CAMPUS LAW CENTRE

STUDENT LAW REVIEW

Volume I Issue I

April 2013 A Students Union Publication

ISSN 2321-0028

CAMPUS LAW CENTRE

STUDENT LAW REVIEW
Volume I Issue I April 2013

Editorial Board 2012-2013

Editor-in-Chief Siddharth Peter de Souza

President, Students Union Ajitesh K Kir

Anu Chowdhry

Editors Udit Rastogi

Sumedha Sarkar

Patronin-Chief Professor J.L. Kaul

The Campus Law Centre Student Law Review (CLCSLR) seeks to publish and provide avenues for student research and scholarship. Published by the Students Union, Campus Law Centre, Faculty Of Law, University of Delhi. The publication of this Volume has been generously supported by Singh and Associates. No reproduction, storage or transmission except via fair dealing of any part of this publication may take place without prior written permission of the Students Union of Campus Law Centre. Please note that though every effort has been made to ensure that the information in CLCSLR is accurate and appropriately cited/referenced, neither the Editorial Board nor the Students Union shall be held liable or responsible in any manner whatsoever for any consequences resulting from inaccuracies, errors or views taken by authors in the Journal. Further, the views expressed by the authors are not necessarily those of the Editorial Board or of any sponsors of Campus Law Centre Student Law Review.

Campus Law Centre Student Law Review 2013. All rights reserved.

ISSN 2321 0028 (Print)

Supported by: Mr. Manoj K. Singh, Managing Partner

Singh and Associates

ii

CAMPUS LAW CENTRE

STUDENT LAW REVIEW
Volume I
Foreword Editorial Acknowledgments Articles 1 Capital Punishment and the Cultural Discourse of Femininity in the Offence of Rape Vanya Kumar Child Sex Abuse: The Menace Decrypted Susanah Naushad & Amana Ranjan Democratic Dilemmas in Justifying Murder: The Case of Targeted Killings under International Law Nidhu Srivastava Collective Dominance: How Does India Fare? Charu Rawat Anti-Competitive Implications of Reverse Payment Settlements with Special Reference to India Anirudh Krishan Gandhi and Hitakshi Mittal GAAR-Is India Ready for a Double-Edged Sword? Meghna Chandra Understanding Traditional Knowledge in Post TRIPS Regime Mayank Kapila From Warsaw to Montreal-Ramifications of Developments in Aviation Liability: An Indian Perspective Swati Singh Baghel and Gargi Rajvanshi 1

Issue I

April 2013
vii ix xi

CONTENTS

2 3

21 47

4 5

67 87

6 7 8

107 133 151

iii

The Dilemma of Prospective Overruling: One Step Forward or Two Behind? Prithvi Rohan Kapur

163

10 The Curious Case of Shares with Superior Rights: Is The Ban Imposed on Their Issue Justified? Srinivasan Ramaswamy 11 Smile, Youre on Candid Camera Finding Solutions for Privacy Violations by the Paparazzi in the Right of Publicity Samira Varanasi

175

193

iv

A tribute to Justice Jagdish Sharan Verma (1933 2013) Who inspired and believed in young people

vi

2013 CLCSLR

VOL.1 ISSUE 1

FOREWORD
I am pleased to introduce the inaugural issue of the Campus Law Centre Student Law Review. An initiative of the Students Union, it is the first ever student-edited and peer reviewed publication of the Campus Law Centre, Faculty of Law (University of Delhi). The Law Review has two primary goals. First, it will provide a forum for students to discuss, debate and deliberate on contemporary legal issues. Second, the Review will fulfil the needs of the Campus Law Centre student community by encouraging writing, editing and research among the student community. It will be an annual, peer reviewed publication with a student Editorial Board committed to promoting legal scholarship. Campus Law Centre has an outstanding tradition of producing some of Indias most erudite legal minds and it is this culture that needs to be preserved and nurtured by creating opportunities for law students who will eventually take up a career at the Bar or the Bench. The inaugural issue of the CLCSLR covers multidisciplinary issues such as Capital Punishment in Rape statutes, developments in Indian Competition Law, GAAR and tax avoidance, Aviation Liability and Doctrine of Prospective Overruling amongst others. I would like to commend the Editorial Board and Ajitesh K Kir, President, Students Union, for this commendable effort and look forward to the many contributions it is sure to make to legal discourse in the future. Professor J.L. Kaul Professor in-Charge Campus Law Centre April 2013 New Delhi

vii

2013 CLCSLR

VOL.1 ISSUE 1

viii

2013 CLCSLR

VOL.1 ISSUE 1

EDITORIAL
In the academic session of 2012-2013, the Students Union of Campus Law Centre, Faculty of Law, University of Delhi, resolved to start a Student Law Review in the hope of encouraging legal research and scholarship within the student community. The principle that the Students Union sought to uphold was that the initiative would be entirely studentdriven in order to enable capabilities and engineer creative freedom. The Campus Law Centre Student Law Review (CLCSLR) was established in October, 2012 with the aim of promoting the inter-disciplinary study of issues concerning law and society. The past year has been a fascinating one in the legal arena, giving the Editorial Board the exciting opportunity to select articles that are both unique and original contributions to existing literature. The inaugural edition of CLCSLR received an overwhelming response with over 110 submissions from students across law colleges in India and abroad. The quality and diversity of submissions affirmed our belief that an innovative spirit was alive and prospering within the student community. The task before the Editorial Board was therefore a difficult and challenging albeit exciting one. In an effort to ensure the highest quality of student research, the Editorial Board invited a team of accomplished Reviewers who included graduate students at reputed Universities across the world, Supreme Court and High Court Law clerks and young working advocates. Their inputs and comments greatly facilitated the process of preliminary and final selection. The present volume of CLCSLR is interdisciplinary in nature and covers a wide spectrum of issues. Vanya Kumar has examined the provision of capital punishment in rape statutes to ascertain whether such punishment is in fact antithetical to the interests of the victim. Amana Ranjan and Susanah Naushad have researched legislative attempts in India to tackle the menace of sexual crimes against children as well as critically examined The Protection of Children from Sexual Offences Act, 2012. Nidhu Srivasatava has discussed the normative implications of the use of targeted killings by States through an analysis of the legal basis and limitations of such actions. Two articles in this volume deal with the nascent and evolving domain of Competition Law in India. Charu Rawat has provided an analysis ix

2013 CLCSLR

VOL.1 ISSUE 1

of the viability of introducing the concept of collective dominance in India while Anirudh Krishan Gandhi and Hitakshi Mittal have examined the implications of reverse payment settlement agreements on competition through a review of policy measures in the US and other jurisdictions. Equally fascinating is Meghna Chandras examination of the need for India to have systematic and time-bound General Anti Avoidance Rules (GAAR) in place in order to check tax avoidance and deal with structural loopholes in order to make the tax authorities more effective and powerful. Mayank Kapila has discussed the need to understand traditional knowledge as a worthy resource for creation of intellectual property in the post TRIPS regime. Swati Singh Baghel and Gargi Rajvanshi have discussed the developments in aviation liability, by addressing the ambiguities and deficiencies of the Indian legal framework and the need to fulfil the objectives adopted by the Montreal Convention. Prithvi Rohan Kapur has provided a critical analysis of the doctrine of prospective overruling and examined the utility of and challenges that the doctrine poses. Srinivasan Ramaswamy examines the ban imposed on shares with superior rights and interrogates the rationale and justification for such a ban. The Volume culminates with Samira Varanasis discussion on the relatively nascent Right to publicity in India and the impact that such a right would have on pertinent questions on privacy. With this array of captivating articles, CLCSLR has begun an exciting journey of engaging with important legal questions by providing a platform to facilitate student research and scholarship. It is the firm belief of the Board that in the years to come, CLCSLR will continue to grow in both its frequency of publication and quality with the continued support of the Faculty of Campus Law Centre and law students across the world. On a final note, the Editorial Board hopes that this volume presents a compelling read and offers fresh insights on these issues of contemporary legal relevance. Siddharth Peter de Souza, Ajitesh Kir, Anu Chowdhry, Udit Rastogi and Sumedha Sarkar April 2013 New Delhi x

2013 CLCSLR

VOL.1 ISSUE 1

ACKNOWLEDGMENTS
The Editorial Board would like to thank Mr. Aayush Agarwala, Mr. Abhinav Jaganathan, Mr. Aditya Mathur, Ms. Mythili Vijay Kumar Thallam, Ms. Preetika Mathur, Mr. Rohan Alva, South Asia Human Rights Documentation Centre, Ms. Shivambika Sinha, Mr. Swapnil Gupta, Mr. Utkarsh Saxena, Ms. Vindhya Srinivasamani, Ms. Vrinda Bhandari and Mr. Zachariah Jacob for their invaluable counsel and assistance during the review process, Mr. Abhishek Subarno for his assistance in publicity efforts and Ms. Achala Upendran for her expert advice with the final manuscript. The Editorial Board would also like to thank Mr. Anurag Rawal, Former President of the Students Union for his support. The publication of the volume would not have been possible without the goodwill of Mr. Manoj K. Singh, Managing Partner, Singh and Associates who supported and ensured the establishment of this Review.

xi

2013 CLCSLR

VOL.1 ISSUE 1

CAPITAL PUNISHMENT AND THE CULTURAL DISCOURSE OF FEMININITY IN THE OFFENCE OF RAPE Vanya Kumar*
This article seeks to establish that the provision of capital punishment in rape statutes, as well as the guiding rhetoric behind it, is antithetical to the interests of the rape survivors, as it premised on the idea of rape as a fate worse than death. The equation of rape with death is purely linguistic, however, it functions as justification for a societal order that ostracizes rape victims and renders them socially dead. Further, in this context, models of ideal victims are created, as defined through Victorian notions of chastity, who deserves legal justice (and whose rape is deserving of capital punishment), while relegating the other survivors and their narratives to the margins. The marital rape exemption suggests that it is not the violence, but rather the sexual nature of the crime which is often highlighted and leads to the creation of categories of legitimate rape. This legitimacy not only devalues the victim, but also creates hierarchies which are often contingent upon the sexual history of the victim. It is further argued that such a penalty for a nonhomicide crime is contrary to all theories of deterrence and that the fundamental message that is advocated through such a provision is primarily to the victim rather than the perpetrator as it normalizes the need for sexual surveillance and moral policing of the body of the woman and lays a greater burden of proof on her conduct.
I. INTRODUCTION

It is a fate worse than death.

It is true rape is a most detestable crime, and therefore ought severely and impartially to be punished with death; but it must be remembered, that it is an accusation easily to be made and hard to be proved, and harder to be defended by the party accused, tho never so innocent. Sir Matthew Hale, 16761
* Ist Year, LL. B, Campus Law Centre, Faculty of Law, Delhi University 1 Blackstone, William; Coleridge, John Taylor: Commentaries on the laws of England: In four books, Volume 2, Pg. 215.
1

2013 CLCSLR

VOL.1 ISSUE 1

The recent gangrape of a 23-year-old victim in Delhi and the widespread protests that followed garnered much attention. So much so that the outrage acted as the immediate framework for the introduction of The Criminal Law (Amendment) Bill, 2012 in the Lok Sabha on 4 December 2012 by the Minister of Home Affairs, Mr. Sushil Kumar Shinde. This Bill seeks to amend the Indian Penal Code, 1860, the Code of Criminal Procedures, 1973, as well as the Evidence Act, 1872, specifically in the matter of sexual offences. Following this Bill, the Criminal Law (Amendment) Ordinance, 2013, was promulgated by the President of India, Pranab Mukherjee, on 3 February 2013. This Ordinance has been criticized on the grounds that it ignores some of the major provisions envisaged by the Justice Verma committee2, especially in the matter of marital rape and the amendment of the Armed Forces (Special Powers) Act. However, External Affairs Minister, Salman Khurshid, has stated that the ordinance serves the sole purpose of addressing the sense of urgency within the country in the interim period before the Bill is formally brought before the Parliament.3 One of the most contentious legal issues to have arisen from the case in question is in relation to the repeated call for the provision of death penalty in anti-rape laws. This call, while rejected by the Justice Verma Committee, on grounds that it was a unanimous suggestion of even women leaders who have been fighting for the cause for decades. The current trend against the death penalty4 found partial validation in Section 8, Criminal Law (Amendment) Ordinance, 2013, which under Section 376A has included a maximum provision of death as punishment for instances of rape which result in death or the persistent vegetative state of the victim.5 Coming as it did soon after the execution of Ajmal Kasab and just before the execution of Afzal Guru, respectively the third and fourth executions in India since 1995, this demand has also further fuelled the debate concerning the sustainability of the death penalty in a democratic state, especially in an era wherein humanitarian concerns, as voiced by organisations ranging from intergovernmental bodies like the UNHRC and non-governmental organisations like Amnesty International, have become
Constituted to recommend amendments to criminal law relating to quicker trial and enhanced punishment for rape accused. 3 Open to revisions in anti-rape bill: Govt: Times of India. TNN 3 Feb 2013, 4 Didn't Talk to Shinde Even Once: Justice Verma: Outlook India, 27 Jan 2013 5 The Criminal Law (Amendment) Ordinance, 2013, Pg. 10
2

2013 CLCSLR

VOL.1 ISSUE 1

the recognised basis, as well as the primary goal, of various legal systems across the world. Interestingly enough, India was one of the 39 countries to vote against a recent UN General Assembly draft resolution calling for a global moratorium on executions6 with an agenda of further abolishing the death penalty, claiming the States non-encroachable sovereign right to determine its own legal system. Two days after this oppositional stance, Kasab was executed. The demand for capital punishment for rape has overwhelmingly echoed from all strata of civil existence, including noted politicians like the Leader of Opposition in the Lok Sabha Sushma Swaraj7, Punjab Chief Minister Parkash Singh Badal8, AIADMKs V. Maitreyan and DMKs Vasanthi Stanley9. In this context, it is noteworthy that within the scope of the individual case of the Delhi gang-rape victim, no separate law need be enacted in order to facilitate the application of the legal provision of the death penalty to the alleged perpetrators of this particular crime. The accused had initially been booked under sections 307 (attempt to murder), 201 (destruction of evidence), 365 (kidnapping or abducting), 376 (2)(g) (gang rape), 377 (unnatural sexual offences), 394 (voluntarily causing hurt in committing robbery) and 34 (common intention) of the Indian Penal Code.10 However, the unfortunate death of the victim ensured that section 302 of the Indian Penal Code, the legal provision for murder, could be added alongside the other offences listed under the Act. II. CAPITAL PUNISHMENT IN INDIA AND THE RAREST OF RARE DOCTRINE.
A. JUDICIAL PRONOUNCEMENTS

In India, culpable homicide amounting to murder is at present a crime for which the death penalty may be invoked. Nonetheless, as is well known, capital punishment in India is limited by the rarest of rare doctrine. This doctrine was evolved through the ruling of the Honourable Supreme

Moratorium on the use of the death penalty (Document A/C.3/67/L.44/Rev.1) Indian Express. N.p., n.d. Web. 15 Jan 2013. 8 Parkash Singh Badal Wants Death for Rapists, Times of India. N.p., 11 Jan 2013. 9 Delhi Gangrape Shakes Parliament; Jaya Bachchan Breaks Down, Sushma... n.d.: n. pag. Indian Express. 24 Dec. 2012. 10 Delhi Gangrape: Police Invoke Murder Charges against Accused, Indian Express. N.p., 29 Dec. 2012.
6 7

2013 CLCSLR

VOL.1 ISSUE 1

Court in the 1980 case, Bachan Singh v. State of Punjab11, which restricted the application of the death penalty to cases wherein the alternative option is unquestionably foreclosed. The reasoning behind the ruling highlighted that a real and abiding concern for the dignity of human life postulates resistance to taking a life through law's instrumentality. In Rajendra Prasad v. State of U.P12 it had earlier been held that the imposition of the death penalty must relate not to the crime but to the criminal and that it was to be awarded only when security of state or public order was threatened. In Machhi Singh v. State of Punjab13 the Apex Court established that the distinguishing factors of a rarest of rare case are: 1. Is there something uncommon about the crime which renders the sentence of imprisonment for life inadequate and calls for a death sentence? 2. Is the crime such that there is no alternative but to impose a death sentence even after according maximum weightage to the mitigating circumstances which speak in favour of the offenders? In other judicial pronouncements, including Swamy Shraddananda v. State of Karnataka14, the Supreme Court further restricted the grounds for capital punishment by stating that the measurement of the rarest of rare criterion is not only qualitative, that is, according to the subjective nature of the crime, but also quantitative. In Santosh Bariyar v. State of Maharashtra15 the Apex Court stated that the burden is on the prosecution to prove that there is no possibility of rehabilitation and life imprisonment will be futile. It is understood that the demand for death penalty in cases of rape wherein the victim dies would be irrelevant, as Section 302 of the IPC and the Criminal Law (Amendment) Ordinance, 2013 incorporate the same. The call for the death sentence therefore, in order to create a distinction from what the law already provides for, must pertain to non-homicidal rape. That is, through the public discourse, rape in itself is sought to be made a capital crime. It is noteworthy that Section 8 of the Criminal Law (Amendment) Ordinance, 2013 has sought to contain the demand, by creating an aggravated category

AIR 1980 SC 898 1979 AIR 916 13 1983 SCR (3) 413 14 2008 AIR 3040 15 Criminal Appeal No. 452 of 2006
11 12

2013 CLCSLR

VOL.1 ISSUE 1

of rape contingent upon the condition of the victim, without including nonhomicidal rape per se within its ambit.
B. GLOBAL SCENARIO

It is therefore obvious that the legal system is increasingly moving away from the death penalty, fortified perhaps by the global trend, as international opinion of basic, standardized human rights gains worldwide credence through general State consensus. According to a report published by Amnesty International to mark the 10th World Day Against The Death Penalty16, the number of abolitionist countries currently stands at 97, as opposed to 80 in 2003, while 75 States are party to the Second Optional Protocol to the International Covenant on Civil and Political Rights (ICCPR-OP2), aiming at the abolition of the death penalty, a third having joined in the last decade. Further, it was noted that even in retentionist countries, severe legal restrictions are placed on the application of the death penalty; for instance, in the case of Susan Kigula and 417 ors v. A.G.17 the Supreme Court of Uganda found that prolonged periods on death row had an adverse effect on the condemned prisoners physical and mental state and thus held it unreasonable to hold a person beyond three years after confirmation of the sentence. Keeping in mind both the national and global scenario; punishment for rape, whether homicidal or non-homicidal, would necessarily be bound by the same restrictions imposed by Supreme Court judgments and guidelines. Within this context, the position of non-homicidal rape becomes important. According to the data provided by the National Crime Record Bureau - the statistical wing of Indian Police under the Ministry of Home Affairs, the reported cases in 2011 marked an increase of 873% from 1971 when the first rape case was recorded by the Bureau. However, these statistics only underscore the reported cases; in 1995, a survey conducted by the Institute of Development and Communication (IDC) in Punjab observed that for every case of reported rape, there were 68 unreported instances. While comparable statistics are not available for other cities, the widely-cited number for the rest of the country is 1:10.18
1610th

World Day Against the Death Penalty: Ten Years of Progress: Amnesty International: ACT 50/009/2012 17 Constitutional Appeal no.3 of 2006, Uganda. 18Imposing Restrictions on Women like Dress Code Ensures More Violence against them, Economic Times.N.p., 9th Jan. 2013.
5

2013 CLCSLR

VOL.1 ISSUE 1

Within a superficial reading of the concerned data, it is immediately evident that regardless of the qualitative nature and brutality of individuated crimes, quantitatively speaking, rape in itself cannot be regarded as an offence that comes under the doctrine of rarest of rare cases. It is implicit that the inclusion of the death penalty in the Ordinance is suggestive rather than absolute, and that judicial discretion will be paramount even in pronouncing sentences for cases wherein the rape victim dies or enters a permanently vegetative state. In fact, the sole interpretation of what constitutes rarest of rare seems to rest in the hands of the higher judiciary; in a 2013 judgment in Mohinder Singh v. State Of Punjab19a two-judge bench of the Supreme Court commuted to life sentence the death penalty awarded by the lower courts to a man accused of raping his minor daughter and killing both the daughter and his wife20, stating that though the crime was gruesome and grotesque, it could not be categorized as rarest of rare, which, of course begs the question as to whether the doctrine can indeed ever be understood objectively. A study of the Supreme Courts judgments from 1950-200621 by Amnesty International and the Peoples Union For Civil Liberties disturbingly highlights that the cases in which the death penalty was imposed are often indistinguishable from those in which it was commuted.22 III. CAPITAL PUNISHMENT FOR RAPE: LEGAL PROBLEMATICS Regarding the question of capital punishment for rape, concerns have also been raised by groups such as Citizens Collective against Sexual Assault, Sangat23, National Alliance of Peoples Movements, All India Progressive Womens Association, National Forum for Single Womens Rights, etc.24 that, as in a vast majority of cases the perpetrator is known to the victim, the possibility of the death penalty being applied will ensure that even fewer cases are reported, as the victims will either be coerced into keeping silent or may themselves shy away from assuming responsibility for the possible deaths of
1 Criminal Appeal Nos. 1278-1279 OF 2010 Supreme Court saves from noose man who raped daughter, killed her, wife, The Indian Express.29 Jan, 2013 URL: http://www.indianexpress.com/news/supreme-court-savesfrom-noose-man-who-raped-daughter-killed-her-wife/1066129/. 21 Lethal Lottery: The Death Penalty in India . 2008. Amnesty International and the Peoples Union for Civil Liberties. 22Alarming Vengeance, The Telegraph. 14thMarch, 2013. 23 A South Asian Feminist Network 24 Demand Justice and Equality for Women, Say NO to Death Penalty and Violence: Joint Statement by Womens Groups, India Resists. December 24th, 2012
19 20

2013 CLCSLR

VOL.1 ISSUE 1

relatives or friends. Further, if death is introduced as the penalty for both rape and murder, then it would ensure that, in a low-risk, high-reward scenario, the rapist would prefer killing his victim rather than risk the implications of survival. The Supreme Court in various judgments including State of Punjab v. Gurmit Singh & Ors25 has waived the need for corroboration of the testimony of a rape victim which seems reliable in itself; however, the greater the punishment for a crime, the greater becomes the standard of evidence required for conviction. Rape, as an offence, is extremely hard to prove beyond reasonable doubt in a court of law, as the case is usually based on mere circumstantial evidence and lacks witnesses. Realistically, a higher standard of evidence can only be understood as lowering the conviction rates further, which are already abysmally low, standing at around 26% of the total cases that make it to court26. Even now, the discretionary clause in Section 376 of the I.P.C. which allows for lowering the sentence of a rape accused below the provided minimum of seven years for adequate and special reasons, is made use of by various courts for biased judgments that often consider the time elapsed since the incident, as in Baldev Singh & Ors. v. State Of Punjab27, or the proposal of marriage by the rapist28, as both adequate and special, and sometimes, grounds for acquittal altogether29. Even in State of Punjab v. Gurmit Singh30, an otherwise landmark judgment because of the guidelines laid down to facilitate the understanding of the rape survivor as a victim rather than accomplice, the accused were sentenced to 5 years R.I. clearly less than the statutory minimum of 10 years for gang-rape taking into account that they were aged between 21-24 years of age at the time when the offence was committed [and have] not been involved in any other offence [since].

