is stated that for expeditious completion of the work, the said new Expert Group constituted a sub-committee under the Chairmanship of Shri Vinod Dhall, Additional Secretary (Insurance) and comprising certain non-official members as well. It is stated that the said Committee submitted its Report on 18-12-1997 which was finalised by the Expert Group in its final meeting held on 29-12-97. The recommendations of the Expert Group can be broadly categorised under four heads as stated in the preceding Chapter, para 2.1, and are being repeated hereunder:

(i) Acts which do not need any change;

(ii) Acts which require to be repealed;

(iii) Acts which require to be amalgamated and re-enacted as single enactment; and

(iv) Acts, changes wherein are still under consideration.

(i) In so far as the Acts mentioned in item (i) above are concerned, the Commission has obviously no comments to offer.

(ii) Under this item, the following Acts are proposed to be repealed:-

(a) Banking Service Commission Act, 1984.-It is stated that the Banking Service Commission contemplated by the Act was never constituted and that in view of the decision to enhance the functional autonomy of public sector banks, no such Commission is proposed to be constituted. The decision to repeal this Act being a policy decision, calls for no comments.

(b) Currency Ordinance, 1940-It is stated that since the printing of one rupee denomination notes has been discontinued, this Ordinance is no longer required. The view of the Department appears unexceptionable.

(c) The Shipping Development Fund Committee (Abolition) Act, 1986.-This Act was enacted "to abolish the Shipping Development Fund Committee constituted under the Merchant Shipping Act, 1958" and for disposal of its funds, assets and liabilities. Since the object of the Act has already been achieved, there is nothing further to be done under the Act and accordingly it is but proper that it is repealed.

(d) Compulsory Deposit Scheme Act, 1963 and Additional Emoluments (Compulsory Deposit) Act, 1974.-The Compulsory Deposit Scheme was enacted requiring every person mentioned in section 2 to make certain deposits compulsory every year. The Additional Emoluments (Compulsory Deposit) Act, 1974 provided for compulsory deposits into two separate accounts i.e., additional wages deposit account and additional dearness allowance deposit account into which the persons mentioned in section 3 have to make the deposits. Actually, the deposits were to be n'iade by the disbursing authority.

No reasons are given in the proposals sent by the Department of Economic Affairs in support of the proposal to repeal these enactments. However, on being contacted, the Law Commission was told that the Department did not think that in future any occasion or necessity will arise for such compulsory deposits. It is for this reason, it was stated, the Acts were proposed to be repealed while no doubt making provision for disposal of the amounts already in deposit under the respective enactments. Since it appears to be a matter of policy, more or less, to repeal these enactments, the Law Commission has no particular comments to offer.

(iii) (a) The proposal to amalgamate and enact a single Act in the place of Government Savings Bank Act, 1873. Government Savings Certificate Act, 1959 and Public Provident Fund Act, 1968 may be a welcome feature. The main purpose of the 1873 Act is to provide that the nomination made by the depositor should prevail notwithstanding any law being in force or any disposition whether testamentary or otherwise. A nominee is entitled to get amount on the death of the depositor. Similarly, the 1959 Act provides that nomination by a holder of certificate should prevail over any other circumstance.

Of course, certain other provisions are also made. The 1968 Act, of course establishes the Public Provident Fund Scheme, the manner of subscription thereto and withdrawal therefrom as well as for the interest payable. This Act too provides that in the case of nomination, the nominee will get the amount on the death of the depositor notwithstanding any other circumstance. It would be appropriate that these enactments are repealed after enacting a consolidated Act providing for the subject-matters dealt with by these three enactments.

It is pertinent to mention that there was a difference of opinion between different High Courts as to whether the nominee was entitled to the amount payable tinder the policy as a beneficiary in his own right to the exclusion of the heirs of the deceased assured or whether the nominee was merely a person authorised to make collection on behalf of the legal heirs of the deceased assured. This issue was settled by the decision of the Supreme Court in Sarbati Devi's case, AIR 1984 SC 346, which upheld the latter view that the nominee is merely empowered to collect the amount for the benefit of the legal heirs.

In the context of this legal position, the Law Commission in its 137th report on 'Need for Creating Office of Ombudsman and for evolving legislative-Administrative Measures, inter alia a to relieve hardships caused by inordinate delays in settling provident fund claims of beneficiary, examined under Chapter V thereof the status of a nominee under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and the Schemes framed thereunder, and suggested three options by way of solution to the issue.

However, it preferred adoption of the third option as it appeared to be just and fair as the employee would be fully aware and conscious of what he is doing by making the 'nomination and the consequences thereof. The said third option recommended by the Commission is quoted below:-

"Third course which commends itself is to make a statutory provision enabling an employee to clearly state in writing in the very application making nomination either that he wants that 'the nominee shall take the amount absolutely in his or her own right" or that the "nominee shall collect it and pay to my family members."

We recommend that similar provision, should be adopted for the sake of clarity in the proposed enactment.

(iii) (b) Similarly, the proposal to amalgate and enact a consolidated Act in the place of the Indian Coinage Act, 1906. Metal Tokens Act, 1889 and Small Coins (Offences) Act, 1971 is a welcome proposal. The Indian Coinage Act prohibits the making of any piece of copper, bronze or any other metal to be used as money by any other person than the Government. The Indian Coinage Act provides for establishment of mints, coining of coins at such mints and other incidental matters. The Small Coins (Offences) Act was enacted to prevent melting or destruction of small coins as well as hoarding of small coins for the purpose of melting and destroying. This Act was made to meet the acute shortage of coins. These three Acts can be conveniently clubbed into one Act.