1996 SCC (2) 384 Source: Ministry of Home Affairs. 27AIR 2011 SC 1231. The Supreme Court reduced the sentence of the three appellants, found guilty of committing gang rape, to the period of only about three and half years imprisonment already undergone on the inexplicable grounds that the incident had taken place fourteen years ago and that the perpetrators and victim had all been individually married since. 28Additional Sessions Judge of Karkardooma court, Justice J M Malik deferred his judgment by a day and ordered the victim to reply to a proposal by the rapist to marry her, Manufacturing Consent: Rape verdicts reflect social prejudice. The Times of India 29Mumbai sessions court judge B. C. Singh acquitted Firoz Muneer Shaikh, the 25-year-old accused in a 2003 rape case, after he agreed to marry his victim, Assault ends in wedlock. The Times of India,.5 May, 2005 30 AIR 1996 SC 1393
25 26

2013 CLCSLR

VOL.1 ISSUE 1

IV. DEATH PENALTY FOR RAPE: OTHER JURISDICTIONS

A. UNDER ENGLISH COMMON LAW

This paradox of the inverse proportionality of sentence to conviction is indeed why capital punishment for rape was abolished under English Common Law. The Abolition Bill was introduced by Lord Russell on behalf of the government in 1841 as juries showed reluctance in convicting a person of rape, based solely upon the evidence of the alleged victim, as popular opinion often dictated that the woman may have had an ulterior motive in bringing forth the charge.31 Following the debates in the House of Commons, transportation for life32 was instead substituted under Section 3 of the Substitution of Punishments for Death Act, 1841. That Indian legislative thinking runs parallel to this discourse of fear of malicious prosecution is undeniable; the Lok Sabha debates centred on the Criminal Law (Amendment) Bill of 1983 highlighted the same unsubstantiated presumption of a variety of cases of false accusations, the provision of safeguards against which were considered of prime necessity, even before the rape laws were actually amended. The anxiety that was articulated in these debates was predictably phallocentric, implying, or even explicitly stating, that [even if] the woman had not been raped, the man will surely be raped in court.33 This is one of the major reasons why rape shield laws34 that curb the defendants ability to cross-examine the sexual history of the alleged victim were not introduced, even as it is commonly understood that sexual behaviour evidence has greater prejudicial value than it does probative value. This can likewise be inferred from the 1996 report by the Delhi-based NGO Sakshi35, wherein 109 judges from the Supreme Court, district courts and high courts were surveyed, out of whom 68% said that 'provocative' clothes are an invitation to a sexual assault and 55% believed that the moral character of a woman is relevant in sexual abuse cases. 90% of those surveyed also stated that they would not opt for
Historical development of the offence of rape. In the Indian scenario, The Code of Criminal Procedure (Amendment) Act XXVI of 1955 (Amending Act, 1955) altogether abolished the punishment of transportation of a term of years and transportation for life was replaced by imprisonment for life. 33 Moolchand Daga, Lok Sabha Debates, 1983, Vol. 42 (pg. 431) 34According to the Encyclopaedia Britannica: A rape shield law, statute or court rule, introduced in the late twentieth century, is one that limits the ability of the defendants counsel to introduce the accusers sexual history as evidence during a rape trial. 35 Sakshi (Organisation). Global Fund For Women. Gender & Judges: A Judicial Point of View . 1996.
31 32

2013 CLCSLR

VOL.1 ISSUE 1

legal redress in a case of domestic violence involving their daughter or other female relative.36 Thus, it can be gathered that this particular type of evidence serves to undermine the testimony of the victim more at a cultural level, than at the legal. That the lawmakers are guided by the same cultural considerations and work within the honour/shame framework is obvious through the rape laws which were finally enacted with the 1983 Amendment the rape shield laws that would conceal the identity of the victim from publication and reiterate the discourse of shame were considered of primary importance, while the rape shield law that could have led to the exclusion of sexual history of the victim from holding evidentiary importance was rejected. Thus, the Indian legislative system and the statues formed therefrom exhibit traits comparable to the English juries, which had initially led to the abolition of capital punishment under English law. In a study37 published in 2009, 88% of the top U.S. criminologists stated that capital punishment does not act as a deterrent to homicide. As also noted by the Justice Verma committee38 and Amnesty International39, the death penalty serves no legal purpose in terms of limiting the occurrences of crime itself. The overwhelming conclusion seems to be that even if the outraged call for the death sentence in cases of non-homicide rape is to be catered to by statutory provisions, it will be symbolic at best and possibly never actually implemented. The very real overhauls that the provisions of ss. 375/6/7 require, both in terms of the definition of the crime as well as the question of certainty of punishment, in order to serve the ends of both public policy and natural justice, will easily be overshadowed by the grandiosity of the purely metaphorical significance of the provision of death penalty. The literal spilling of the rapists blood only has symbolic significance in its correlation with the figurative restoration of the victims hymen or virginal blood. The moral paralysis of the social structure can be identified through an exploration of sexual stereotypes and the cultural construct of purity, wherein retributive justice can be justified through illusory associations. If this demand is indeed steeped in rhetoric and more symbolic than it is legal, then it becomes important to examine what the demand
Judges and the Gender, Outlook India, 3 Nov 2003. Executions Lower Homicide Rates? The Views of Leading Criminologists. 99 Journal of Criminal Law and Criminology 489 (2009). 38 Verma panel says no to death penalty: The Hindu. 23 Jan 2013 39 Death sentence may not deter rapists: Amnesty chief. DNA. 22 Dec 2012
36 37Do

2013 CLCSLR

VOL.1 ISSUE 1

entails; that is, what precisely it serves as a symbol of. Significantly enough, most of the recent debate and scholarship on capital punishment for rape has centred on capital punishment in itself, with the advocates and opponents propounding the pros and cons and efficacy of such a punishment and the largely humanitarian concerns that it brings to the fore, without interrogating the specificity of the demand or the more important question that is implicit within it what distinguishes rape from other nonhomicide crimes and makes it an offence deserving of the death penalty in the eyes of society?
B. LEGAL DEVELOPMENTS IN THE UNITED STATES

Tracing the parallel developments in the law of the United States in regard to non-homicidal rape, it is noteworthy that the trend has been the reverse away from the death penalty rather than towards it. In Rudolph v. Alabama, three dissenting judges of the U.S. Supreme Court raised contentions as to the constitutionality of a non-mandatory death penalty for rape, questioning whether: 1. In light of the trend, both in [United States] and throughout the world against punishing rape by death, does the imposition of the death penalty [] for rape violate 'evolving standards of decency that mark the progress of [our] maturing society? 2. Is the taking of human life to protect a value other than human life consistent with the constitutional proscription against punishments which by their excessive severity are greatly disproportioned to the offenses charged?40 These contentions were obliquely examined in the case of Furman v. Georgia wherein in a 5 - 4 decision of the Supreme Court, the death penalty laws of states were effectively suspended as their discretionary application by the authorized judges was held to be arbitrary and capricious41. However, it was in Coker v. Georgia that the constitutionality of the death penalty for rape of an adult woman was challenged and the provision first abolished. It was held that a state-sponsored death of the rape-accused is a disproportionate punishment and hence a violation of the Eighth Amendment to the United States Constitution, which prohibits the federal government from imposing
375 U.S. 889 (1963) 408 US 238 (1972)

40 41

10

2013 CLCSLR

VOL.1 ISSUE 1

cruel and unusual punishments.42 As argued by David J. Karp in his analysis of the judgment43, two models of excess can be developed in this crime-andpunishment scenario; firstly, the punishment for an offence may be disproportionate because of a legally insupportable disparity between the punishment for a particular crime and punishments for other crimes of apparently more grave nature. And secondly, that the punishment in itself may be disproportionate in terms of its severity as opposed to the harm threatened or caused by the crime. Both these models were conflated in the proceedings on rape in Coker v. Georgia, as, describing the punishment as grossly disproportionate and excessive, it was explicitly stated that the reasoning behind the distinction developed between the case of homicide and non-homicide rape in the judgment was that: rape [] in terms of moral depravity and of the injury to the person and to the public, does not compare with murder, which involves the unjustified taking of human life. The murderer kills; the rapist, if no more than that, does not. Life is over for the victim of the murderer; for the rape victim, life may not be nearly as happy as it was, but it is not over and normally is not beyond repair.44
C. SYMBOLIC JUSTICE AND THE INDIAN JUDICIAL BURDEN

While the above judgment has been widely criticized on various grounds including its alleged disjunction with the lived social realities of rape victims, it combats one of the most prevalent beliefs that forms the driving force behind the demand for capital punishment for rape: the idea that rape is a fate worse than death. This viewpoint, which is continuously reiterated in the present debates with various parliamentarians referring to the rape victim(s) as a zinda laash45, implying that a rape survivor (as pointed out by Flavia Ages, a vocabulary shift from victim to survivor is desirable)46 occupies a liminal space between the dead and the living. That this perspective has pre-existed in the country, including the governmental domain of the political elite, can easily be grasped by noting that in 2002, the then Deputy Prime Minister advocated the death penalty for rape in the Lok

433 U.S. 584 (1977) Karp, David J. Coker v. Georgia: Disproportionate Punishment and the Death Penalty for Rape. Columbia Law Review, Vol. 78, No. 8 44 Coker v. Georgia, 433 US 584 - Supreme Court 1977, p. 598 45 Take the shame out of rape. The Indian Express, 28 Dec 2012 46 Agnes, Flavia: No Shortcuts on Rape: Make the Legal System Work. Economic and Political Weekly, Vol XLVIII No. 2, pp. 12-15
42 43

11

2013 CLCSLR

VOL.1 ISSUE 1

Sabha on behalf of the government47 claiming that many members were of the opinion if someone committed murder, the person was hanged. But for rape, which was worse than murder, no such punishment is meted out to the culprit. In which context, the Supreme Court in State Of Uttar Pradesh v. Ram Sewak And Ors48 restated that penal laws, regardless of the fact that their deterrence factor were no guarantee in prevention of crime, which could only be curbed by change brought about in the way of life, thinking and outlook.49 The judicial burden, therefore, has always been to curb the societal need for easy solutions, wherein every once in a while a pyrrhic victory is won by raising a particular instance of violence against women in India and fighting an emblematic battle for justice in an individuated case, which does not address the entrenched misogyny within the system or demand the stricter implementation of prosaic but vital demands, like nontinted vehicle windows and setting up of rape trauma centres, or exclusion of sexual behaviour evidence like the archaic two-finger test. The worse than death standpoint often serves to form the rhetorical justification for the provision of capital punishment. The implicit suggestion, within the same model of proportionality as suggested above, is that, if rape is worse than death and death warrants capital punishment, then rape, by default, warrants the same, at the very least. V. RAPE STATUTES: RHETORIC AND ACTUALITY
A. PARLIAMENTARY DIALOGUE

However, as is immediately obvious on analysis, this manoeuvre of equation is purely linguistic; the metaphorical death of the rape survivor is herein equated with the real death of a homicide victim. The so-called death of the former is bound by the discourse of shame, wherein there exists a correlation of family and territory with the body of the woman and the defilement of one is taken as an attack on the other. This conceptualization is also prevalent within war scenarios within which the primary mode of assertion of supremacy over an enemy region is often to rape their women, as it is the woman who is associated with the male territory, as well as the family unit, and thus, her chastity is symbolic of the pride and honour of the family or nation. The current demand inherently
Advani favours death sentence for rapists: The Times of India, 26 Nov 2002 AIR 2003 SC 2141 49 Deterrent laws no guarantee to prevent crimes: SC, http://www.rediff.com/news/2002/dec/23sc.htm, last accessed on March 10, 2013
47 48

12

2013 CLCSLR

VOL.1 ISSUE 1

legitimises systemized sexual control of women by seeking to establish a regulatory framework that protects women by imposing restrictions on their behaviour. As noted by sociologist Pratiksha Baxi, the proposal to hang the rapist is squarely located in the politics of memory, which manipulates public outrage, to deflect attention from those conditions which create, normalise and sustain violence against women.50 This image of the protector then becomes a natural form of social definition for the male figure, further vindicating an excess of aggression and machismo that the law in itself seeks to curb. This is obvious through the contradictory dichotomy that is created within this discourse; wherein the speech-making runs tangential to the actuality of the situation, as is explicit within the parliamentary dialogue on the issue. While overtly, the concern addressed is the legitimate fear of abuse of due process of law, couched within it are misogynistic terms that reiterate a cynical vision of rape survivors, as substantiated by statements made within the Lok Sabha itself. For example: Some girls are very clever and are the agents of police. These days it's the world of politics, police can falsely accuse anyone it wants on charge of rape. What is the way of saving oneself from them? You have written here that the girl's past history will not be asked, then how will you come to know about the girl?51 Flavia Agnes, exploring this issue, notes that the fear of false complaints is all pervasive within our legal system right from the time a victim tries to register the complaint to the time of the trial.52 The actual implementation of graver forms of legal punishment is resisted, because it is essentially a burden on the masculine agenda on which the rape statues are premised; mostly created and implemented by male figures, however, the rhetoric of death penalty consistently remains strong as in a 2002 case, in which the then Defence Minister joined the chorus for capital punishment for rape.53 As the statutes are not actually influenced by the grandiloquence in the public sphere and oftentimes even the minimum prescribed penalty for the offence is waived in individual cases, the conclusion to be drawn from this paradox seems to be that the discourse of death penalty is a
50Baxi,

Pratiksha. Rape, Retribution, State: on Whose Bodies? Economic and Political Weekly, Vol. 35, No. 14 (Apr. 1-7, 2000), pp. 1196-1200 51 Moolchand Daga, Lok Sabha Debates,1983: 431, 21 November 52Agnes, Flavia. No Shortcuts on Rape: Make the Legal System Work. Economic and Political Weekly, Vol XLVIII No. 2 53 George Fernandes joins death-for-rapist chorus, Sunday Observer, 1 Dec 2002.
13

2013 CLCSLR

VOL.1 ISSUE 1

societal comment not on the rapist, but on the position of the rape survivor.
B. IMPLICATIONS OF THE MARITAL RAPE EXEMPTION

This distinction from other non-homicide crimes is drawn in cases of rape because, rather than the experience of violence, it is the taboo sexual nature of the crime that is often highlighted. This is clearly the case even under statutory law, as suggested by the marital exemption for rape under section 375 of the I.P.C. This exemption can be traced back to the seventeenth century when Lord Chief Justice Matthew Hale opined, The husband cannot be guilty of rape committed by himself upon his lawful wife, for by their mutual matrimonial consent and contract, the wife hath given up herself in this kind unto her husband, which she cannot retract54. According to Susan Estrich, the continued force of the marital exemption clause is the taking to the extreme of social notions that have made all simple rapes difficult to prosecute, that is, the notions of presumed consent made absolute.55 Indeed, the existence of an exemption is in itself sufficient proof that the offence of rape highlights the sexual humiliation while simultaneously erasing the violent base of the act; marital rape is not legally culpable as it falls outside the realm of stigmatisation, falling under the social jurisdiction of accepted relationships. The Joint Parliamentary Committee report on the Criminal Law (Amendment) Bill, 1983, stated that, under the decree of judicial separation, there is a possibility of reconciliation between [the husband and wife] until a decree of divorce is granted. Hence, intercourse by the husband with his wife without her consent during such period should not be treated as, or equated with rape.56 Pratiksha Baxi, in her analysis of the aforementioned report is of the opinion that clearly then the rights of the husband over the wife and the 'interests' of the patriarchal family were privileged, normalizing the wide scale violence used by men to enforce relationships of marriage.57 Outside of marriage, the prioritisation of the sexual integrity of the feminine body as the sole relevant factor in the identity of the woman herself has often led to arbitrary application of rape laws wherein
Gallo, Nancy R. Introduction to Family Law, pg. 137 Estrich, Susan. Real Rape, .pg. 72 56 JPC 1982:8 57 Baxi, Pratiksha. Rape, Retribution, State: On Whose Bodies? , Vol. 35, No. 14 (Apr. 1 -7, 2000), pp. 1196-1200
54 55

14

2013 CLCSLR

VOL.1 ISSUE 1

conviction of the perpetrator is contingent upon the perceived manner and attitude of the victim, as in case of the Mathura judgment58 or the equally infamous Suryanelli rape case59wherein the Kerala High Courts acquittal of the 35 accused was based on the assumption that the victim's statements could not be taken at the face value, because, in attempting to mortgage ornaments earlier, she had shown deviant behaviour and the gang-rape was described as the willing journey of a misguided girl.60 As argued by David J. Giacopassi and Karen R. Wilkinson, there now exist degrees of rape and, for all practical purposes, a woman can be raped a little.61 This is because the important determining criterion of the offence is no longer solely non-consent, which is an absolute, but often other mitigating factors are taken into consideration to adjudge the culpability of the accused; the degree of force used to overcome resistance and cause injury, the manner of dress and style of the victim, etc. This subtle but important shift places less value on the right to withhold consent, while elevating to a principle of law the obligation of the female to place herself in jeopardy by resisting to the point of injury before the courts will recognise a serious case of rape. VI. HIERARCHIZATION AND CREATION OF THE IDEAL VICTIM
A. SOCIAL NORMS AND RAPE CULTURE

In the on-going public debate, hierarchies have been created in rape cases for determining the degree of justice that is deserved by certain victims. The entire gamut of rape culture and victim-blaming has been ranged and everything stated from the the rape of a grown-up woman is understandable; but rape of a minor is a heinous crime62 to your child doesn't seem to be suffering that much, (in the recent case of the alleged rape of a seven-year-old in a school toilet in Goa).63 The demand for capital punishment is premised on a similar construction of the ideal victim. Such a victim is also the ideal woman according to social norms and Victorian models of chastity and the one whose violation is most deserving of justice.
Tuka Ram and Anr vs State of Maharashtra AIR 1979 SC 185 Joseph@Baby v.S.I. Of Police , CRL A No. 590 of 2000 (B) 60 A Rehearing in Kerala.Frontline. .Vol. 30.No. 04. 61Giacopassi, David J.; Wilkinson, Karen R. Rape and the Devalued Victim. Law and Human Behavior, Vol. 9, No. 4 (Dec., 1985), pp. 367-383 62Rape of Grown-up Girls May Be Understandable but Assault on Infants Heinous, Indian Express. N.p., 10 Jan. 2013. 63Goa Rape Case: Chief Minister Directs Cops to Act against Official, NDTV. N.p., 19th Jan. 2013.
58 59

15

2013 CLCSLR

VOL.1 ISSUE 1

This concept has been examined by Ann Cahill wherein she notes64 it is in the specific moments and movements of this [feminine] body [that] the defence of the sexual offender [is written]: she was somewhere she should not have been, moving her body in ways that she should not have . These factors are often viewed as extenuating rape, as society places the burden of self-surveillance on the woman, to be able to either avoid being raped or, at the very least, function as an ideal victim and ask for justice in case of a sexual offence against her. This oratorical construction has real implications in the context of legal credibility of rape victims, which is one of the essential elements in eliminating the need for corroboration of their testimony. The fringe minorities, including wives, sex workers, etc., do not form a part of this central discourse, as they are often seen as deserving of the violence they experience, or at the very least, outside the domain of the law. Corollaries to the discourse of capital punishment are often added, which place the burden of receiving justice on the victims themselves; the district government pleader in the matter of the aforementioned 2002 gang rape case stressed that capital punishment for rape should be awarded only if the victim is not in a position to fight back and defend herself.65This derives from archaic notions of feminine selfhood as being defined through chastity wherein it is popularly believed that a good woman, applying an absolute moral categorization, would rather die than be raped. This interpretation of femininity not only adds to the notion of rape as worse than death, but also plays a role in socially shaming the rape survivors, who are them understood as not placing the same valuation on their sexual integrity, as the rational conclusion of the above premise is that a decent woman would have resisted the rapist, even to the point of death. A relatively greater burden of proof is imposed on the conduct of the victim. In the United States, this was typified in Mills v. United States, wherein it was made explicit that in the ordinary case where the woman is awake, of mature years, of sound mind and not in fear, a failure to oppose the carnal act is consent; and though she object verbally, if she make no outcry and no resistance, she by her conduct consents, and the act is not rape .66 While the same perspective is no longer made explicit, the judgment in Tukaram v.
Cahill, Ann J. Foucault, Rape, and the Construction of the Feminine Body . Hypatia, Vol. 15, No. 1 65 Legal experts split over death rap for rapists - TNN 28th Nov, 2002, 09.36pm IST 66 164 U.S. 644 (1897)
64

16

2013 CLCSLR

VOL.1 ISSUE 1

State of Maharashtra67, or even the subsequent Supreme Court warnings to the lower courts to not insist on corroboration of the victims testimonies logically implies that courts often have the tendency to do so.
B. WORSE THAN DEATH PERCEPTION

However, the worse than death perception on which the discourse of capital punishment is premised sends a far more distorted message to rape survivors. As argued cogently by Corey Rayburn in his analysis of the patriarchal rhetoric driving capital rape statutes: The evidence is clear and is echoed by those who support the death penalty for rape: being raped increases the rates of suicide for children and adults. Why then, against what these advocates know, do they invoke rhetoric that makes death a preferred option for those who have been raped? The most pernicious message conveyed by comparisons to death is that those who have been raped have no reason to live. If death is truly the lesser of two evils, why would someone hesitate to embrace it as an escape from the horrific experience of rape? Such rationalchoice type evaluation may seem out of place in discussing the impact of rape and the decision to commit suicide, but given that those invoking it are wedded to deterrence theories that rely on the same premises, it seems a horrific oversight not to consider the signals sent to women and children.68 Even apart from the burden of proving a case of rape, rape survivors often function within a system that alienates them and inherently views them as dead, implicitly suggesting that they should either have died during the course of the rape while protecting their modesty, or have no further reason to live. Far worse, these insidious communications are made under the blanket idealization of providing justice to the victims through imposition of harsher penalties on their perpetrators. Death herein functions as a social death, that is, it is not defined as an individual experience that aims to substantiate and delineate the trauma of a rape survivor, but rather as their collective ostracism. This expression operates as the justification of the attempts of a society to obliterate the narrative of violence that it allows against its female citizens.

67 68

AIR 1979 SC 185 Rayburn, Corey. Better Dead Than R(ap)ed?: The Patriarchal Rhetoric Driving Rape Statutes. St. Johns Law Review, Vol. 78, No. 4
17

2013 CLCSLR

VOL.1 ISSUE 1

VII. CONCLUSION The rationale of the early laws which provided for death sentence for rape dealt not with concerns of the bodily autonomy of women, but rather, was understood as property crimes against the sexual exclusivity of a man to his wife. Even today, in societies that increasingly aim for egalitarianism as the fundamental base of Constitutional authorities, the patriarchal foundation of the statutes, as well as societal demands for further amendments, expose the same attitudes couched in pleasing, postmodern legal terms. Revealingly, most of the countries that currently authorize the death penalty for rape69 are also the ones that historically and globally have been condemned as being the most restrictive and indifferent to the rights of women in general. The death rhetoric legitimises victim blaming and normalizes the need for sexual surveillance and moral policing of the body of the woman; in a State of the Nation survey on the safety of women as part of CNN-IBN's Agenda for Change, the majority said that a rape victim is ruined for life and that women should abide by a certain dress code in public.70 The recent suggestions for the prevention of rape have focused on gendered separation in public life and curbing the subversive sexuality of women, which has historically been viewed as a threat to masculine domination. However, following the Delhi gang-rape case and the consequent public outrage and outpourings, many hitherto marginalized victim narratives have, for the first time, made their way into the fold of the mainstream, wherein the survivors have elucidated that they may have been raped but are not dead, and refuse to let themselves be defined by a single act of violence.71 That the death penalty, even if provided for within statute, will neither act as a deterrent to rape itself or actually be implemented in a court of law for non-homicide cases of rape is practically indisputable. However, it is not only the legal changes envisioned, but the cultural discourse that informs those changes which provides a glimpse into the legal system; as, law after all, primarily serves as a means of regulating social interaction. Theories of deterrence and retribution are based on the hypothesis of disincentivization of offences, as the practical origin of the theoretical models
Some examples include Iran, Egypt, Pakistan, Saudi Arabia, Vietnam, etc. Rape victims are ruined for life, women should abide by a dress code in public, feels India: CNN-IBN. 24 Jan 2013. 71 Abdulali, Sohaila. I Was Wounded; My Honor Wasnt. The New York Times.7 Jan 2013.
69 70

18

2013 CLCSLR

VOL.1 ISSUE 1

is that if the punishments meted out were equivalent, the offender would have no incentive to commit the lesser crime than the greater. In this context, if the heated demand for capital punishment is any indication, it is unfortunate that even today, in the rape-murder scenario; the greater of the two crimes is believed to be rape and the rape survivors socially informed that they would have been better off dead.

19

2013 CLCSLR

VOL.1 ISSUE 1

CHILD SEX ABUSE: THE MENACE DECRYPTED

Susanah Naushad & Amana Ranjan* Drafting a comprehensive legislation against child sexual abuse is no childs play. The brazen misuse of the existing law and the lackadaisical behaviour of the Legislature have only encouraged perpetrators of these heinous crimes. Acknowledging this premise, the authors of this paper have examined Indias legislative attempts to contain the menace of sexual crimes against children. This exercise has revealed that even the latest legislation in this domain, The Protection of Children from Sexual Offences Act, 2012, falls short of many crucial criteria essential to protective and preventive legislation for children. Looking at some jurisdictions which have enacted strong anti-abuse legislations for children, the authors have identified a number of benchmarks common to legislations of this nature. India has paid lip-service to most of these parameters. A careful look at the provisions on mandatory reporting and age of consent in the Act demonstrates that they are divorced from the unique social reality afflicting children and others concerned in India. In a spirit of reconciling the legal loopholes, the authors suggest some recommendations. They also believe that the legislations litmus test lies in effective implementation that is sensitive to the needs of the child and fashion most of their suggestions accordingly. Part I of this essay will serve as the introduction and foundation of the essay. Part II will look at the legal framework of the menace of child sexual abuse and the inadequacies in the present legal system, while Part III highlights the need for a new legislation. Part IV will deal with the newly enacted Indian legislation Protection of Children from Sexual Offences Act, 2012 and Part V will provide a critique. Finally, Part VI will shed some light on the global prevalence of the problem and Part VII will lay down the essays concluding remark

* IVth and IIIrd year students of West Bengal National University of Juridical Sciences, Kolkata.
21

2013 CLCSLR

VOL.1 ISSUE 1

I. INTRODUCTION It is an undisputed fact that child sexual abuse in India is increasing at an alarming rate. Children form the majority of the country's population; they are pegged as the future of the country. They carry with them hopes and dreams to achieve greatness. However, the stark reality remains that fifty three per cent of Indian children have been subjected to some form of sexual abuse.1 While tackling the numerous issues plaguing society, the safety and security of children have been grossly side lined. The Legislature has shown an extreme nonchalance towards taking any steps to protect the most vulnerable section of society. The inadequacy of punishment is one such instance of legislative oversight and as a result, children have become victims of brutal instances of sexual abuse. Years of legislative neglect have taken material form with growing instances of sex tourism, pornography, child rape, child trafficking, etc. Indian culture is historically replete with evils like the devadasi system, incest and forced prostitution. Even courts have a diminished record wherein the Mathura rape case judgement acquitted two policemen who raped a sixteen year old, claiming that she was habituated to sexual intercourse.2 Cases of such abuse usually go unreported in order to maintain the honour and reputation of the family in society. Thus there is urgency for a specific legislation that will be mindful of this unique social reality in India. We need to realize that the primary reason for not bringing the perpetrators to court is entrenched in the traditional family structure in which a large number of children are raised. In India and other Asian countries like China and Japan, children are taught from a tender age that the elders in the family hold absolute authority and are to be respected and obeyed. The fear of challenging their authority, reprimand and shame only escalate instances in which the reporting of instances of these crimes is stalled. In 2007, 38 children were reported missing in Nithari, a village located on the outskirts of

Study undertaken by the Ministry of Women and Child Development on Child Abuse in collaboration with UNICEF, Save the Child and Prayas NGO, (9 April 2007), http://pib.nic.in/newsite/erelease.aspx?relid=26737(last visited 17 March 2013). 2 Tuka Ram v. State of Maharashtra, AIR 1979 SC 185.
1

22

2013 CLCSLR

VOL.1 ISSUE 1

Delhi.3 These children were allegedly raped and murdered, causing a huge public outcry which brought out the lackadaisical attitude of the government towards rampant child abuse. This pressurized the Ministry of Women and Child Development to expeditiously draft the Offences from Children (Prevention) Bill, 2005 and lobby hard for its passage. In 2012, the Parliament finally passed the Protection of Children from Sexual Offences Act which has been hailed as a bold step towards protecting the children of our country. II. PROVISIONS HITHERTO Indian children, who account for an overwhelming forty per cent 4 of the entire population of the country, have, until recently, been placed in a state of extreme vulnerability due to the indifference of the Legislature. The lack of legal framework protecting children has only encouraged sexual predators. One of the problems is that under the Indian legal system the definition of 'a child' differs from law to law. Irrespective of the various definitions however, there lies a mandatory obligation of Centre and State to provide for and protect children. The Constitution of India under Article 21A says that States must provide free and compulsory education to all children between the ages of six and fourteen in such manner as the State may by law determine. Article 45 of the Constitution specifies that the State shall endeavour to provide early childhood care and education for all children until they complete the age of six. Article 51(k) lays down a duty that parents or guardians provide opportunities for education to their child/ward between the age of six and fourteen years. The Indian Penal Code states that nothing is an offence done by a child under seven years, and further, under twelve years, till he has attained sufficient maturity of understanding as regards the nature of the Act and the consequences of his conduct thereof.5 However, while punishing the perpetrators of rape, the Code defines the age of consent to be below sixteen
Neelam Raaj, Children at Risk (14 Jan 2007), http://articles.timesofindia.indiatimes.com /2007-01-14/special-report/27872204_1_nithari-migrants-crime-stats (last visited on 1 Sep 2012). 4 Government of India, Ministry of Home Affairs, Office of the Registrar General & Census Commissioner, India, 2001 Census Data, Age Structure and Martial Status, http://censusindia.gov.in/Census_And_You/age_structure_and_marital_status.aspx (last visited on 17 March 2013) 5 PEN.CODE. 82 and 83.
3

23

2013 CLCSLR

VOL.1 ISSUE 1

years.6 Furthermore, for purposes of protection against kidnapping, abduction and related offences, a 'minor' is considered to be under sixteen years of age in the case of a male and under eighteen years of age in the case of a female. The Indian Traffic Prevention Act, 1956 defines a minor as a person who has completed the age of sixteen years but not eighteen years, whereas under the Child Labour Prohibition and Regulation Act, 1986, a child is a person who has not completed fourteen years of age. However, the Age of Majority Act, 1875 along with several other legislations7 considers a 'minor' to be a person under eighteen years of age. It is pertinent to remember that India is a signatory to the United Nations Convention on the Rights of the Child which defines a child as every human being below the age of eighteen years unless under the law applicable to the child, majority is attained earlier.8 In spite of the strong mandate set forth by national and international laws for protecting the rights of a child, the Indian legislature did not step up to fill in the inadequacies with stringent laws. A gaping loophole in the Indian legislation can be seen in the Indian Penal code where the Code is silent on child sexual abuse. The lack of legislative recognition of child sexual abuse as a criminal offence often forces prosecutors to rely on generalized provisions which are not equipped to deal with such abuse. In an attempt to criminalize sexual offenders, the laws enacted for women, protecting them against sexual offences, were extended to include children. However, this resulted in criminalizing offences only against female children who were subjected to peno-vaginal intercourse under the law.9 Sexual offences against male children along with other forms of sexual abuse including exhibitionism, voyeurism, oral or anal intercourse and touching are left unpunished under the law. The only gender neutral provision that is provided in the Code is the controversial section on unnatural offences10. Even though it was not intended to prosecute child sexual abuse, it has been partially used to do so by recognising the possibility of sexual abuse of boys. While this section is equipped to deal with child sexual abuse that involve non penile-vaginal
PEN.CODE. 376. Juvenile Justice (Care and Protection of Children) Act, 2000, 2(k), Protection of Women from Domestic Violence Act, 2005, 2(b). 8 Office of the United Nations High Commissioner for Human Rights, United Nations Convention on the Rights of the Child, art. 1 (Sept. 2, 1990), http://www2.ohchr.org/english/law/crc.htm(last visited on Oct. 17, 2012). 9 PEN.CODE. 375. 10 PEN.CODE. 377.
6 7

24

2013 CLCSLR

VOL.1 ISSUE 1

penetration, its high bench mark of the word 'penetration' leaves several forms of abuse like molestation and penetration with objects unaddressed. Unfortunately, such grave and rampant form of abuse can only be prosecuted in the case of girls under the provision of the Code dealing with outraging the modesty of women.11 However, the Supreme Courts interpretation of what constitutes modesty of women has rendered this provision inadequate as it states that children may find themselves incapable of possessing this modesty.12 Furthermore, in cases of child abuse prosecuted under section 354, the quantum of punishment is reduced to two years as opposed to a minimum of seven years in the case of rape. Therefore, sexual abuse in cases of boys and girls can only be prosecuted under simple or grievous hurt13 which is extremely ineffective to address the offences of such nature. The law treats instances of obscene gestures14 with relatively less gravity, even though it may affect the child's psyche as severely as rape. Similarly, the law is ill equipped to deal with instances of repeated abuse against children. In spite of the absence of legal mechanisms, the Supreme Court was able to deliver justice in the Anchorage case.15 Anchorage Shelter was a home for street children run by two retired British Navy Officers in Mumbai. In 2001, Childline India Foundation16, an emergency outreach service for children in need of protection, received a call regarding abuse of children at the shelter.17 After investigating the matter it was found that Duncan Grant, Allan Waters and William D'Souza and the manager of the shelter were inflicting chronic abuse upon their charges. After further investigation, the three accused were charged when Waters and Duncan were found to be absconding. To commence the trial, Grant had to be extradited from Africa and Waters from the United States. The Sessions Court, after depositions were made by four prime witnesses, convicted DSouza, Duncan and Waters

PEN.CODE. 354. State of Punjab v. Major Singh, AIR 1967 SC 63 (The judges of the Supreme Court decided that a seven and a half year old girl did not possess the modesty that could be outraged). 13 PEN.CODE. 319, 320. 14 PEN.CODE. 509. 15 Childline India Foundation v. Allan John Waters & Ors , (2011) 6 SCC 261 16 Childline India, Anchorage Case History, http://www.childlineindia.org.in/anchoragecase-history-updated.htm(last visited Oct. 27, 2012). 17 Childline India Foundation v. Allan John Waters & Ors, (2011) 6 SCC 261.
11 12

25

2013 CLCSLR

VOL.1 ISSUE 1

for offences punishable under unnatural offences against man18, abetment19, criminal conspiracy20, voluntarily causing hurt21, selling22 and buying23 minors for prostitution and for subjecting children to cruelty24. An appeal was sought by the accused. The State Government also filed an appeal for enhancement of punishment. However, the High Court set aside the conviction on grounds that the depositions were suspicious, unreliable, not proved beyond shadow of doubt and not creditworthy. Furthermore, it declared the statements of the prime witnesses inadmissible. However, the Supreme Court adjudicated that the evidence and omissions were not fatal to the prosecution's case as stated by the High Court as the depositions clearly established rampant abuse. Corroborative evidence is also not mandatory in cases of a sensitive nature and the testimony of the victims makes for a stronger case. Lastly, the court, in the absence of any law specifically protecting children from sexual abuse, drew reference from the constitution which envisages a childhood free from any abuse and exploitation. It mandates that the states make special provisions for children25 provide them with free and compulsory education26 and prohibits trafficking, beggary and other forms of forced labour and exploitation27. It also relied on the Directive Principle of securing health of children of a tender age28 to uphold the convictions. In Prerana v State of Maharashtra,29 the Bombay High Court slammed the Juvenile Justice Board for its gross errors and inefficiency in protecting and upholding the rights of children and laid down guidelines to make the functioning more effective. Prerana, the petitioner, is a non-governmental organisation that works with the aim objective of preventing trafficking of women and children. It also rehabilitates victims of forced prostitution in
PEN.CODE. 377. PEN.CODE. 109. 20 PEN.CODE. 120B. 21 PEN.CODE. 323. 22 PEN.CODE. 372. 23 PEN.CODE. 373. 24 Juvenile Justice (Care and Protection of Children) Act, 2000, 23. 25 INDIA CONST. art.15, cl. 3.. 26 INDIA CONST. art.21-A.. 27 INDIA CONST. art.23.. 28 INDIA CONST. art.45. 29 Prerana v State of Maharashtra, 2003 2 MLJ 105.
18 19

26

2013 CLCSLR

VOL.1 ISSUE 1

Mumbai. In the present case, the Social Service Branch raided a brothel where four persons identified as brothel keepers were arrested and 24 twenty four girls were rescued. The four arrested were charged for allowing the use of the premises as a brothel30, for living on earnings from prostitution31 and, permitting prostitution on the premises for the purpose of trade32 while the twenty four females girls that were taken into custody pursuant to the provisions33 of the Immoral Traffic (Prevention) Act, 1956 to ascertain their age and family background. The results of the ossification test showed that fourteen of the girls were adults while the rest of them were minors. The court released the adults and directed the minors to appear in the Juvenile Court. The Magistrate finally discharged the minor girls on the grounds that they had not committed any offence, but and they were in custody for over a month. It is pertinent to note here that firstly, minor girls who were forced into the flesh trade were treated as the accused in spite of there being no fault of their own. Under the Juvenile Justice Act, a juvenile who is found soliciting can be classified as a juvenile in conflict with law34 as well as a child in need of care and protection35 and thus cannot be treated as the accused. Secondly, since they were children in conflict with the law, they should have ideally been produced before the Child Welfare Committee and not the Juvenile Board. And thirdly, the Juvenile Board committed a serious error by releasing the minors; as the provisions of the Juvenile Justice Act clearly state that minors must be sent to protective homes in the absence of parents or guardians. By releasing them, the Juvenile Board has driven them back to the flesh trade. In the Anchorage Case36, the Court relied on the Constitutional obligations and the Directive Principles to emphasize that children have to be protected and have a right to a free, healthy and an abuse- free childhood. The first legislation for the protection of children against abuse came in the form of the Goa Childrens Act of 2003. It adhered to the United Nations Conventions on the Rights of the Child. The Act criminalized child abuse and meted out punishments for sexual assault, grave sexual assault and
Immoral Traffic (Prevention) Act, 1956, 3. Immoral Traffic (Prevention) Act, 1956, 4. 32 Immoral Traffic (Prevention) Act, 1956, 7(2)(a). 33 Immoral Traffic (Prevention) Act, 1956, 15, 17. 34 Juvenile Justice (Care and Protection of Children) Act, 2000, 2(1). 35 Juvenile Justice (Care and Protection of Children) Act, 2000, 2(d)(vi). 36 Supra note 16.
30 31

27

2013 CLCSLR

VOL.1 ISSUE 1

incest.37 It prohibits soliciting children for commercial exploitation in the form of pornography or suggestive and obscene photographs.38 The act has an all-encompassing definition of commercial sexual exploitation of children as it includes all forms of sexual exploitation of a child including visual depiction of a child engaged in explicit sexual conduct, real or stimulated, or the lewd exhibition of genitals intended for sexual gratification of the user, done with a commercial purpose, whether for money or kind.39 In 2005, the definition of grave sexual assault in the Act was amended40 to include acts such as causing children to pose for pornographic photos and films, forcing minors to have sex with each other, deliberately causing injury to sexual organs of children, etc. Lastly, it laid responsibility on the Airport authorities, border police, railway police, traffic police and developers of movies and photos to report any inappropriate depiction of children in print media or suspicion of trafficking41. Another initiation taken up by the Goa Police was the drafting of a Child Code.42 This Code laid down several guidelines on adopting child-friendly procedures due to the sensitivity of the issue. Among other things, the Code included establishing child-friendly police stations, prohibiting minors below fourteen from entering or using cyber cafs unaccompanied, non-stigmatising semantics and the principle of best interest. However, in spite of these legislations, several perpetrators of paedophilic abuse have been acquitted due to lack of evidence. Similarly, the Commission for Protection of Child Rights Act 2005 was a national legislation that put forth the constitution of children's courts in states and districts to ensure expeditious trial for offences against children.43 The Karnataka Government also implemented the Karnataka Devadasis (Prohibition of Dedication) Act, 1982 and Rules, 1987 to put an end to the devadasi system by penalizing those who encourage it. The