(iii) (c) So far as the Legal Tender (Inscribed Notes) Act, 1964 is concerned, it is proposed to be continued in the present form and the Law Commission has no comments to offer thereon.

(iv) Before considering the Trusts Act, amendments whereto are said to be still under consideration, the Law Commission may deal with the proposal to repeal clauses (a) to (e) of section 20 of the [The Indian] Trusts Act, 1882. Section 20 provides for a situation where the trust property consists of money but cannot be applied immediately or at an early date to the purposes of the trust. In such a situation, the trustee is placed under an obligation to invest the money in any of the securities mentioned in clauses (a) to (f). Now, the Department of Economic Affairs says that clauses (a) to (e) have become redundant. At the same time, it says that they are concerned with the Law Department.

The Law Commission is not able to appreciate as to why it can be said that clauses (a) to (e) have become redundant and require to be repealed. It is true that clause (a) of section 20, to take an instance, speaks of investment "in promisory notes, debentures, stock or other securities, of any State Government or of the Central Government or of the United Kingdom of Great Britain and Ireland." It is not stated that no such promissory notes etc., were issued by the State Government or the Central Government.

The promissory notes of the U.K. are referred to because the Act is of 1882. It is one thing to say that the references in these clauses to securities, bonds, stocks, etc., of the Government of U.K. or other foreign countries may be repealed but it is altogether a different thing to say that all the clauses (a) to (e) are to be repealed. In the absence of any further material, the Commission is not in a position to agree with the proposal to repeal clauses (a) to (e) of section 20 altogether. Appropriate amendments thereto can, however, be considered, as mentioned above.

It is also stated in the Report of the Department that necessary steps have already been taken to replace Fera with Fema. Since the matter is closely connected with the policies of the Government and also because a copy of the Fema has not been made available to the Commission, it is not possible to express any opinion. The Report of the Department of the Economic Affairs, further, states that amendments to other Acts which are being implemented by the Department are under consideration of the Expert Group.

Among other matters, the Report states that in place of the existing Sick Industrial Companies (Special Provisions) Act, 1985, a new Bill called "Sick Industrial Companies (Special Provisions) Bill, 1997" was introduced in the Lok Sabha on 16th May, 1997. It is stated that the said Bill was prepared taking into consideration the various suggestions received in the matter including the recommendations of the Goswami Committee. Though a copy of the Bill was not made available to the Law Commission, it has obtained a copy thereof and has perused the same. It is true that in certain respects the proposed Act is an improvement upon the present Act, yet the basic scheme remains the same.

Section 28 of the Bill, which corresponds to section 22 of the present Act does not provide for an automatic suspension of legal proceedings, recoveries and other contractual obligations (as is provided by section 22 of the present Act) and it empowers the Board to pass orders to the above effect after hearing the parties and if the circumstances of the case call for such an order. The Bill provides for a three-way solution viz., rehabilitation, sale (of industrial concern or a going concern) and winding up, as the case may be. There is another aspect requiring clarification:

Section 1(4) says that it (Act) shall apply, in the first instance to all the scheduled industries other than the scheduled industry relating to ships and other vessels drawn by power; there are two schedules to the Bill; the first schedule sets out the declaration of fidelity and secrecy while the second schedule sets out the matters which can be provided for while restructuring the industrial company; there is no other schedule mentioning the industries to which the Act is supposed to apply. Be that as it may, having regard to the provisions of the present Act and the Bill aforesaid, the Law Commission thinks it necessary to make the following observations:

Several private/public limited companies are started with the aid of and are sustained with the aid of public funds. It is immaterial whether the public funds flow from the banks (nationalised or otherwise), or from other financing bodies and public financial institutions. Experience shows that quite a few entrepreneurs exploit this situation. They start a company, mainly with the aid of public funds and then either by mis-management, inefficient management or rank dishonesty, drive the company to sickness. The matter is reported to the BIFR with the result that all the recoveries against them are instantly stayed. Even the taxes due to the Government cannot be recovered let alone the debts due to the banks and other financial institutions.

This kind of blanket immunity results in grave injustice to banks/ financial institutions as well as to the Government and breeds financial indiscipline among the persons in charge of industrial companies. It is a serious matter to be examined by the Government whether in the light of the new liberalised economic policy, the Government should try to keep alive every sick industry. One of the underlying principles of a market economy is to allow inefficient and non-viable industries to die their natural death instead of seeking to sustain them by pumping in more and more public funds.

The policy followed hitherto viz., keeping several central and State public sector undertakings afloat by pumping in huge amount of public funds every year has already come in for serious criticism by various economists. One can understand if a key industry, whose existence/continuance is crucial to the nation's economy, is sought to be revived and continued. But the policy of seeking to revive and rehabilitate every sick industry may not be consistent with the present day economic policy. The 1986 Act, it may be remembered, was enacted at a time when the reigning philsophy was altogether different.

Today the ruling philosophy is not the same. Indeed, if one looks at the working of the nationalised banks and the extent of "non-performing assets" - an euphemism for bad debts - one is driven to the conclusion that sooner the public sector is privatised (barring some key defence and defence-related industries) the better it would be for the country and its economy.

Some of the nationalised banks have run up bad debts in thousand of crores of rupees e.g., Indian Bank, whose bad debts are said to exceed Rs. 2,000 crores. The Law Commission, therefore, recommends that before enacting a new Act in the place of the present Act, a policy decision may be taken on the subject as a whole and then steps should be taken to enact a necessary and appropriate enactment or put an end to the entire exercise as such.

Repeal and Amendment of Laws - Part I Back

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