Goa Childrens Act, 2003, 8(1)-(3). Goa Childrens Act, 2003, 8(15)-(3). 39 Goa Childrens Act, 2003, 2(jj). 40 Goa Childrens (Amendment) Act, 2005. 41 Goa Childrens Act, 2003, 7(9). 42 Goa Childrens Act, 2003, 13(14). 43 Mathew A. Lina,, Online Child Safety from Sexual Abuse in India, 2009(1) Journal of Information, Law & Technology (JILT) (May 28, 2009), http://go.warwick.ac.uk /jilt / 2009_1 / mathew (last visited on 27 Oct 2012).
37 38

28

2013 CLCSLR

VOL.1 ISSUE 1

legislation also arranged facilities for the rehabilitation of innocent victims.44 However, these laws were still insufficient to curb the menace of child sexual abuse. The following section will address concerns as to why perpetrators can slip through the net of these protective legislations. It will also carve out the need for a separate legislation. III. NEED FOR A SEPARATE LEGISLATION

There has been extensive debate on whether the Indian Penal code should be amended to include perpetrators or whether a separate law should be drawn up to specifically address child sexual abuse. Child rights activists have been pushing for a separate law to combat child sexual abuse, insisting that it is the need of the hour`. In the case of Sakshi v Union of India45, a step forward was taken to examine shortcomings of the Indian Penal Code when dealing with cases of this nature. However, the Court did not adequately address the entire breadth of issues, thereby failing yet again to effectively insulate children in India from sexual abuse. The Supreme Courts timely acknowledgement of the prevalence of child sexual abuse in India and its alarming increase only increases the necessity of creating and enforcing laws that protect children. In 2005, a bill specifically protecting the rights of children against this menace was drawn up while drafting the Offences Against Children Bill. This bill was drafted and approved by the National Commission for Women (NCW) and the Ministry of Women and Child Development. The bill sought to deal with a spectrum of offences against children including sale/transfer sexual assault, sexual/physical/emotional abuse, commercial sexual exploitation, child pornography, grooming for sexual purpose, incest, corporal punishment, bullying and economic exploitation.46 Furthermore, the bill made it clear that these provisions were formulated to supplement the provisions and address the shortcomings of the Indian Penal Code and the Juvenile Justice Act. However, in 2007 the Ministry of Law rejected the Bill, stating that there was no need for a separate legislation and that it would be repetitive of the provisions of the Penal Code, Code of Criminal Procedure and the Indian
N.D. Shiva Kumar, Times of India (23 Jan 2009) http://articles.timesofindia.indiatimes.com /2009-01-23/hubli/28030078_1_devadasi-system-ddpos-project-officer (last visited on 5 Sept 2012). 45 Sakshi v Union of India, [2004] 3 LRI 242. 46 Offences Against Children (Prevention) Bill, 2005.
44

29

2013 CLCSLR

VOL.1 ISSUE 1

Evidence Act.47 This was primarily due to the lack of sufficient conclusive data reporting instances of child abuse.48 While the National Crime Records Bureau reported a significant increase in sexual offences against children that included rape and trafficking of minor girls, it constituted only a negligent percentage of the total crimes committed against children.49 However, it did acknowledge the requirement of laws protecting children.50 It is extremely unfortunate how legislative lethargy is becoming the root cause51 of the under-reported nature of crimes against children and cognisance not being taken thereof. The Ministry of Women and Child Development in 2007 initiated a National Study on Child Abuse to understand the extent and magnitude of the problem. In 2009 the Ministry of Law prepared a tentative draft of the Protection of Children from Sexual Assault Bill, 2010. This Bill was unique as it stated that the onus of proving their innocence rested on the accused, unlike the existing legislation where the onus lay on the prosecutions ability to prove guilt. The Ministry of Law simultaneously worked on the draft of the Prevention of Offences Against the Child Bill, 2009, which sought to address all offences against children, including sexual offences. However, after several delays and complications in 2011, a specific bill for prevention of sexual abuse against children was drafted comprehensively and exhaustively under the initiation of the TULIR Centre for the Prevention and Healing of Child Sexual Abuse which was finally passed by the Rajya Sabha in 2011.52 This bill is now known as the Protection of Children from Sexual Offences Act, 2012 (Hereinafter referred to as the Act).

47Chetan

Chauhan, Ministry Rejects Bill for Child Protection (4 Sept 2007) http://www.hindustantimes.com/News-Feed/India/Ministry-rejects-bill-for-childprotection/Article1246151.aspx (last visited on 1 Oct 2012). 48Ministry of Women and Child Development, Study on Child Abuse INDIA 2007, wcd.nic.in/childabuse.pdf(last visited on Oct. 27, 2012). 49 Id. 50 Id. 51Havovi Wadia, The Sounds of Silence: Child Sexual Abuse in India, http://infochangeindia.org/children/analysis/the-sounds-of-silence-child-sexual-abuse-inindia.html (last visited 27 Oct 2012). 52 Id.
30

2013 CLCSLR

VOL.1 ISSUE 1

IV. PROVISIONS OF THE ACT This legislation is in response to the increasing instances of grave sexual offences against children and low rates of conviction for the same. It seeks to safeguard children from heinous offences of sexual assault, sexual harassment, human trafficking and pornography.53This is the first legislation in the country that deals specifically with offences against children and clearly defines them. It includes within its purview the abuse of boys as well as girls.54 The penalties for offences under this Act have been classified as per the gravity of the offence, ranging from simple to rigorous imprisonment of several years. The Court can also impose an additional fine on the perpetrator.55 The Act also penalizes the attempt to commit an offence and the abetment of an offence.56 The Act has made a distinction between sexual assault and aggravated sexual assault, the penalty for the latter being more stringent. 57 An offence is treated as aggravated when it is committed by a person who holds a position of trust or authority in the eyes of the child, such as a member of security forces, police officer, public servant, etc. The burden of proof for offences such as Penetrative Sexual Assault, Aggravated Penetrative Sexual Assault, Sexual Assault and Aggravated Sexual Assault, has been shifted on the accused.58 This has been done keeping in mind the greater vulnerability of children and the heinous nature of the offences.59 Concurrently, the Act also provides for punishment for making a false complaint or giving false information with malicious

Ministry of Women and Child Development, The Protection of Children from Sexual Offences Act, 2012 (22 May 2012), http://pib.nic.in/newsite/erelease.aspx?relid=84409 (last visited on 21 Aug 2012) 54 The Protection of Children from Sexual Offences Act, 2012, 2 (1) (d). 55 The Protection of Children from Sexual Offences Act, 2012, 4, 6, 8, 10, 12, 14, 18, 21, 22, 23. 56 The Protection of Children from Sexual Offences Act, 2012, 16, 17, 18. 57 The Protection of Children from Sexual Offences Act, 2012, 7, 9. 58 Ministry of Women and Child Development, The Protection of Children from Sexual Offences Act, 2012 (22 May 2012), http://pib.nic.in/newsite/erelease.aspx?relid=84409 (last visited on 5 Aug 2012) 59 Id.
53

31

2013 CLCSLR

VOL.1 ISSUE 1

intent.60 However, the degree of punishment has been kept relatively low (six months) to encourage reportage of crimes. The Act has dropped the age of consent (16-18 years) clause and labels any person below the age of 18 as a minor.61 This was done after a controversial recommendation of a parliamentary committee on the pretext of uniformity of laws (under the IPC and the Prohibition of Child Marriage Act, a person below 18 is considered a minor).62 This effectively means that any sexual interaction with a person below 18 years of age would constitute an offence if a complaint is filed, or if it is discovered. The Act specifies the establishment of Special Courts for trial of the listed offences, keeping the interest of the child paramount at every stage of the process by incorporating child-friendly procedures for reporting, recording of evidence, investigation and trial of offences.63 The evidence of the child has to be recorded within 30 days of reporting and as far as possible; the trial has to conclude within a year. It also makes provisions for the relief and rehabilitation of the child. Once a complaint is lodged at the nearest Special Juvenile Police Unit (SJPU) or local police, the police is required to make special arrangements for the child such as admitting the child into a shelter home or to the nearest hospital within twenty-four hours. They also have to report the matter to the Child Welfare Committee within the same time frame. While reporting, the media cannot disclose the identity of the child without taking prior permission from the Special Court.64 The National Commission for the Protection of Child Rights (NCPCR) and State Commissions for the Protection of Child Rights (SCPCRs) have been made the designated authorities to monitor the implementation of the Act.65

The Protection of Children from Sexual Offences Act, 2012, 22. The Protection of Children from Sexual Offences Act, 2012, 2 (1)(d). 62 Ministry of Women and Child Development, The Protection of Children from Sexual Offences Act, 2012 (May 22, 2012), http://pib.nic.in/newsite/erelease.aspx?relid=84409 (last visited on 5 Aug 2012). 63 The Protection of Children from Sexual Offences Act, 2012, Chapter VII. 64 The Protection of Children from Sexual Offences Act, 2012, 23. 65 Ministry of Women and Child Development, The Protection of Children from Sexual Offences Act, 2012 (May 22, 2012), http://pib.nic.in/newsite/erelease.aspx?relid=84409 (last visited on 5 Aug 2012).
60 61

32

2013 CLCSLR

VOL.1 ISSUE 1

V. A CRITIQUE The IPC does not take into account the range of sexual offences committed on children and does not differentiate effectively between an adult and a child. Also, it does not address sexual violence against the male child except under Section 377 that criminalizes homosexual behaviour. The present Act has the potential to instil hope in many child victims of abuse who have been denied justice due to the loose ends in penal laws. The Act is progressive in its approach. It is gender-neutral and lays down stringent punishments for a range of sexual offences. It has introduced several measures to prevent the re-victimization of children at every step of the judicial process. It sets out provisions for the rehabilitation of these children. However, there are several provisions in the Act that continue to serve as causes for concern.
A. NO PREVENTIVE MEASURES

Overall, the Act does a fine job in dealing with cases of child sexual abuse. However, nowhere does the Act mention provisions to prevent abuse.66 The Act only lays down measures to be taken after the child has suffered sexual abuse. It should certainly include provisions for prevention as well, since punishment should never be the sole deterrent.67 In cases of child abuse, prevention is certainly the best cure. Preventive measures should see efforts from both family members and the state machinery. A possible preventive measure can be the setting up of a website which has details of first time offenders.68 Studies indicate that in most cases, a perpetrator does not stop after abusing one child.69 This website will ensure that such deviants are not hired by any school, universities, hospitals and places where children traditionally assemble in large numbers.70

66Jose

Parapully, Questions of Protection (14 August 2012), http://www.telegraphindia.com/1120814/jsp/opinion/story_15851586.jsp#.UIazp2CpSn M (last visited on 6 Sep 2012). 67 Id. 68Pinky Virani, Child Sex Abuse and the Law (23 Jul 2011), http://www.openthemagazine.com/article/nation/child-sex-abuse-and-the-law (last visited on 6 Sept 2012). 69 Id. 70 Id.
33

2013 CLCSLR

VOL.1 ISSUE 1

Also, the Human Resource Development Ministry must develop and introduce modules on sex education at the primary, secondary and senior secondary level.71 The content of these manuals should include user-friendly guidelines on identifying signs of child abuse and protection from the same, and be upgraded with every successive class. This should also be accompanied by teachers holding interactive sessions, where parents can also participate.72
B. AGE OF CONSENT

Raising the age of consent for sex from 16 to 18 is definitely a step back. A study conducted by the International Institute for Population Studies (IIPS) and Population Council in 2010 in six states - Andhra Pradesh, Bihar, Jharkhand, Maharashtra, Rajasthan and Tamil Nadu - on youth between the ages of 15 to 21 years revealed that instances of pre-marital relationships amongst those above 16 years is higher than ever before.73 There was a definite progression in reported physical intimacy and sexual experience with romantic partners: 42 per cent of young men had indulged in consensual sexual activity with their partners, while 26 percent of young women had engaged in sexual relations. Moreover, the increasing number of Habeas Corpus petitions filed in various High Courts by young couples seeking the right to exercise their choice in personal relationships is also evidence of this trend.74 At a time when kids are attaining puberty much earlier than in the past and social mores about alternative sexuality are getting more relaxed, this provision is clearly regressive. This provision can and will be enforced in a manner that puts young adults indulging in consensual sex at the risk of unwonted harassment.75 It will also deter young people from exploring their

Id. Id. 73Geeta Ramaseshan, Law and the Age of Innocence (19 June 2012), http://www.thehindu.com/opinion/op-ed/article3543940.ece (last visited on 6 Sept 2012). 74Id. 75 Flavia Agnes, Consent and Controversy (22 June 2012), http://m.indianexpress.com /news/consent-and-controversy/948277/ (last visited on 6 Sept 2012).
71 72

34

2013 CLCSLR

VOL.1 ISSUE 1

sexuality, which might lead to the development of psychological problems. The law should not criminalize the very natural process of growing up.76 This provision, which was included on the pretext of uniformity in the law, ironically conflicts with other Indian laws and social realities. The IPC77 considers sex with a girl less than sixteen years, with or without her consent, to be rape.78 This means that under the IPC, consensual sex with a girl of more than sixteen years is not an offence. This is in direct conflict with the above provision of the Act. Moreover, the IPC says that only children below the age of seven years are incapable of committing crimes.79 Children between the ages of seven and twelve are capable of committing crimes. However to prove the same it has to be shown that they have attained sufficient maturity of understanding to judge the nature and consequences of [their] conduct on that occasion.80 On reaching the age of thirteen, a child is treated at par with others vis--vis his ability to commit a criminal offence.81 Thus, according to the Indian legislators, a child of fourteen years is mature enough to understand the nature and gravity of the crime he commits; however he is considered underage and incapable of giving valid consent for intercourse. Another lacuna born from such an unreasonable provision is that sexual intercourse between two consenting teenagers, for example a seventeen year old girl and a nineteen year old boy, will result in the boy being charged with the offence of child sexual abuse even if the age difference between both of them is negligible and both the teenagers have engaged in safe, consensual sex. The American Psychological Association, the premier association of psychologists in the world, observes that a minimum age difference of five years should exist between the victim and the perpetrator for the sexual act to be considered abuse. Even under Swiss law, although the age of consent is fixed at sixteen,82 exceptions are accepted if the age gap between the parties is
Id.; T.K. Rajalakshmi, Blind to Realities ( 10 June 2012 ), http://www.frontlineonnet.com /fl2910/stories/20120601291009900.htm (last visited on 7 Sept 2012). 77 PEN.CODE. 375 78 Id. 79 PEN.CODE. 82 80 PEN.CODE. 83. 81 Ibid 82 Swiss Federal Criminal Code, 1937, Art.187(1).
76

35

2013 CLCSLR

VOL.1 ISSUE 1

three years or less.83 A similar position is reflected in the law of Israel, where sexual intercourse with a child of fourteen is considered rape (consent is immaterial). However, when one of the parties is between fourteen to sixteen years and the age difference between both the parties is less than two years, sexual intercourse is considered legal if it is consensual.84 Such a flexible stance ensures that while sexual intercourse between adults and children remains illegal, teenagers are not harassed by the law if they engage in consensual sex. Moreover, there might be some borderline cases in which the age difference of the involved patties rests on the margins of the permissible level. In such cases, the Courts must adopt a lenient stand and refer these children to counselling and classes on safe sex, pregnancies, sexually transmitted diseases and other fallouts of intercourse rather than sentence them to imprisonment.85 It is important to ensure that the law of the country strikes a healthy balance between protecting its children from abuse on the one hand and protecting the sexual freedom of young adults on the other.86 It is one thing to believe that it is too early for teenagers between sixteen and eighteen to engage in sexual activity. However, criminalizing all consensual sexual activity in the belief that everyone below eighteen is a child and that too in a divergent society where child marriages persist on the one hand and teenagers are increasingly becoming conscious of their sexuality on the other can have dreadful consequences. Given the ground reality of violence perpetuated by Khap and caste panchayats against young couples, raising the age from sixteen to eighteen years for consensual sexual behaviour will give them greater leeway to socially ostracize and discriminate against couples engaging in such acts as the concerned couples are now also stripped of legal protection.87The Delhi High Court had also only recently described the move to raise the age of consent from sixteen to eighteen as

Swiss Federal Criminal Code, 1937, Art.187(2). Israeli Penal Code, 1977, 353. 85 Arun Mal and Pallavi Nautiyal, Towards Protection of Children Against Sexual Abuse: No Childs Play 2010, www.nujslawreview.org/.../pallavi-nautiyal-and-arun-mal.pdf (last visited 10 Sept 2012). 86 Id. 87Supra Note 73; T.K. Rajalakshmi, Blind to Realities (10 June 2012), http://www.frontlineonnet.com/fl2910/stories/20120601291009900.htm (last visited on 7 Sept 2012).
83 84

36

2013 CLCSLR

VOL.1 ISSUE 1

regressive and draconian, while acquitting a youth of kidnapping and raping a seventeen-year-old girl he had married.. What is required is the addressing of behavioural issues among the youth through multiple ways, like sex education and counselling.88 It is a better way to protect our adolescents rather than criminalizing the acts they engage in.89
C. MANDATORY REPORTING

The Act also calls for mandatory reporting to designated authorities by anyone who apprehends that an offence may be committed.90 The failure to report the same is an offence. This provision is quite flawed. This will encourage moral policing (a malaise in the present time) and even consensual intimate behaviour may lead to complaints by ill-disposed and disapproving family members and others, leading to the harassment of young adults.91 Also, in cases of privileged information such as information obtained through lawyer-client discussion, psychotherapy or in the ceremony of confession (reconciliation) to Catholic priests, will it be correct to follow the provision?92 Catholic priests are required by their vow to maintain secrecy about all information they have received in the sacrament of confession, and therefore this requirement stands in violation of their sacred commitment. On the other hand, penalizing a person for not reporting may prove counter-productive given the social stigma attached to the issue.93 There are several reasons, including fear of reprisals, shame, embarrassment, confusion or denial, which may lead a child to refrain from reporting the matter. Therefore, this is not a very child-friendly provision and should be altered

Supra Note 83. Madhok, Age of Innocence (10 May 2012), http://www.deccanchronicle.com/editorial/op-ed/age-innocence-066 (last visited on 7 Sept 2012). 90 The Protection of Children from Sexual Offences Act, 2012, Chapter V. 91 Supra Note 73. 92 Supra Note 66. 93 Kaushiki Sanyal, Standing Committee Report Summary: The Protection of Children from Sexual Offences Bill, 2011 (14 March 2012), http://www.prsindia.org / uploads / media / Protection%20of%20children/SCR%20summary Protection% 20of% 20Children% 20from%20Sexual%20Offences%20Bill%20.pdf (last visited on 9 Sept 2012).
88 89Sujata

37

2013 CLCSLR

VOL.1 ISSUE 1

accordingly. Fortunately, the child is exempted from punishment for failure to report.94 1. No provision for marital rape The Act is also silent on the issue of marital rape.95 Under the IPC, marital rape is an offence only when the wife is below fifteen years, three years younger than the age of consent prescribed by the Act. Therefore, there will be no relief if the wife is above fifteen years of age, although she will come within the definition of a child under the Act.96 This is a void that should be addressed. 2. Gender bias? Although the Act is gender-neutral overall vis--vis the victim, it is not so vis--vis the offender.97 Chapter II of the Act makes use of the pronoun he to refer to the offender, in the definition of penetrative sexual assault, thus excluding women as offenders. Even Chapter V, which lays down the provisions of reporting, uses the pronoun he throughout. Therefore, the Act can be interpreted to completely absolve women of the responsibility of reporting. 3. No period of limitation There is no period of limitation mentioned in the Act.98 This means that even an act that was committed 50 or 60 years ago can be reported. This aspect of the Act should be looked into. Having a limitation period exhorts the law enforcement agency to investigate the crime promptly.99 Also, current crimes are much simpler to tackle as compared to historic ones as obtaining evidence gets tougher with every passing year. Furthermore, the need, desire and determination to punish the perpetrator and seek justice also dwindles with lags and delays caused due to inefficiency and disinterest.100 Moreover, it may not be appropriate to judge the accused on an act which he had committed years ago, denying the possibility to reform. It may
The Protection of Children from Sexual Offences Act, 2012, Section 21(3). Supra Note 73. 96 Id. 97 Supra Note 66. 98 Supra Note 85. 99 Amy Dunn, Criminal Law- Statute of Limitations on Sexual Assault Crimes: Has The Availability Of DNA Evidence Rendered Them Obsolete? , 23 UALR L. Rev. 849 (20002001). 100 Id.
94 95

38

2013 CLCSLR

VOL.1 ISSUE 1

also deny the accused a chance of fair trial, thus infringing his basic rights. 101 Therefore, there should certainly be some delineation of on-going or recent abuse and abuse which happened a long time ago. 4. Protection from adverse consequences A vital issue vis--vis the reporting of abuse that is absent from the Act is the protection of those who report the abuse.102 If a teacher, for example, reports that a student is being abused by his/her family member, he or she may face adverse consequences, including loss of job and threat to life, especially if the offender is in a powerful position. The child, too, may suffer. Although the Act provides for the care and protection of the victim,103 there is no provision for the protection of the person who has reported such abuse. Obligation to report, without providing protection for the same, makes little sense. 5. Provision for In-camera trial This Act explicitly provides for in-camera trials.104 The requirement for the same can be traced back to the case of Sakshi v. Union of India105, in which an eight-year-old girl had been penetrated in three orifices by her father. The Delhi High Court, in a preposterous judgment found the accused guilty for the lesser offences of outraging the modesty of women and hurt, instead of rape. The Supreme Court, however, widened the scope of sections 375 and 376(dealing with rape) to include other forms of sexual abuse intended to humiliate, violate or degrade a woman or a child sexually. Moreover, taking cognisance of the sensitivity of children in sexual abuse cases, the Court made in-camera trials mandatory (earlier reserved only for cases of rape) for cases of abuse without penile penetration. It is heartening to see that this widely hailed directive of the Supreme Court was cemented by the Act.

Id. Supra Note 66. 103 The Protection of Children from Sexual Offences Act, 2012, 19(5) and (6). 104 The Protection of Children from Sexual Offences Act, 2012, 37. 105 [2004] 3 LRI 242.
101 102

39

2013 CLCSLR

VOL.1 ISSUE 1

VI.

GLOBAL ALLEGIANCE AGAINST CHILD SEX ABUSE

Western society is not alien to instances of child sexual abuse.106 However, determining the rate of this form of abuse is tricky.107 A study has revealed that almost 5 percent of boys and 18 per cent of girls have been sexually abused in the United Kingdom and more than 23,000 instances of abuse have been recorded by the police during 2009-2010.108 The situation of United States is much worse. A literature review of 23 studies places the estimate at an average of 17 per cent for boys and 28 per cent for girls.109 Although all the nations are in agreement on the idea that children should be protected from heinous crimes like child sexual abuse, they do little to enforce international conventions in this regard.110 Since international law is not binding, most countries exploit children for their advancement, although they are signatories to child rights conventions. This is most prominent in the Third world and under-developed countries, where instances of child marriage are still recorded (young girls are married off to men who are much older), children are openly recruited for military proscription and child prostitution rackets flourish.111 Another major problem with enforcing international child sexual abuse laws is that different cultures and societies have different perspectives on child-rearing and family systems. For example, in Japan, child sexual abuse exists, however the same is hardly ever reported, as Japanese society is characterized by closed family systems, where problems of the family are

106Kendall-Tacket

et al, Impact of sexual abuse on children: A review and synthesis of recent empirical studies, Psychological bulletin 113 (1), 164-180 (1993). 107 Id. 108Lorraine Radford, Child Abuse and Neglect in the UK today, http://www.nspcc.org.uk/Inform/research/findings/child_abuse_neglect_research_PDF _wdf84181.pdf (last visited on 30 Sept 2012). 109 Rind, Bruce, Philip Tromovitch, and Robert Bauserman, A meta -analytic examination of assumed properties of child sexual abuse using college samples, Psychological Bulletin 124(1), 22-53 (1998). 110 David Finkelhor, The international epidemiology of child sexual abuse, Child abuse & neglect, 18 (5), 409-417 (1994). 111Id.; UNICEF, Child Sexual Abuse in eastern Caribbean, 2008 -2011, http://www.unicef.org/barbados/Child_Sexual_Abuse_Publication.pdf (last visited on 1 Oct 2012).
40

2013 CLCSLR

VOL.1 ISSUE 1

kept close within.112 Even outsiders are unwilling to interfere with the problems of other families.113 Similarly, many countries in Asia, Africa and South America have developed laws against the sexual abuse of children. However, there is a widely accepted belief in these countries that child rearing is a private family matter and should not be interfered with.114 Thus these laws exist mostly on paper and are not properly implemented. However, the approach towards identification and reporting of child sex abuse in these countries is slowly undergoing a change, which is a positive step in the direction of solving this persisting menace.115 Today child sexual abuse is a criminal offence in nearly all countries and is generally punished by severe penalties.116 The United States recognised child sexual abuse as a type of maltreatment in the U.S. Federal law for the first time in 1973.117 Child sexual abuse is illegal under federal law118 and under every state in the United States,119 although the specifics of the law varies with each state. The process of reporting child sexual abuse in the United States is fairly simple and prompt. Any person can make an anonymous report of abuse to Child Protective Services (CPS), or the Department of Children and Family Services (DCFS).120 Most states also have a toll-free hotline
112John

Dussich et al, Decisions not to Report Sexual Assault in Japan,http://www.aic.gov.au/en/publications/previous%20series/proceedings/127/~/media/publications/proceedings/27/dussich.pdf (last visited on Oct. 1, 2012). 113 Id. 114 Supra Note 111. 115 Id. 116Roger J.R.., Sexual Abuse of Children: A Human Rights perspective, 1-6,176-180 (Indiana University Press 1999). 117Child Abuse Prevention and Treatment Act, 1974. 118U.S. Department of Health and State Services, Index of Federal Child Welfare Laws, http://library.childwelfare.gov/cwig/ws/library/docs/gateway/ResultSet?upp=0&rpp=1 0&w=+NATIVE(%27sti+%3D%22Index+of+Federal+Child+Welfare+Laws%22%27) &r=1&order=+NATIVE(%27year+%2F+descend%27 (last visited in Oct. 2012). 119U.S. Department of Health and State Services, State Statutes- Child Abuse and Neglect, http://www.childwelfare.gov/systemwide/laws_policies/state/ (last visited on 2 Oct 2012). 120New York State Office of Children and Family Services, Concerned Citizen Guide, http://www.ocfs.state.ny.us/ohrd/ccg/ccg.asp (last visited on 17 Oct 2012); Department of Children and Family Services, State of Louisiana, Reporting Child Abuse or Neglect, http://www.dcfs.louisiana.gov/index.cfm?md=pagebuilder&tmp=home&pid=1
41

2013 CLCSLR

VOL.1 ISSUE 1

operated by trained call screeners, who either open the case for investigation or record the report. After that, a children's social worker or a caseworker is sent to investigate the case. If the worker is satisfied that the charges are true, the child is sent to Child Protective Services, and the accused is tried for the offence.121 The State also designates certain individuals to observe and report child maltreatment. Such individuals often include health-care workers, school personnel, child-care providers, social workers, law enforcement officers and mental health professionals.122 Even in the United States, an adult who is in charge of a child and possesses knowledge of child sexual abuse (for example, he/she knows that a stranger, a friend, or a family member is abusing the child) and fails to report the abuse can be charged with one or more crimes under the law.123 The United Kingdom still does not have a specific legislation dealing with child sexual abuse and the Sexual Offences Act of 2003 is attacked every time a crime of this sort is committed.124 This Act lays down definitions and penalties for child sexual abuse offences, and applies to England, Wales and Northern Ireland (with respect to offences). The Scottish Law Commission came up with its evaluation of rape and sexual offences in December 2007, which includes a similar consolidation and codification. The same is referred
09 (last visited on 17 Oct 2012); Department of Children and Families, State of New Jersey,How and When to Report Child Abuse and Neglect, http://www.nj.gov /dcf /reporting/how/index.html (last visited on 17 Oct 2012); Department of Health and Human Services, State of North Carolina, About Child Abuse and Neglect, http:// www.ncdhhs.gov/dss /cps/about.htm#Reporting (last visited on 17 Oct 2012); Department of Social Services, State of California, Report Abuse, http:// www.dss.cahwnet.gov /cdssweb /PG20.htm (last visited on 17 Oct 2012); Anne Reiniger, Mandated Training of Professionals: A Means of Improving Reporting of Suspected Child Abuse, Child Abuse and Neglect, 19(1), 63-69 (1995). 121Id. 122 Department of Children and Family Services, State of Louisiana, Reporting Child Abuse orNeglect, http://www.dcfs.louisiana.gov/index.cfm?md=pagebuilder&tmp=home&pid =109 (last visited on 17 Oct 2012) 123National Centre for Prosecution of Child Abuse National District Attorneys Association, Mandatory Reporting of Child Abuse and Neglect (Nov. 2011), http://www.ndaa.org/pdf/Mandatory%20Reporting%20of%20Child%20Abuse%20and %20Neglect-Nov2011.pdf(last visited on 17 Oct 2012). 124 Patricia J. Mrazek, Sexual Abuse of Children in the United Kingdom, Child Abuse and Neglect, 7(2), 147-153 (1983).
42

2013 CLCSLR

VOL.1 ISSUE 1

to in all matters of child sexual abuse in Scotland.125In 2006, the London Safeguarding Children Board released guidelines for safeguarding children abused through sexual exploitation.126 These guidelines lay down the framework for a multi-agency response to the sexual exploitation of children, covering risk-assessment, intervention, multi-agency planning meetings and support plans, roles of different services (social services, police, education, health) and prevention work. The Indian Act, sadly, has failed to incorporate the important abovementioned provisions of legislation in other countries. Some features of the London Board guidelines can also be included in the Indian Act, especially with respect to the roles of different services (social services, police, education, health)127 to make the latter a more comprehensive and effective legislation. The concept of grouping children into three categories (low risk, medium risk, high risk)128 can also be adopted which will help us take into account the unique circumstances of each child and consequently help to frame a better response/intervention strategy. In the same vein, the process of reporting child abuse in our country could be made less tedious if, like the United States, we could have a toll-free hotline number for complaints, attended by trained screeners. Also, we could have a system where the State designates certain individuals to observe and report possible maltreatment. These small but significant borrowings from the US and UK legislation can go a long way towards improving the Indian position vis--vis child sexual abuse. VII. CONCLUSION

A staggering 41% of Indias population is constituted by children.129. Therefore, the growing incidence of sexual violence, abuse and exploitation
125

Id.

126London

Safeguarding Children Board, Safeguarding Children Abused Through Sexual Exploitation (2006), http://www.londonscb.gov.uk/files/conference07/sexual_exploitation_procedure.pdf (last visited on 17 March 2013). 127Safeguarding Children Abused Through Sexual Exploitation, London Board 2006 , 6,7,8,9,10. 128 Safeguarding Children Abused Through Sexual Exploitation, London Board 2006 , 3.2. 129 Population in different age groups and their proportion in the total population, Ministry of Home Affairs, Office of the Registrar General and Census Commissioner of India, (1 Dec 2005),
43

2013 CLCSLR

VOL.1 ISSUE 1

of children does raise many concerns.130 The problem in India is acute owing to its conservative social environment. For instance, incest will usually go unreported due to the fear of social disgrace. Within a family, children will feel victimized, as the crime would be suppressed and not subjected to the usual criminal complaint procedure. This may have severe psychological effects in the form of guilt, shame and depression in the child which deeply affects their personality.131 It is difficult to assure ourselves that these children will ever be able to get past the social opprobrium and fear. Effective penalization is a means toward that much desired end. The lack of a legal mechanism exclusively directed at curbing such offences is the prime reason behind the breeding of sexual predators. The IPC has never addressed crimes perpetrated against children and yet legislature has continuously impeded several attempts at drafting a separate and robust legislative instrument to this end. In the guise of this loophole, which dilutes the sentences of offenders, it appears that the judiciary, along with the reluctant legislature and ignorant executive, has also turned a blind eye to the severity of the offence. If art imitates life, the popular media has been doing a decent job in painting the true picture of child abuse in India. The dismal state of protection against child abuse has found mention in numerous popular culture references such as television shows in the league of We the People and Aamir Khan's Satyameva Jayate. However, drafting a specific legislation targeting child sexual abuse is only half the battle won. The next major impediment is compelling people to come forward and report such offences. Additionally, due to the nature of the crime and the victims being children, a higher onus is imposed on investigation as it must be handled with adequate sensitivity. Therefore, the legislation must make provisions ensuring that the child is not traumatised further by the police, investigating agencies, court and components of the legal system while seeking justice. Usually in cases of sexual abuse there is
http://censusindia.gov.in/Census_And_You/age_structure_and_marital_status.aspx (last visited on 5 Oct 2012). 130 Supra note 105. 131Neeta Lal, Hidden Darkness: Child Sexual Abuse in India (2 May 2007), http://www.asiasentinel.com/index.php?option=com_content&task=view&id=476&Item id=34 (last visited on 5 Oct 2012).
44

2013 CLCSLR

VOL.1 ISSUE 1

lack of forensic and conclusive incriminating evidence, lack of witnesses and conflicting testimonies by the child. The law and enforcement agencies must be sensitive and understanding of such circumstances and provide the child with necessary aids like social workers or psychologists for comfort and encouragement to give the most accurate evidence. At no point must the child feel threatened, scared or incapable of telling the truth as it would defeat the purpose of the legislation. Lastly, protection must be accorded to the child during the course of the trial to make it as minimally harrowing as possible. Therefore, all efforts must be combined to ensure that children do not fall prey to such heinous crimes and live a healthy childhood. The Indian story has found resonance in many countries without any discrimination against race, religion or ethnicity. It has prompted legislatures across the world to enforce laws criminalising child sexual abuse and prodded international bodies into spreading awareness132.133

132Supra 133Supra

Note 101, 111, 118. Note 106.The United States has taken a keen interest in preventing such instances of abuse by making their law child-centric and child-friendly. The United Kingdom and Scotland have also been able to successfully deal with instances of child sexual abuse despite not having a specific legislation as penalties are included in legislations that deal with sexual offences at large. But some countries like Japan are still reticent in broaching the subject of child sexual abuse even though it is widespread in the society.
45

2013 CLCSLR

VOL.1 ISSUE 1

DEMOCRATIC DILEMMAS IN JUSTIFYING MURDER: THE CASE OF TARGETED KILLINGS UNDER INTERNATIONAL LAW
Nidhu Srivastava* The paper aims to answer the normative implications arising out of the use of targeted killings by States. The researcher aims at putting forth legal and moral justifications of targeted killings so as to decide the domain of of the same. The paper mainly focuses on analysing major criticisms of targeted killings and their justifications, presenting the legal basis and limitations to targeted killings and the moral dilemmas in justifying it. Special attention has been given to the identification of targets of these killings. The author has also analysed the controversy surrounding civilians participating in hostilities. The paper states that though targeted killings are conducted in order to meet certain foreign policy goals as well as to protect the general populace, it is also true that targeted killings do not defeat terrorist organisations and may instead encourage further events of revenge. Hence, targeted killings should only be opted for when the benefits so achieved exceed the costs involved by a great margin. I. INTRODUCTION

Either openly or implicitly, the policy of targeted killing has been adopted by States in recent times1 after Israel became the first country to make public a policy of targeted killings of alleged terrorists in the Palestinian territories. Even though the term targeted killing is neither defined under international law,2 nor in any other particular legal framework,3 the United Nations report on the same explains it as; The intentional, premeditated and deliberate use of lethal force, by States or their agents acting under colour of law, or by an organised armed group in armed conflict, against a specific individual who is not in the physical custody of the perpetrator.4

* IV Year, B.A. LLB (Hons.), NALSAR University of Law, Hyderabad 1 ALSTON, P., UN Report of the Special Rapporteur on extrajudicial, summary or arbitrary executions General Assembly, 28 May 2010, 1, Available at: http://www2.ohchr.org /english /bodies /hrcouncil/docs/14session/A.HRC.14.24.Add6.pdf, (Last visited 25 March 2012). 2 Id, 7. 3 Id. 4 Supra, note 1.
47

2013 CLCSLR

VOL.1 ISSUE 1

Targeted killings are not accidental, but are deliberately taken on by governments and their agents in times of peace as well as armed conflict 5 or by organised armed groups in armed conflict.6 It may be legal or illegal but it is seen to violate the right to life in almost all circumstances.7 The issue of targeted killings involves both costs and benefits. It could only be justified if the benefits are far greater than the costs and if it does not violate the fundamentals of humanity.8 To rationalize targeted killings, we need to work on an assumption that the war against terror is a just response to terrorist atrocities and hence, terrorists are liable to be killed for the violation of jus ad bellum.9 The practice of targeted killing, in the absence of any governing law, raises many questions. The extent to which a democracy should go in taking the fight to the enemy; and the standards and metrics it should use to judge the propriety and effectiveness of its actions have always been controversial.10 One question which attracts even more debate is who the lawful targets of targeted killings are. The strategy of targeted killing is often rejected as ineffective, illegal and immoral as it attracts worldwide condemnation, disrupts diplomatic negotiations, fuels anger and increases the number of terrorists.11 Hence, answering the normative implications arising out of the use of targeted killings by States is also of critical importance. Legal and moral justifications of targeted killings could help in deciding the domain of targeted killings.12 This paper mainly focuses on analysing major criticisms of targeted killings and their justifications. Following the controversy over the targets of targeted killings, the paper presents the legal basis and limitations of targeted killings and the moral dilemmas in justifying them. A summary of the main points raised is provided in the conclusion.
5Supra 6Supra

note1, 8. note1, 8. 7Supra note1, 10. 82 BYMAN, D, Do Targeted Killings Work?, Foreign Affairs, vol. 85, at 96, March-April 2006; [hereinafter, Byman]. 9 WALDRON, J.J., Violation of jus ad bellum- Can Targeted Killing Work as a Neutral Principle?, (2011), NYU, Public Law and Legal Theory, Working Paper - 267, at 4-5, available at: http://lsr.nellco.org/nyu_plltwp/267 (Last visited: 25 March 2012) [hereinafter Waldron]. 10Byman, supra note 8, at 96. 11Byman, supra note 8, at 96. 12There are also conflicts over question whether terrorism is a criminal act or an act of war, if terrorism is a criminal act, then targeted killings are an illegal method of law enforcement; whilst if terrorism is an act of war, then targeted killings is simply a military tactic
48

2013 CLCSLR

VOL.1 ISSUE 1

II.

WHO MAY LAWFULLY BE TARGETTED?

By 2011, more than three Iranian nuclear scientists were killed either by bombing or shooting. It was rather surprising that these killings did not invite outrage or condemnation by the international community. Instead, as Hasan13 puts it,14 these acts were considered as an expression of undisguised glee. However the question remains, were these scientists the lawful targets of such killing or not? The answer suffers from a lack of clarity. Targeted killings come within the ambit of non-international armed conflict, for which the rules regarding lawful targets are ambiguous. 15 In the absence of any term such as combatant,16 States are allowed to attack the civilians who directly participate in hostilities (DPH)17.18 However, the definition of DPH has been left open to the States own interpretation.19 What is direct participation has not been universally accepted. Is it only the membership in an organised armed group or the duration of participation that is crucial in order to decide whether an individual is to be attacked or not?20 If we assume that DPH only includes conduct close to that of a fighter or what seems to be directly supporting combat, it would follow that civilians providing financial support, advocacy, or other non-combat aid, would not be liable to be attacked.21 However the ICRC Guidance22 describes
Mehdi Hasan is a British Political Editor at the Huffington Post United Kingdom. He is also the presenter of al-Jazeera Englishs The Caf. He was a senior editor at the New Statesman and a news and current affairs editor at Channel 4. He is co-author of Ed: the Milibands and the Making of a Labour Leader. He has expressed strong views on Diplomacy, Islam, Muslims and American Rhetoric expressed in his writing for The New Statesman. 14HASAN, M., Iran's nuclear scientists are not being assassinated. They are being murdered, Jan, 16, 2012 , guardian.co.uk, http://www.guardian.co.uk/commentisfree/2012/jan/16/iran-scientists-state-sponsoredmurder (Last visited: 26 March 2012). 15Supra note 1, 57 & 58 [Where as in international armed conflict, combatants may be targeted at any time and any place subject to the other requirements of IHL]. 16Supra note1, 58. 17Hereinafter, DPH. 18Supra note 1, 58. 19Supra note 1, 58. 20Supra note 1, 59. 21Supra note 1, 60. 22 Melzer, N., ICRC Guidance, Interpretive guidance on the Notion of Direct Participation in hostilities under International Humanitarian Law, 62,
13

49

2013 CLCSLR

VOL.1 ISSUE 1

DPH as a continuous combat function.23 By this logic, these people may be targeted at all times and in all places,24 as DPH for civilians could be limited to each single act. Take for example any concrete preparatory measures for that specific act constitutes DPH.25 The main problem here is to arrive at such a definition of DPH that would not jeopardize the safety of civilians and at the same time not act as a reward for an enemy. There might be cases where any enemy may deliberately hide among civilian populations, hence putting them at risk.26 In such situations the strategy of targeted killing might not be the best option available, as it will end up jeopardizing the safety of civilians and hence diluting the distinction between who may be killed and who may not.. Even an indirect conduct could be included provided it has a belligerent nexus with the harm caused, if the same is not protected by other human rights standards according to ICRC guidelines.27 Thus, the real test becomes whether the conduct constitutes an integral part of armed confrontations occurring between belligerents.28 If the activity does not meet the criteria for DPH, 29 then States response must conform to the lethal force standards applicable to selfdefence and law enforcement.30 The Public Committee against Torture in Israel and ors v. The Government of Israel and ors31(Targeted Killings Case) of 2005 clarifies the position further and summarizes the law of determination of DPH. Here the petitioners challenged the targeted killings conducted by the State of Israel as
http://www.icrc.org/eng/assets/files/other/icrc-002-0990.pdf (Last visited: 26 March 2012) [hereinafter Melzer] [ICRC provides for three components of DPH. A threshold of harm which is likely to result from the act, either by adversely impacting the military operations or capacity of the opposing party, or by causing the loss of life or property of protected civilian persons or objects; the act must cause the expected harm directly, in one step, for example, as an integral part of a specific and coordinated combat operation as opposed to harm caused in unspecified future operations; the act must have a belligerent nexus i.e., it must be specifically designed to support the military operations of one party to the detriment of another. 23Id. 24Id. 25Id. 26Melzer, Supra note 22, 62. 27Supra note1, 60. 28Supra note 1, 64. 29See:Hague Regulations IV, A. 22, A. 35(1) & 51 (discussing hostilities). 30Supra note 1, 64. 31 HCJ 769/02 (2005) [The case was heard by the Supreme Court of Israel sitting as the High Court of Justice on December 11, 2005 by A. Barak, President D. Beinisch, and Vice President E. Rivlin].
50

2013 CLCSLR

VOL.1 ISSUE 1

being disguised as security measures.32 The Policy of targeted frustration employed by the State was under question.33 As a basic principle, civilians taking a direct part in hostilities are not protected from attack at such time as they are doing so. 34 The essence of this basic rule is that a civilian must refrain from directly participating in hostilities and if he does not do so, he loses his status as a civilian as long as he is taking a direct part in hostilities. 35 Here it may be argued that terrorists participating in hostilities forfeit their immunity as civilians, but do not lose the status of a civilian. The court further observed that protection against military attacks is granted to civilians unless and for such time as they take a direct part in hostilities36 Interpreting the term taking part in hostilities the court described hostilities as acts which by nature and objective are intended to cause damage to the army or otherwise.37 The act covers civilians using weapons, gathering intelligence, or preparing himself/herself for hostilities against the army, the state or the civilian population of the State. Moving on to the second limb of 51(3), the court analysed the phrase takes a direct part, by differentiating between civilians who take a direct part in hostilities from civilians who take an indirect part.38 It is however contended that the civilians who merely support the adverse party's war or military effort cannot be considered as combatants.39 This may include selling goods or supplying food or sympathizing with the cause of one of the parties. The cases of direct participation may include a person who collects intelligence on the army or transports unlawful combatants to or from the place or supervises

32Targeted

Killings were employed across Judea, Samaria, and the Gaza Strip. Statistics show that, these operations killed close to three hundred members of terrorist organisations and more than thirty targeted killing attempts have failed. One hundred and fifty were killed and hundreds wounded during the acts. 33The Policy allows the security forces to kill members of terrorist organisations involved in the planning, launching, or execution of terrorist attacks against Israel. 34 This principle is manifest in 51(3) of Protocol Additional to the Geneva Conventions, 12 August 1949, and relating to the Protection of Victims of International Armed Conflicts (Protocol I), 8 June 1977, which states; Civilians shall enjoy the protection afforded by this section, unless and for such time as they take a direct part in hostilities. 35See Targeted Killings Case, 31. 36See Targeted Killings Case, 32. 37See Targeted Killings Case, 33. 38See Targeted Killings Case, 34. 39Inter-American Commission on Human Rights, Third Report on Human Rights, 1999, 53, 56.
51

2013 CLCSLR

VOL.1 ISSUE 1

operation.40 However, what is direct and indirect has always been a question of debate in the international circle. In such circumstances, the facts of each case have to be decided individually to see whether there is a direct participation or an indirect one. While interpreting grey areas like this, a liberal interpretation is to be adopted in favour of finding direct participation.41 Contributing to the interpretation of this disputed clause, the court further added that direct participation is not restricted merely to the person committing the physical act of attack, but extends to the person who plans or plots the act.42 Finally, moving on to the last limb of 51(3): for such time, a civilian directly participating in hostilities forfeits his immunity for such time when he is taking part in those hostilities and once that time passes, the protection granted to the civilian returns.43 The clause takes a direct part in hostilities is qualified by the term for such time.44 A civilian cannot be attacked for hostilities committed in the past. If he is involved in a chain of hostilities, with short periods of rest in between, he is not entitled to immunity as it is a continuing act.45 However, each and every case has to be examined separately, to see the nature of the act and duration of involvement.46 III. LEGAL PERMISSIONS

Terrorists have an irregular status.47 It is clear that International Law recognises only two possible statuses of people: one being combatants and the other civilians. While both these categories enjoy rights under International Law, combatants are legitimate targets of an attack whereas civilians are not.48 Even if a civilian participates in combatant activities, he cannot be termed as an unlawful combatant. He retains his status, losing
40See 41See

Targeted Killings Case, 35. Targeted Killings Case, 34. 42See Targeted Killings Case, 37. 43See Targeted Killings Case, 38. 44See Targeted Killings Case, 39. 45See Targeted Killings Case, 39. 46See Targeted Killings Case, 40. 47Byman, supra note 8, at 101. 48Article 3 of the Geneva Convention provides for the status of civilians, and their protection. This is considered as the basic principle of customary international law
52

2013 CLCSLR

VOL.1 ISSUE 1

certain privileges in case of direct participation in hostilities.49 Hence, one who is not a combatant automatically becomes a civilian as there are only two possible statuses can possess. Terrorists are not military combatants. The Hague Regulations, 1 defines combatants as people who fulfil the following conditions; The laws, rights, and duties of war apply not only to armies, but also to militia and volunteer corps fulfilling the following conditions: 1. To be commanded by a person responsible for his subordinates; 2. To have a fixed distinctive emblem recognisable at a distance; 3. To carry arms openly; and 4. To conduct their operations in accordance with the laws and customs of war. However, terrorists do not belong to the armed forces. They do not enjoy international status similar to that of combatants. They are mostly related to unlawful organisations, banned in various countries. They do not enjoy the status of prisoners of war. They can be tried for their participation in hostilities and judged and punished.50 Unlike States, they cannot declare wars and are not legal targets of wars. They do not wear uniforms or have a differential insignia.51 In Hamdi v. Rumsfeld52 it was observed that; by universal agreement and practice, the law of war draws a distinction between the armed forces and the peaceful population of belligerent nations and also between those who are lawful and unlawful combatants. Lawful combatants are subject to capture and detention as prisoners of war by opposing military forces. Unlawful combatants are likewise subject to capture and detention, but in addition they are subject to trial and punishment by military tribunals for acts which render their belligerency unlawful.53

49Article

51(3) of Protocol Additional to the Geneva Conventions of 12 August 1949, and relating to the Protection of Victims of International Armed Conflicts (Protocol I), 8 June 1977 defines the conditions for a civilian who participates in combat activities. He loses civilian protections, and might be a legitimate target for attack. However, that is the case only if he is taking a direct part in the hostilities and only if the attack against him is carried out during such time of said participation 50 See Targeted Killings Case, 5. 51 Byman, supra note 8, at 101. 52 542 U.S. 507 (2004)). 53 Also see The Public Committee against Torture in Israel and ors v. The Government of Israel and ors, HCJ 769/02 (2005).
53

2013 CLCSLR

VOL.1 ISSUE 1

However, there is a disagreement regarding the existence of the third category of unlawful combatant beyond combatants and civilians. Leaving out this grey area of unlawful combatants, logically, if terrorists cannot be considered combatants; they should be treated under international law as civilians. A subsequent possibility is to look into the concept of DPH and decide upon the protections available to the terrorists accordingly, if we consider terrorists as civilians. Then again, as civilians, they should be executed as part of a judicial process only.54 This means that it would be illegal for United States to arrest Taliban terrorists, except in self-defence and that these arrested terrorists can invoke Miranda Rights, demand legal representation and application of natural justice principles. A. LEGAL BASIS OF TARGETED KILLINGS In absence of any governing law, the legality of targeted killings is a big question. In the context of armed conflict, both International Humanitarian Law and Human Rights Law apply.55Lex specialis determines if a killing is legal or not.56 According to International Humanitarian Law, targeted killing is lawful only when the target is a combatant.57 Here the DPH controversy resumes, as International Humanitarian Law does not seem to allow targeted killing of any civilian. However the ICRC Guidelines and the Humanitarian Law should be read in consonance, regulating the scope of targeted killings. Where IHL does not provide for a rule, or the rule is ambiguous, guidance is drawn from Humanitarian law. For example, under IHL targeted killing is only lawful when the target is a combatant or DPH of a civilian.58 Qualifying the condition, ICRC proposes the Proportionality Principle.59 A civilian taking a direct part in hostilities cannot be attacked, if less harmful means may be employed to serve the similar purpose of security. This means that if a terrorist taking a direct part in hostilities can be arrested,
54Byman,supra 55Supra,

note 8, at 101. note 1, 29. 56Supra, note 1, 29 Human rights law and IHL apply coextensively and simultaneously unless there is a conflict between them. In situations that do not involve the conduct of hostilities e.g., law enforcement operations during non-international armed conflict the lexgeneralis of human rights law would apply. 57The Manual on the Law of Non-International Armed Conflict, Int. Ins. of Humanitarian Law, March 2006, 30. 58 Supra, note 1, 29. 59 See Rule 14, ICRC 2005 These basic standards apply in both the cases, where the armed conflict is between States or between a State and a non-state armed group.
54

2013 CLCSLR

VOL.1 ISSUE 1

interrogated and tried, then targeted killings shall not be opted for. 60 Trial is preferable to use of force.61 It shall be the attempt of the State to follow the ruleof-law to the greatest extent possible. In McCann v. United Kingdom62 where three terrorists from Northern Ireland were shot to death by English agents, the European Court of Human Rights held that Britain violated their right to life as the use of force was disproportionate and the authorities could have taken alternative measures to capture them alive. However, even in cases where the due process cannot be followed due to emergent security threats, a possibility of action other than killing should always be considered. There cannot be specific guidelines as to when targeted killings should be opted for, but that depends upon the facts of each case. A thorough investigation regarding the precision of the identification of the target and the circumstances of the attack upon him is to be performed. The attacks must always withstand the proportionality test in order to qualify as legal. The killing must be necessary and the force used must be proportionate to threat anticipated or created.63 Steps necessary in preventing harm to civilians must be taken on a priority basis.64 These standards apply to both, an international armed conflict and to a non-international armed conflict.65 If a targeted killing is outside the context of armed conflict, human rights law becomes the governing law.66 This is termed as the Law Enforcement Model.67 It only applies to police forces or in times of peace. 68 Only the government officials who exercise police powers, in contexts where

See Mohamed Ali v. Public Prosecutor,1 A.C. 430 (1969). Also see Th ePublic Committee against Torture in Israel and ors v. The Government of Israel and ors, HCJ 769/02. 62 21 E.H.R.R. 97 (1995), 235. 63 Supra note 57 Proportionality requires an assessment whether an attack that is expected to cause incidental loss of civilian life or injury to civilians would be excessive in relation to the anticipated concrete and direct military advantage 64Supra note 57 Precaution requires that, before every attack, armed forces must do everything feasible to: verify the target is legitimate; and determine what the collateral damage would be and assess necessity and proportionality, and also, minimize the collateral loss of lives and/or property. Everything feasible means precautions that are practicable or practically possible taking into account all circumstances ruling at the time, including humanitarian and military considerations. 65Supra, note 1, 30. 66Supra, note 1, 31. 67Supra, note 1, 31. 68Supra, note 1, 31.
60 61

55

2013 CLCSLR

VOL.1 ISSUE 1

violence exists, are allowed to go for targeted killings.69 Urgency and proportionate use of force may make a targeted killing legal.70 The use of warnings, restraint and capture to reduce the level of use of force is also appreciated.71 If a killing is for the sole purpose of an operation, it does not derive any approval from human rights law.72 This is until and unless the choice is between letting innocent people be killed and letting their law enforcement officials use lethal force to prevent such killings.73 States are obligated to exercise due diligence to protect the lives of individuals from attacks by criminals, including terrorists,74 hence, Human Rights Law makes targeted killings legal when strictly and directly necessary to save life.75 IV. JUSTIFYING TARGETED KILLINGS (?) Targeted killing is criticized for compromising both legal and moral values. It is alleged that this inevitably leads to the death of innocents as collateral damage. As Kant puts it, an act shall be done only if at the same time it could become a universal law.76 Pure morality should not interject personal or subjective adulterants, regardless of who is acting. It is often contended that the targeted killings manipulate pure morality. The victims are dehumanised and treated as means to an end, rather than ends in themselves, hence, violating human rights. To simplify, every human being has rights and enjoys life and liberty as fundamentals, signifying human dignity. In devoid of these rights, his existence trolls down to that of an animal. All human beings can assert these rights against one another in case of violation or threat of violation. Also, the basis for modern society is a condition of mutual respect of rights in any situation.

69Supra,

note 1, 31 [Code of Conduct for Law Enforcement Officials, GA Res. 34/169 of Dec. 17, 1979 (hereinafter, Code of Conduct), A. 1, Commentary (a) & (b); Basic Principles on the Use of Force and Firearms by Law Enforcement Officials, 8th U.N. Conference on Prevention of Crime and Treatment of Offenders, Havana, Cuba, Aug.-Sept., 1990] [hereinafter, Basic Principles]. 70Supra, note 1, 32. 71Supra, note 1, 32. 72Supra, note 1, 33 [A shoot-to-kill policy violates human rights law]. 73Supra, note 1, 33. 74Supra, note 1, 33. 75Supra, note 1, 33. 76 7 Guthrie, S.L., Immanuel Kant and the Categorical Imperative , J. The Examined Life On-Line Philosophy, (vol.2), available at: http://sguthrie.net/kant.htm, (Last visited on 27 March 2012).
56

2013 CLCSLR

VOL.1 ISSUE 1

However, it is agreed that these rights are not absolute and may be violated in cases of self, other, or national defence, by an innocent aggressor.77 For value judgment on the issue of identification of an innocent aggressor, the jus ad bellum criteria constitutes a real test. According to the Moral Permissibility Principle, a war is morally permissible, if and only if the act does not violate or pose a real and immediate threat to violate the right to life of non-combatants.78 The Realist School of Moral Philosophy argues that laws of morality must adjust to the laws of war rather than vice-versa.79 Today, this proposition cannot be supported in its strict sense, but in a diluted one, as argued by Machon; The Law Enforcement Model becomes insufficient in case of disturbing level of violence inflicted, as such infliction has caused significant uncertainty about suitability of situating criminal acts related to terrorism within the purview of law enforcement and the terrorists operate within the territory of states either unwilling or incapable of cooperating.80 The government carries out the killing in order to accomplish some foreign policy goal. This goal could be victory in a war, preventing a nation from building nuclear weapons, deposing an undesirable regime, etc. But, in a case of use of violence where non-combatants are not afforded immunity, it cannot be said to be just war even if the use of violence is in fact for a just cause. Any right violated therein cannot be defended on the grounds of national security, as is done in the case of targeted killings. It has to be considered as homicide and not war, violating human dignity and nullifying an individuals existence. Targeted killings present a similar picture, where in the disguise of refuge of state, innocents are killed. These innocents are not considered as right-bearers themselves, but as a channel of killing terrorists. They are objectified and their right to life and liberty is annulled. Basic humanity is put at stake for the sake of artificial values of camouflaged operations. Is it correct to shred humanitarian values in the name of security?

77Statman,

D.,Targeted Killing, available at: http://www.ucl.ac.uk /~uctytho /StatmanTargetedKilling.html (Last visited on 28 March 2012); (Hereinafter Statman). 78Id. 79 Waldron, supra note 9, at 11. 80 Waldron, supra note 9, at 11.
57

2013 CLCSLR

VOL.1 ISSUE 1

A. COST-BENEFIT ANALYSIS Ideals of utilitarianism do justify targeted killings to a certain extent on jurisprudential grounds. It can be argued effectively that the use of targeted killing reduces the overall casualties, as it leads to more expedient victories in armed conflicts.81 However, the same logic may be used to defy targeted killings.82 No doubt targeted killings are always an alternative, but, they do create strategic complications. They create martyrs that help a group sell itself to its own community.83 Peace negotiations may also be complicated.84 It often results in retaliation and vengeance. Moreover, when leaders are killed, their followers are ready to step into their shoes. For instance, after the Hezbollah strikes in the 1980s, fallen leaders were replaced at a great pace and suicide attacks on Israel were accelerated.85 Further, the 1992 and 1994 bombings of Jewish and Israeli targets in Argentina came as a response to Musawis death and kidnapping of Mustafa Dirani, a Hezbollah leader.86 These purely defensive measures impose a tremendous cost on innocent people and also imperil civil liberties. In order to evaluate the cost a civilian pays, Peter Bergen and Katherine Tiedemann of the American Foundation in the report The Year of the Drone87 studied 114 drone raids. They concluded that nearly 1200 people were killed, of which between 549 and 849 were reliably reported militant fighters, the rest being civilians.88 In the year 2012, 1,784 were killed in 1,324 incidents of targeted killings.89 Since 1994, Karachi alone lost over 9,500 people to targeted

81Id. 82Id. 83Hezbollah

now venerates gures such as Musawi and uses them to rally the faithful and demonstrate the groups commitment to ghting Israel. Khaled Hroub, a Cambridge Universitybased expert on Hamas, argues that Israeli counterterrorism measures, including targeted killings, have only increased the movements popular legitimacy 84Bymam, supra note 8 at 100. 85Byman, supra note 8 at 99. 86Byman, supra note 8 at 99. 87Bergen, Peter and Tiedemann, Katherine, The Year of the Drone: An Analysis of US Drone Strikes in Pakistan, 2004-2010, Pak Tea House, February 24, 2010, Available at: http://pakteahouse.wordpress.com/2010/03/02/the-year-of-the-drone-by-peter-bergenand-katherine-tiedemann/ 88Id. 89Id.
58

2013 CLCSLR

VOL.1 ISSUE 1

killings, the majority belonging to various political parties, particular sects and sectarian groups.90 According to statistics compiled by Pakistani authorities, the Afghanistan-based US drones killed 708 people in 44 attacks targeting the tribal areas in 2009. 91 Statistics show that for each Al-Qaeda and Taliban terrorist killed, over 140 innocent Pakistanis died.92 In total, it is claimed that only 35 Al-Qaeda terrorists were killed in these strikes and while 1153 civilians died in suicide bombings in 2010 and 933 in drone strikes in the same year.93 It is also true that heavy investment in intelligence and rapid-response capabilities become a pre-requisite for a successful targeted killing policy.94 An efficient system of information sharing is required in order to collect data and pass it on to the operatives. There should be a constant surveillance and strike presence over targeted areas.95 Thus amplifying the costs involved. On utilitarian grounds, the idea of deriving utility out of targeted killings seems bleak. Further, is it logical to sacrifice the right to life merely on utilitarian grounds? Dworkin argues that a fundamental right shall not be taken away by the government, merely on utilitarian grounds. Even so, he further provides for three limitations of this general proposition, one of which is the idea of competing rights.96 In the event of a conflict of rights of two individuals, the government has to make the right choice and eventually protect the more important at the cost of the less important.97 On the face of it, the policy of targeted killings may look like a case of tit for tat, however, it clearly secures the rights of citizens of a state, whose right to life is violated by terrorism and other kinds of violence.

Babakhel, Mohammad Ali, Targeted killings, Dawnopinion.com, 12 March 2013. Jason, US Killed 700 Civilians in Pakistan Drone Strikes in 2009 ,Dawn, 2 Jan 2010. Available at: http://www.dawn.com/wps/wcm/connect/dawn-contentlibrary/dawn/news/pakistan/18-over-700-killed-in-44-drone-strikes-in-2009-am-01 (Last visited on 16 March 2013). 92 Ibid 93 Usmani, Zeeshanul Hassan, Pakistan Body Count, Florida Institute of Technology, March 15, 2010. Available at: http://www.pakistanbodycount.org/drn.php. 94Bymam, supra note 8 at 100. 95Bymam, supra note 8 at 100. 96DWORKIN, R., Taking Rights Seriously, 1978, at 193-194. 97Id.
90 91Ditz,

59

2013 CLCSLR

VOL.1 ISSUE 1

Whether such counter-terrorism action through targeted killing is effective enough or not is debateable. However, the Institute of Conflict Management claims to give proof in favour of its effectiveness with regard to the situation in Baluchistan where at least 22 Al Qaeda and six Afghan Taliban militants have been arrested in 2009.98 Apart from arrests or killings of terrorist leaders, these strikes have also added to the reluctance of the local population to provide shelter to militants. Another report shows that key alQaeda operatives have been forced out of the tribal regions of Pakistan after drone attacks killed twenty commanders in the past eighteen months. Militants have moved into urban areas. The senior leaders of the militant groups are giving up responsibility to the younger generation to control operations on the ground.99 Targeted killings disrupt terrorist organisations, as they have a limited number of experts. When they are killed, the expertise is lost. Bomb makers, terrorist trainers, forgers, recruiters, and terrorist leaders are scarce; they need many months, if not years, to gain a certain level of expertise100. Targeted killings do force terrorists to spend more time and energy protecting them. Thus, terrorists change their locations constantly, which are to be kept secrets.101 Internal communication and motivation become difficult.102 Nevertheless, targeted killings are ineffective in ending the reign of terrorism.103 However, it is often seen that targeted killings result in retributive attacks and a consequent increase in the morale of the group.104 On a practical level, there is little evidence to show that killing a terrorist, even if high ranking, has a long lasting impact on groups ability and willingness to continue to wage a terrorist campaign. These militant groups are said to have widely shared ideologies, characteristics, long operational histories, and a

Johnston, Patrick B., The Impact of US Drone Strikes on Terrorism in Pakistan and Afghanistan , RAND Corporation UCLA, 3 Jan, 2013. 99 Hussain, Zahid, Drone attacks in tribal Pakistan force al-Qaeda into urban areas, The Times, 8 Aug 2009. 100Byman, supra note 8, at 103. 101Byman, supra note 8, at 104. 102Byman, supra note 8, at 104. 103Byman, supra note 8, at 104. 104Hunter, Thomas Byron, Targeted Killing: Self -Defense, Pre-emption, and the War on Terrorism, Journal of Strategic Security, 2009, 2 (2): 1-52, p. 31. Available at: http://scholarcommons.usf.edu/jss/vol2/iss2/1
98

60

2013 CLCSLR

VOL.1 ISSUE 1

wide member and support base. Targeted killings may be useful when employed against a smaller group, with less membership and support. 105 B. SOVEREIGNTY QUESTIONS Targeted killings also raise important questions on the sovereignty of States. Under Article 2(4) of the United Nations Charter, States are forbidden from using force in the territory of another State.106 If a State conducts targeted killings in the territory of a second State, with which it is not in armed conflict, the killings are legal only if the second State consents, or the targeting State has a right under international law to use force in self-defence under Article 51 of the United Nations Charter.107 International law permits the use of lethal force in self-defence in response to an armed attack as long as the force is necessary and proportionate.108 There are two issues to be examined here; one being that of consent to conduct the targeted killing and the other of right to self-defence. Consent to conduct targeted killing on the territory of another State though not legally controversial, the permission to use of such force however does not absolve the targeting State from its duty to abide by human rights law during use of force. Additionally, the consenting State also has the responsibility to protect against the arbitrary deprivation of the right to life.109 The United Nations General Assembly, Resolution on the Protection of Human Rights and Fundamental Freedoms While Countering Terrorism110 summarizes this position in the following words; . states must ensure that any measure taken to combat terrorism complies with their obligations under international law, in particular international human rights, refugee and humanitarian law. Every State has a right to lawfully authorize targeted killing on its land, but it it may require the targeting State to show that the person against whom lethal force is intended to be used is a lawful target and that the
105Id.

at36. 2(4), United Nations Charter: All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations. 107 See United Nations Charter, A. 2(4). 108 Nicar.v. US, ICJ Rep. (1986), 194. 109 Supra note 57, 37. 110 A/Res/51/191, March 10, 2005, 1.
106Article

61

2013 CLCSLR

VOL.1 ISSUE 1

targeting State will comply with the applicable law.111 In case of wrongdoing by the targeting State, the concerned State may seek prosecution of the offenders and compensation for the victims. Another argument in this regard is that of self-defence, falling within the tenets of Article 51 of the United Nations Charter. This article permits the exercise of self-defence only in cases of exercise of actual force and hostilities or a continuing threat, for which terrorism does qualify.112 The right of self-defence may be invoked by a State as justification for the extraterritorial use of force involving targeted killings,113 provided the use of force is necessary and proportionate.114 But, the use of force against the nonstate actors, as argued by some, would be lawful only if the attack by such actor could be attributed to a State.115 Such attribution is not an easy task. In Nicaragua v. United Sates116, the principle set out by ICJ was; An act of private individuals can be considered as an act of State only if it is possible to demonstrate that private individuals or groups of individuals have acted as de facto organs of a State or under its direction and control. This principle was later codified in the International Law Commission Draft Articles of State Responsibility.117 Hence, it could be said that international law does permit the use of force against non-state actors, but to a limited extent. Only when a State is unable to repress terrorist organisations operating in its territory and seeks some international intervention, is the use of such force justified.118 In cases
Supra note 57, 38. A. 51, United Nations Charter: Nothing in the present Charter shall impair the inherent right of individual or collective self-defence if an armed attack occurs against a Member of the United Nations, until the Security Council has taken measures necessary to maintain international peace and security. Measures taken by Members in the exercise of this right of self-defence shall be immediately reported to the Security Council and shall not in any way affect the authority and responsibility of the Security Council under the present Charter to take at any time such action as it deems necessary in order to maintain or restore international peace and security]. 113Sofaer, A.D., Terrorism, Law and the National Defense, 126 Military L.R., vol. 89 (1989), at 103. 114See Article 51, United Nations Charter. 115 Nigro, R., International Terrorism and the Use of Force against Non-State Actors, ISPIPolicy Brief, at 1-2, available at: http://www.ispionline.it /it/documents /PB_150_2009.pdf (Last visited on 28 March 2012) [hereinafter Nigro]. 116 ICJ Rep. (1986), 194. 117Article 8 provides that an act of private individuals can be attributed to a State if these individuals operate on the instructions of, or under the direction and control of that State 118 But these standards are much more relaxed in cases where a number of States face threats from a single non-state actor. Take for example the threat posed by Al Qaeda.
111 112

62

2013 CLCSLR

VOL.1 ISSUE 1

where a State uses force against another State, the former has to demonstrate the involvement of the latter in a terrorist attack according to the strict criteria identified by the ICJ and by the International Law Commission as well.119 C. RETRIBUTION If we say that the people targeted have committed terrible crimes, they deserve to suffer in response; then it could be said that the targeted killing of these terrorists is justified. Obviously the argument can be objected to. Prima facie, such an act of targeted killings amounts to retribution, which, ideally should be imposed only by a court of justice following the due process of law. Moral reasons compel the involvement of courts, but in most cases of terrorism, recourse to a legal institution is not an option.120 Also, the fact-finding role of a court is not of much importance in the case of terrorists, as terrorist acts are often followed by an admission from various organisations.121 V. FADING CHANCES OF NEGOTIATIONS Criminology does criticize the targeted killing policy, as it neglects the entire research on crime causation. It believes the people who have suffered the events of victimization tend to change their perspectives regarding self, group, community or others.122 The interaction between the micro environment, macro environment and personality of a person 123 draws our concern to a group of terrorists which also forms a subset of the victims. There is obviously a difference between people whose occupational choice is terrorism and the others who are caught in the trap of terrorism.124

Nigro, supra note 114, at 5. This is because the countries that harbour them hardly ever bring them to trial within their territories, nor do they extradite them to be tried in a foreign domestic or international court. 121 Statman, supra note 77. 122 Hamden, R.H., Psychology of Terrorists: 4 types, retrieved , (2006), Available at: http://www.allabout-psychology.com, (Last visited on 29 Marxh 2012); (hereinafter Hamden). 123 Id. 124 The economics of terrorism is based on the hypothesis that terrorism is purely an occupational choice and is based upon rationality and guided by benefits and costs. While making this choice terrorists think rationally, considering their narrow interests and also the interests of their families and groups, like rational economic beings. On the other hand, the psychological theories have proven that the situations and the conditions
119 120

63

2013 CLCSLR

VOL.1 ISSUE 1

Considering terrorism as a problem of psychological disturbances, examining the same can develop certain reasonable guidelines for negotiation with such people.125 The application of psychoanalytical theory in particular cases would help in the prevention of the crime as well. Laws and policies are mechanical in their application and do not consider the psychological disturbances of people before killing.126 This mechanical process of adopting targeted killing is nowhere helping subduing the crime but helps in arousing the sentiments of others in the same waters and develops a feeling of vengeance in them resulting in more of such acts. Present day policies of targeted killings consider the inflictor of terror as the prime accused and seek to punish him. The people who conspire the entire act form a group of secondary accused, be it any anti-terrorism law like Prevention of Terrorism Act, 2002 or Unlawful Activities Prevention Act or the PATRIOT Act of the USA or any policy of targeted killings.127 But, this argument again is defeated by the question of feasibility of arresting terrorists. The argument does not hold good especially when the

125

126

127

in which a person may resort to an act of terrorism should also be taken into consideration while punishing them for the act; the person who causes the harm is usually one who is highly emotional or is unthinkingly driven by his past experiences or social conditions. Not all terrorists fight for political gain. The disobedient behaviour of some terrorists may be due to unpleasant past or present conditions]. Frustration, insults, peer pressure, anger, feeling of revenge, incitement further enhance the aggressive behaviour of a person. These acts of victimization should be psychologically analysed to bring an end to such disturbances. Such persons should be treated as mentally ill and given treatment for psychological disturbance.] The mental state of a person committing an offence is the essence of punishment. If a person committing the act is not in a condition to understand the nature of the act then punishing him in the same way as others who committed the offence voluntarily is a failure on the part of the criminal justice system. The truth is that such people are very easily influenced and driven to work for someone with little or no interest on their own part. They can kill without any remorse. The psychological position of such persons suggest that they tend to manipulate the circumstances to convince themselves that the people whom they are killing have hurt others and they deserve to suffer.] None of the provisions of the said acts prescribes any psychological examination and medical help, if required, to the arrested militants. The acts merely make provisions for trial and punishment. There is no emphasis on looking into the reasons behind the crime and to subdue the same is a mere mechanical exercise of positive law]

64

2013 CLCSLR

VOL.1 ISSUE 1

entire world has witnessed various incidences of hijacking, kidnapping etc. to free the arrested terrorist.128 VI. CONCLUSION The policy of targeted killings since its very inception has witnessed both criticism and support. It is no doubt true that targeted killings help satisfying domestic demands for a forceful response to terrorism, 129 hence, maintaining the faith of people in their own government.130 But, it is also pertinent to note here that targeted killings play a pivotal role in encouraging retaliation and more innocent death.131 A symbolic victory of killing a terror leader seems to be insignificant, when weighed against the deaths accompanied by the blowback. Targeted killings often act as catalyse for terrorists represented movements, as argued by many.132 Even though, targeted killings may seem morally abhorrent prima facie, as they dehumanise the victim, we must remember that these persons are killed not simply because they are enemies and because they bear special responsibility or play a special role in the enemys aggression. Those targeted are usually personally responsible for atrocities committed against the lives of innocent civilians. The ability to carry out targeted killings is considered to be a wide expansion of the power of the State. It is the duty of every government to protect its populace. Even though human rights of all individuals are treated as absolute, it becomes the duty of government to weigh and balance the rights and interests,133 and security and subsistence of individuals. The

128See:

How Govt. Lost the IC-814 Hijack Deal, 8 Sept 2006, Available at: http://ibnlive.in.com/news/govt-fumbled-ic814-taken-away/20846-3.html [One example of this is the hijacking of the Indian Airlines Flight 814 on 24 December 1999, by Harkatul-Mujahideen, a Pakistani-based group, for the release of three militants Mushtaq Ahmed Zargar, Ahmed Omar Saeed and Maulana Masood Azhar]. 129Byman, supra note 8, at 102. 130Byman, supra note 8, at 102. 131Byman, supra note 8, at 102. 132 One popular example is Hezbollah. When Israel killed a key leader, Musawi Hezbollah, his death became a rallying cry for the organisorganisation. Khaled Hroub, a Cambridge University-based expert on Hamas, argues that targeted killings only increase popular legitimacy]. 133 Dworkin, Supra note 95 It may be explained by using Dworkins idea of competing rights
65

2013 CLCSLR

VOL.1 ISSUE 1

government has a duty to aid and to protect the enjoyment of these rights. 134 On these grounds, targeted killings can be considered a governments duty, provided the State acts within the purview of International Law. Blunt exercise of violence is detested. States should follow the DPH limitations. Also, the International Humanitarian Law and Human Rights Law should be respected. It is agreed that targeted killing is a foreign policy tool and should not be complicated further, provided it is exercised by States reasonably, in urgent situations and only when there is a real threat to national security.

134

Shue, H., Security and Subsistence - Basic Rights: Subsistence, Affluence and US Foreign Policy, 1st ed. 1980,at 54-55 [Subsistence can be defined as a right to the necessities of life or in other words minimal economic security. It is as important as, and should be respected as much as, the right to physical security, according to Shue. Security, according to Shue, refers to Physical Security and is a basic right].

66

2013 CLCSLR

VOL.1 ISSUE 1

COLLECTIVE DOMINANCE: HOW DOES INDIA FARE?

Charu Rawat* The Concept of Collective Dominance has received considerable thought in Jurisdiction worldwide. This Article aims to provide an insight into how Collective Dominance has been interpreted by the European Union. With the help of this analysis, the article examines the viability of introducing the concept in India, based on the hypothesis that the same is not provided for under the current Indian anti-trust legislation. With this objective, the researcher first provides an overview of its development through case laws, in the European Union. After establishing the requirements of proving collective dominance, the author critically examines the concept in India, with the help of a case law and a view to examine the way out. The author concludes the paper with observations on how the European Union practice on the same could plug the required loopholes. I. CONCEPT OF DOMINANCE IN EUROPEAN UNION

The concept of dominance in the European Union is engraved in Article 102 of the Treaty on the functioning of the European Union.1 Dominance is a position of economic strength enjoyed by an undertaking'2 which enables it to prevent effective competition being maintained in the relevant market, by affording it the power to behave to an appreciable extent independently of its competitors, customers and consumers.3 Article 102 provides that dominance can be abused by one or more undertakings, by exercising one of the several activities given under it.4 Collective dominance is therefore a dominant position held by a number of undertakings, when these undertakings present themselves or act together from an economic point of view. Therefore, undertakings are in a position to collectively dominate if five elements are established; the elements being: One or more undertakings;

* Vth Year, B.A. LL.B (Hons.), National Law University, Delhi 1http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E102:EN:NOT, (last visited on 19 Jan 2013). 2Entity engaged in an economic entity. 3Ariel Ezrachi,EU Competition Law: An Analytical guide to the leading cases, 3rd ed., 2012, Hart Publishing, p. 165. 4Supra note. 2.
67

2013 CLCSLR

VOL.1 ISSUE 1

A dominant position; The dominant position to be held within the internal market or a substantial part of it; An abuse; An effect on inter-state trade.5

While initial response to issues arising under Article 1026 was primarily intended to address the issue of single dominance, the use of the words abuse by one or more undertaking allowed courts to interpret the same. Even though the evolution of the criteria which needs to be satisfied for a positive finding of collective dominance have been discussed by courts time and again, the Courts have been reluctant in laying down definitive standards till date. However, the Commissions stand on collective dominance has evolved over a period of time to a position, where the same can be adopted by other jurisdictions to rely upon. II. EVOLUTION OF COLLECTIVE DOMINANCE: CASE LAW ANALYSIS

As a concept, Collective Dominance has engaged the legal and social fraternity. it was first taken up as an issue by the court in the Italian Flat Glass Case.7 In this case three Italian flat glass producers formed a cartel agreement. On the question of collective dominance, the court observed that there was nothing, in principle, to prevent two or more independent economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position vis-avis the other operators on the same market. However, mere existence of economic links could not be the sole determinant of collective dominance. Heavy reliance was placed on projection by the undertakings as a single economic entity in the relevant market. A similar approach and line of thought was carried forward by the European courts while interpreting clause 102 of the treaty. In the case of Compagnie Maritime Belge Transports v. Commission8 CMB was found by the
5Alison

Jones and Brenda Sufrin, EU Competition Law: Text, cases and Materials, 4th ed., 2010, Oxford University Press, p. 261. 6Previously known as Article 82. 7Joined Cases T-68/89, T-77/89 and T-78/89, Societa Italiana Vetro Sp A and ors. v. Commission [1992] ECR II- 1403. 8Joined cases C-395/96P and C-396/96P, [2000] ECR I-1365.
68

2013 CLCSLR

VOL.1 ISSUE 1

Commission to have abused a collective dominant position that it held with other undertakings. Together, these companies formed a membership of a linear conference and implemented a cooperation agreement which aimed, through selective price cuts, to drive an independent competitor out of the market. The Courts observation on the matter of Collective Dominance was based on the satisfaction of three elements. First, the undertakings concerned must constitute a collective entity vis-a-vis their competitors, their trading partners and consumers on a particular market. Second, where such a collective entity is established, the question is whether that entity holds a dominant position. The final question to be looked into is whether the entities abused its dominant position. The Court held that economic links or factors giving rise to a connection between the undertakings are relevant to the undertakings a collective entity. Such links should enable the entity to function independent of its competitors, customers and consumers. Even though an agreement, decision or concerted practice may undoubtedly, where it is implemented, result in the undertakings concerned being called collectively dominant, it might not always be the case. A finding of collective dominance may also be based on other connecting factors and would depend on an economic assessment and, in particular, on assessments of the structure of the market in question.9 What became clear from this judgment was that collective dominance may be found when the undertakings operate as a collective entity even in the absence of an agreement or of other links in law. This established a new line of thought, which received assessment in the later cases.10 This facet of collective dominance was also highlighted in the Discussion Paper of the Application of Article 102 to Exclusionary Abuses, where the Commission noted that in order to establish Collective Dominance, it is necessary to examine the factors that give rise to a connection between the undertakings concerned. Such factors may flow from the nature and terms of agreement between them or from the way in which it is implemented to ownership interests and other links in law. However, the existence of an agreement or of other links in law is not indispensable to the finding of a collective dominant position. One also
Ariel Ezrachi, EU Competition Law: An Analytical guide to the leading cases, 3rd ed., 2012, Hart Publishing, p. 272. 10Gencor Ltd v.Commission, Case T-102/96, [1999] ECR II- 753.
9

69

2013 CLCSLR

VOL.1 ISSUE 1

needs to see the relevant market structure and the level of interaction amongst the entities concerned.11 This was a practice more witnessed in the oligopolistic markets. Even though competitiveness might also be a practised feature of such markets, coordination was likely to emerge in markets where reaching a common understanding was relatively simple and behavioural pattern of one was likewise adopted by the others. The Commission was of the view that such practices need not take the form of an agreement under all circumstances. Coordination may result from practices resorted to by the entities. Such practices may range from price coordination to limiting production, division of market or even allocation of contract in bidding markets.12 With every case law that the Commission looked into, the concept of collective dominance received expansive interpretation. In another case that came up before it, Irish Sugar, the sole processor of sugar beet and the principal supplier of sugar in Ireland were fined by the Commission. Accepting the issue of collective dominance, the court held that a perusal of the facts of the case left no room for doubt on the issue of Collective Dominance. That being said, it held the entities to be collectively dominant despite being in a vertical commercial relationship.13 Further, it was observed that, An abuse of collective dominance may result even if one of the entities forming part of the collective entity took action. Therefore, the requirement of presenting oneself as a single entity did not entail identical conduct in every respect. It could be abusive behaviour by any one of them, which could result in collective dominance in the relevant market.14 In the decision of Airtours plc. v. Commission15 , hailed as a landmark by scholars, the Commission blocked a takeover by Airtours plc., a UK tour operator and supplier of package holidays of First tours Plc., one of Airtours competitors. Airtours is a tour operator and supplier of package holidays based in the United Kingdom. First Choice is another UK based tour
11DG

Competition Discussion paper on the Application of Article 82 of the treaty to exclusionary abuses, 2005, available at http://ec.europa.eu /comm /competition /antitrust /art82/discpaper2005.pdf. (Last visited: 20 Jan 2013), 45, 46. 12Id, 47. 13 62, Irish Sugar plcv. Commission, Case T-228/97, [1999] ECR II- 2969. 14Id, 66. 15Case T-342/99, [2002] ECR II-2585.
70

2013 CLCSLR

VOL.1 ISSUE 1

operator. Airtours first announced its intention to acquire First Choice on 29 April 1999 and notified the European Commission of the proposed transaction pursuant to Regulation No 4064/89. On 3 June 1999, the Commission decided to initiate proceedings under Article 6(1)(c) of Regulation No 4064/89. On 22 September 1999 the Commission reached a decision that the notified concentration would lead to the creation of a dominant market position in short-haul package holidays in the UK, as a result of which competition would be significantly impeded in the common market. That dominant position would be held collectively by Airtours/First Choice and the other two leading tour operators Thomson Travel Group plc.and The Thomas Cook Group Limited. The court laid down three conditions necessary for a finding of Collective Dominance: First, each member of the dominant oligopoly must have the ability to know how the other members are behaving in order to monitor whether or not they are adopting the common policy. Each member must also have the means of knowing whether the other operators are adopting the same strategy and whether they are maintaining it. There must, therefore, be sufficient market transparency for all members of the dominant oligopoly to be aware, sufficiently precisely and quickly, of the way in which all the other members market conduct is evolving. Secondly, the situation of tacit co-ordination must be sustainable over time, that is to say, there must be an incentive not to depart from the common policy on the market. This presupposes the existence of sufficient deterrent mechanisms to convince all the undertakings concerned that it is in their best interest to adhere to the common policy. Thirdly, it must be established that competitive constraints do not jeopardise the implementation of the common strategy. The market position as well as the strength of non-allied companies must be analysed, the market position and strength of buyers and potential for new entry indicated by the height of entry barriers.16 It was emphasised by the court that any view of collective dominance must be supported by convincing evidence thereof. Factors such as an assessment of lack of effective competition between the operators alleged to
16Id,

62.
71

2013 CLCSLR

VOL.1 ISSUE 1

be a dominant oligopoly and the weakness of any competitive pressure that might be exerted by other operators, degree of market transparency and existence of a credible retaliatory mechanism are things that must be kept in mind.17 The judgment of Airtours provides an important contribution to the development of the collective dominance doctrine. While continuing the approach adopted in Gencor18, it further distils the concept and clarifies its realm. It brought the concept closer to the economic concept of tacit collusion, which too is based on a three pronged test. Airtours also limited the scope of collective dominance to cases involving coordinated effects. What emerges from a collective reading of the European case laws on the scope of collective dominance is that, even though the courts have held that economic or contractual links might not always be necessary in proving collective dominance19, till date, they have not held entities to be collectively dominant merely because they exhibited oligopolistic interdependence. Application of collective dominance doctrine to Article 102 posed problems, as standards based on which the concept evolved were on the same plane as collective dominance under the ECMR.20 This admixture posed problems due to the difference in the nature of evidence required for proving collective dominance. While the ECMR provides detailed guidelines as to the economic assessment of collective dominance and possible coordinated effects of a merger, such guidelines are absent from Article 102.21 One possible reason for this absence stems from lack of case laws dealing with this issue of other links. However, there is no doubt that undertakings not having economic or legal links have displayed collusive behaviour or common policies that have an adverse effect on other competitors or price stability, even though the fraction might be very low.

17Id, 18,

63. Case T-102/96, [1999] ECR II- 753. 19Joined cases C-395/96P and C-396/96P, [2000] ECR I-1365. 20Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) Official Journal L 24, 29.01.2004. 21Lia Vitzilaiou & Constantinos Lambadarios, The Slippery Slope of Addressing Collective Dominance under Article 82 EC, October 2009, Competition Policy International, available at http://www.lambadarioslaw.gr/publications/en/2009/ vitzilaiou_oct_09_1_.pdf, (last visited 20 Jan 2013).
72

2013 CLCSLR

VOL.1 ISSUE 1

In a recent judgment of the European court in the case of Bertelsmann AG and Sony Corporation of America v. IMPALA22, it was observed that: It must be borne in mind that when the commission examines the risk that a collective dominant position will be created, it must assess, using a prospective analysis of the reference market, whether the concentration which has been referred to it, leads to a situation in which effective competition in the relevant market is significantly impeded by the undertaking involved in the concentration and one or more other undertakings which together, in particular because of factors giving rise to a connection between them ,are able to adopt a common policy on the market and act to a considerable extent independently of their competitors, customers and consumers. The court came up with a new, modified test of collective dominance as stated in Airtours v Commission.23It stated that the three tests laid down by the Airtours case24 might, in appropriate circumstances, be established indirectly on the basis of what may be a very mixed series of indicia and items of evidence relating to signs, manifestations and phenomena inherent in the presence of a collective dominant position.25 Such correlative factors include, in particular, the relationship of interdependence existing between the parties to a tight oligopoly within which those parties are in a position to anticipate one anothers behaviour and are therefore strongly encouraged to align their conduct on the market in such a way as to maximise their joint profits by increasing prices, reducing output, the choice or quality of goods and services, diminishing innovation or otherwise influencing parameters of competition.26
A. TACIT COLLUSION V. PRICE PARALLELISM: WHERE TO DRAW THE LINE

Having established a rudimentary understanding of what constitutes collective dominance, one could sum up to say that dominance by undertakings, including undertakings having no economic or contractual links, could be said to collectively dominate the relevant market, if they engage in common practices by way of agreement or otherwise, which are likely to impede competition in the market. What emerges from this is
22Case 23Case 24

C-413/06P, [2008] ECR I- 4951. T-342/99, [2002] ECR II-2585. note 22, 251. note 22, 121.
73

Id.

25Supra 26Supra

2013 CLCSLR

VOL.1 ISSUE 1

another issue, namely of when exactly entities can be collectively dominant without agreement. Scholars have indicated what can be referred to as tacit collusion or conscious parallelism27, as a response to the no links situation, where undertakings display common policies or behaviour.28 However, what poses problems with interpreting existence of collusion is the fine line between when parallelism assumes the form of collusion. 29 This problem assumes greater significance in oligopolies, where the boundaries between these concepts become elusive.30

27Conscious

parallelism is a situation where rival firms act similarly or interdependently.. Decisions about pricing structures and production levels, among other things, are made with an awareness of each other's conduct, though these competitors do not have express agreements to set prices. Conscious parallelism also exists in the United States, where it has been described as the process, not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their prices at a profit-maximizing, supra competitive level by recognising their shared economic interests and their interdependence with respect to price and output decisions, referred from Ryan, Patrick S., European Competition Law, Joint Dominance, and the wireless Oligopoly Problem, Columbia Journal of European Law, Vol. 11, p. 353, 2005, available athttp://ssrn.com/abstract=806046, (last visited 13 March 2013). 28Supra note 21. 29See Article 101 of TEFU and Article 102, TEFU. 30The essence of this problem has been very clearly stated in the OECD definition of conscious parallelism contained in its Glossary of Industrial Organisation Economic and Competition Law, Organisation for economic Co-operation and Development, p. 26, available at http://www.oecd.org/regreform/liberalisationandcompetitionint erventioninregulatedsectors/2376087.pdf, (last visited: 21 Jan 2013) : Under conditions of oligopoly, the pricing and output actions of one firm have a significant impact upon [those] of its rivals. Firms may after some period of repeated actions become conscious or aware of this fact and without an explicit agreement coordinate their behaviour as if they were engaged in collusive behaviour or a cartel to fix prices and restrict output. The fear that departure from such behaviour may lead to costly price cutting, lower profits and market share instability may further create incentives for firms to maintain such an implicit arrangement amongst themselves. This form of conscious parallel behaviour or tacit collusion generally has the same economic effect as a combination, conspiracy or price fixing agreement. However, whether or not conscious parallel behaviour constitutes an illegal action which is restrictive of competition is [a] subject of controversy in both competition law and economics. Price uniformity may be a normal outcome of rational economic behaviour in markets with few sellers and homogenous products. Arguments have been advanced that the burden proof must be higher than circumstantial evidence of concerted or parallel behaviour and uniform pricing and output policies. In other words, conscious parallelism in and of itself should not necessarily be construed as evidence of collusion. The problem arises more from the nature of the market or industry structure in which firms operate than from their respective behaviour.
74

2013 CLCSLR

VOL.1 ISSUE 1

Parallel behaviour if practiced in oligopolistic markets is not looked upon as anticompetitive by the European courts. The European treaty states that each operator must determine independently the policy which he intends to adopt on the market. Therefore, this requirement does not prohibit entities from adapting themselves intelligently to the conditions of the market.31 Collusion, on the other hand, is the practice of undertakings to coordinate their behaviour in order to achieve monopoly profits, as opposed to competition, where a firms actions depend upon and trigger the reaction of its rivals. Evidence of collusion poses concerns when we talk about it in the absence of an agreement amongst the concerned entities. It has been pointed out by many that collusion without an agreement is not sustainable and therefore not possible.32 However, rarity of an occurrence cannot be equated with non-existence and therefore the need for regulatory intervention cannot be denied. Suggestions to deal with the same include study on a case by case basis, since anticipating that a given factor will lead to one effect rather than another, invariably entails a degree of overgeneralisation and arbitrariness.33 The EU law has addressed tacit collusion through the notion of collective dominance under Article 102, but the same has never been enforced in an oligopolistic market, till date. What emerges from the discussion on the drawing of a line between accepted parallel conduct and collusion is that parallel conduct as such is not covered under Article 101, and creates no presumption of any collusion on its own. It leads to unacceptable conduct when there exists strong evidence of such conditions of competition which do not correspond to the normal market conditions, having regard to the nature of the products, the size and number of undertakings, and the volume of the said market.34 It has been established by case laws that the standard of proof is higher for establishing collusion over mere parallel conduct. Therefore, while establishing any form of collusion, one must remember that, while the treaty prohibits collusion, it
Rafael Allendesalazar et al., Oligopolies, Conscious Parallelism and Concentration, European Competition Law Annual 2006, Enforcement of prohibition of Cartels, Hart Publishing, available at http://www.eui.eu/RSCAS/ Research/Competition/2006(pdf)/200610Comped-Allendesalazar.pdf, (last visited: 20 Jan 2013). 32 Chicago School of Thought. 33T. Kauper, Oligopoly: Facilitating practices and Plus Factors, in B. Hawk (ed.), Fordham Competition Law Institute, 2007, 751, pp. 754-755. 34Case 48/69, Imperial Chemical Industries Ltd. (ICI) v Commission [1972] ECR 619, at 66, accessed from supra note 31, p. 4.
31

75

2013 CLCSLR

VOL.1 ISSUE 1

does not deprive entities of their right to adapt themselves intelligently to the existing and anticipated conduct of their competitors. The EU case laws on collective dominance figure both under Article 102 and the EU Merger Regulation. The debate on whether the two could be treated on the same page still engages scholars.35 From a legal perspective, there are several reasons to believe that collective dominance is one and the same thing under both Merger control and Article 102.36 Reasons for the above conclusion are that Merger judgments of the courts and Article 102 judgments not only receive mention, but are often quoted as precedents37 in case laws involving both. The case of Laurent Piau v. Commission38dispelled all existing uncertainties.39 What is relevant for the purpose of the present analysis is the interpretation of Collective dominance by European courts. The issue of whether the same falls within the Merger Control regulations or under Article 102 is yet another discourse, which falls outside the scope of the present study. Based on the case law developed concept of collective dominance, we proceed to examine the Indian Law on collective dominance in the context of oligopolies and how the very concept of collective dominance finds no mention in the present Legislation, thus outlining a need for revisiting the same. III. COLLECTIVE DOMINANCE IN INDIA

The present Indian Anti-trust law is indeed an innovative and adequately equipped piece of legislation, fulfilling Indias welfare and socialistic values, with room for healthy competition at the national and

35Nicholas

Petit, The Oligopoly Problem in EU Competition Law, (Feb 5, 2012), Available at SSRN: http://ssrn. com/abstract=1999829, (last visited: 19 Jan 2013). 36Id. 37The courts ruling in French Republic and others v. Commission [1998] ECR I-1375 was cited in Compagnie Maritime Belgev. Commission, Joined cases C-395/96P and C-396/96P, [2000] ECR I-1365. 38Case T-193/02, [2005] ECR II- 2585. 39A football players agent had filed a complaint in relation to restrictions placed by FIFA on exercise of his profession. The Complainant argued that as an association of independent football clubs FIFA occupied a dominant position. It was allegedly guilty of unlawful abuse, by excluding certain football players agents from the market. The courts finding was based on the three tests required to prove collective dominance from the Airtours Judgment.
76

2013 CLCSLR

VOL.1 ISSUE 1

international level. It derives most of its provisions from the EU Law, which, undoubtedly, is the most evolved till date. The authors research focuses on the aspect of collective dominance by independent entities and proposes that the current law is not equipped to provide for abuses of dominant position by collectively dominant yet independent entities. The Author examines this proposition with the help of analysis of a Case Law.40The concept of Dominance in India as envisaged under Section 4 of the Act41 reads No enterprise or group shall abuse its dominant position. From a bare reading of the provision itself, it becomes evident that dominance in India is confined to an enterprise or a group. A look at the definition of both enterprise and group reveals that two independent entities or even competitors in the relevant market, cannot under any circumstance be engaging in activities which makes one lead to the inference that they are abusing their dominant position. An enterprise as defined under the Act42 refers to a person or department of the government. Therefore, who can engage in anticompetitive practices or abuse of dominant position can be a person as given under the Act.43 The categories covered under the definition of the term person can cover independent entities only when they form a company, an association of persons44 or body of individuals. Similarly, the definition of

40Consumer

Online Foundation v. Tata Sky Case no. 2 of 2009, Available at http://www.cci.gov.in/menu/ MainOrderConsumer250411.pdf, decided on 24 March 2011, (last visited: 18 June, 2013). 41Competition Act, 2002. 42Competition Act, 2002, 2(h), states that, Enterprise means a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government divisions or subsidiaries, w ether such unit or division or subsidiary not including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space. 43Competition Act, 2002, 2(l). 44Competition Act, 2002, 2(l) (v).
77

2013 CLCSLR

VOL.1 ISSUE 1

group45, restricts the scope of dominant position to entities related by common management or control. This essentially leads to the inference that in oligopolistic markets, independent entities can engage in anti-competitive practices and may abuse their position of dominance as a single economic entity, without entering into any explicit agreement, as this is not something that the Competition Act, 2002, intends to curb and restrain. One might argue the fact that, the limited scope of Section 4 can be overlooked as Section 3 of the Act46 is wider in scope, and covers anti-competitive practices being undertaken by enterprises and persons. What inevitably gets overlooked in this approach is that Section 3 of the Act deals with a situation where the enterprises or persons have entered into agreements. This neglects the possibility that there might be anti-competitive behaviour leading to abuse of dominance in the relevant market even when there is no agreement between the parties. Merely providing that agreement includes any arrangement or understanding or action in concert even if the same is not in writing47, does not discount the presence of intention or collective will to engage in anti-competitive practices. The term Collective dominance has received mention in several Indian case laws till date. Many scholars have even argued that when we use the term enterprise, by statutory application,48 we also include the term group of enterprise in it.49 However, this point has received no explanation by the regulator. Of the regulators position on the concept, what can be
Competition Act, 2002, explanation (b) to 5 states that, group means two or more enterprises which, directly or indirectly, are in a position to Exercise twenty- six per cent. or more of the voting rights in the other enterprise; or Appoint more than fifty per cent. of the members of the board of directors in the other enterprise; or control the management or affairs of the other enterprise; 46Anti-competitive Agreements. 47Competition Act, 2002, 2(b) (i). 48General Clauses Act, 1897, 13. 49It was submitted that the word group can be broadly construed to include within its ambit the concept of collective dominance. The literal interpretation of the word is A number of people or things that are located close together or are considered or classed together. Therefore a literal interpretation should be given to the word as far as possible and the concept of collective dominance can be interpreted within the act as far as possible, referred from Sudipto Sircar, A few thoughts on competition law in the technology and media sector, http://www.iltb.net/2012/07/a-few-thoughts-competition-law-technology-media-sector/. (Last visited: 13 March 2013)
45

78

2013 CLCSLR

VOL.1 ISSUE 1

gathered from the case law discussion on this concept is that CCI has stated, quite often50 that, the concept of collective dominance is not present in India.51 If at all it is present, is to the limited extent of collective dominance by a group under Section 4 of the Act. This proposition therefore leaves no room for any doubts on the need for recognising the concept of collective dominance in India, especially in context of links other than structural in nature. In this context, the Competition Commission of India recognised the absence of such a concept in the case of Consumer Online Foundation v. Tata Sky Limited and Ors.52It is difficult to state with certainty why this concept received no mention when the Act first came into being, and whether the Legislators intended it to be a part of the Act. However, it can be stated with conviction that, as most part of our Competition Act is based on lines of European Law, which explicitly incorporates the concept of joint dominance, scholars have interpreted the concept to be a part of our legislation. However, the stand of the commission, as given in certain decided case laws should be presumed to clarify the prevailing uncertainties over it. IV. CRITICAL ANALYSIS: CASE LAWS

1. Consumer Online foundation v Tata Sky Limited and Ors.53 Consumer Online foundation filed a complaint against four DTH service providers.54 The allegations against them were grounded under

50M/S

Royal Energy Ltd. v. M/S Indian Oil Corporation, MTP Ce N. 1/23 (C-97/2009/3IR), decided on 9 May 2012, available at http://cci.gov.in /May2011 /OrderOfCommission /MRTP1-28main.pdf, (last visited 21 Jan 2013), Consumer Online Foundation v. Tata Sky Limited and Ors, Case no. 2 of 2009, available at http://www.cci.gov.in /menu/ MainOrderConsumer250411.pdf, decided on March 24, 2011, (last visited June 18, 2013). 51M/S Royal Energy Ltd. v. M/S Indian Oil Corporation , MTP Ce N. 1/23 (C-97/2009/3IR), decided on 9 May 2012, available at http://cci.gov.in /May2011/ Order Of Commission /MRTP1-28main.pdf, (last visited 21 Jan, 2013), There is no case of contravention of provisions of Section 4 also as PSU OMCs cannot be said to be dominant jointly as concept of collective dominance is not envisaged under the provisions of Section 4 and since each OMCs is an independent, legal entity and no company can be said to be exercising control over other PSU OMCs, they are not part of the group within the meaning of 5 of the Act. 52Case no. 2 of 2009, available at http://www.cci.gov.in /menu/ MainOrderConsumer250411. pdf, decided on March 24, 2011, (last visited 18 June 2013). 53ibid. 54Dish TV India Ltd., Tata Sky Ltd., Reliance Big TV Ltd., Sun Direct TV Pvt. Ltd.
79

2013 CLCSLR

VOL.1 ISSUE 1

Section 355 and Section 456 of the Competition Act, 2002. The informant alleged that the above mentioned players restrained competition in the Market by preventing interoperability between hardware and DTH signals provided by different manufacturers and DTH service providers. The informant argued that the DTH service providers prevented inter-operability by restricting competition amongst them because once a consumer bought hardware to have access to services of a particular DTH service provider, he could not avail the services of any other provider unless he bought new hardware from another DTH provider. Further, the DTH providers procured STB (Set top box) from their select manufacturers, thereby restricting the consumers. This practice of the service providers is preventing interoperability and creating barriers for entry of new enterprises which manufacture only STBs. It was argued that even though their behaviour could not be attributed to an explicit agreement amongst themselves, it certainly was indicative of a tacit understanding between the existing market players.57 Of the several issues raised by the informant, the analysis is restricted to the issue pertaining to abuse of dominant position by the DTH service providers. The small number of players in the relevant market, indicate oligopolistic nature of the market. As alleged by the informant, the DTH service providers, by restricting interoperability of the STBs and the DTH Signals, were restricting the market for enterprises which manufacture only STBs.58 This being a pre-requisite for grant of license for providing DTH broadcasting services was being violated by not one but all the service providers. They were offering services subject to the consumers taking STBs from them, which is illegal under the present Act.59 The matter was referred to the Director General whose findings reveal an important fact towards collusion amongst the DTH service providers. Based on his investigation, he submitted that the DTH Segment required huge investment and was in its nascent stage in India. Therefore, at that point in time, they could not have been interested in poaching each other's clients. The behaviour exhibited by them of not making their respective CAMs available in the market other than inbuilt CAM in their
55Anti-competitive 56Supra

agreements. note 37. 57Supra note 40, 13. 58Supra note 40, 18. 59Competition Act, 2002, 4(2) (d).
80

2013 CLCSLR

VOL.1 ISSUE 1

STBs and pairing and restricting of the viewing card with a particular STB, raised questions of anti-competitive practices. Due to existing information asymmetry in the relevant market, coupled with the position they enjoyed in the market60, it would not be unfair to hold, prima facie that the DTH operators were dominant in the relevant market and either independently or collusively abusing the position. The findings of the commission on the issue of abuse of dominant position revealed that allegations made were vague and inconclusive. As Indian law does not recognise the concept of collective dominance, a group of different and completely independent entities or enterprises would not be covered in the scope of 'group'61 as defined under the Indian Anti-trust legislation. As the allegations made by the informant were centred on individual dominance of the several players exercised by them by virtue of their respective market share, the commission held that, individually, none of the entities was dominant in terms of the Act.62 It is a rule of interpretation that a provision must be read literally, unless, by doing so, it goes against the legislative intent of the enabling statute. In terms of a literal reading of Section 4(2), of the Act, it can be inferred that the words used by the law makers were intended to confine the scope of the provision within the four corners of the law. Therefore, the use of the word an enterprise can be applied in a pluralistic manner only when the same constitutes an association or persons or a body of individuals, as given under section 2(l) of the act.63 As in the instant case, the entities clearly fall outside the scope of an enterprise or a group; they inconsequentially fall outside the ambit of section 4, which applies to an enterprise or a group. 2. Royal Energy Ltd. v. IOCL and others64 The Concept of collective dominance received mention in the Royal energy case where with a view to using alternative sources of energy, the Ministry of Petroleum and Natural Gas came out with the Bio-Diesel Purchase Policy. Under this policy, the Bio-Diesel suppliers could supply bio60The

6 DTH operators controlled nearly 100% of the market of the DTH services, p. 23 of order, Available at http://www.cci.gov.in/menu/MainOrderConsumer250411.pdf, decided on 24 March 2011, (last visited 18 June 2013). 61Competition Act, 2002, Explanation (a) to 5. 62Competition Act, 2002, Explanation (a) to 4. 63Competition Act, 2002, 2(l) (v). 64 Supra n. 51.
81

2013 CLCSLR

VOL.1 ISSUE 1

diesel to the Oil Marketing Companies (hereinafter referred to as OMCs). The OMCs could blend the bio-diesel with the High Speed Diesel which was to be ultimately used as fuels for the vehicles. Under this policy, the OMCs were to purchase the bio-diesel that met the BIS specifications at a uniform price determined by the OMCs. As the price of High Speed Diesel was fixed & regulated, the OMCs determined the purchase price of bio-diesel by backward integration. This price was considered less than adequate and below the manufacturing cost by the suppliers of bio-diesel. This was alleged to be an anti-competitive agreement by the OMCs. The CCI ultimately held that the OMCs could not be mandated to purchase the Bio-diesel at a price higher than the price of the end product and make it commercially unviable for the OMCs to operate. Several issues pertaining to Section 3 and Section 4 were raised. With respect to collective dominance, it was said that Collective Dominance as accepted in Europe is a case where a group of unrelated entities that are united by economic links collectively hold a dominant position in a market. Although the decision does not provide any reasons for the same, the reason may be because presently Section 4 provides that no enterprise or group should abuse its dominant position. Initially the un-amended section 4 only provided that no enterprise shall abuse its dominant position and post the 2007 amendment the term group was specifically introduced. The definition of group is restricted to entities under the same management or control. Therefore, it may seem that collection of enterprises that do not form part of group was not considered by legislature to come within the purview of Section 4. Also, whether a concept that has its genesis outside the frontiers of India should cross the judicial borders to enter into India is a question that will have to be decided. On the other hand, ordinarily it is a statutory rule that a singular word would also include a plural. Therefore, by that logic enterprise would also include enterprises and a group of enterprises can abuse their dominant position. However, these issues have not been effectively raised or decided by the CCI in the said case and therefore it will still remain to be seen whether the collective dominance concept is envisaged under Section 4. Analysis: These orders of the commission clearly call for a thought on the concept of collective dominance in India. Abuse of dominance can take place in a number of ways. As per the concept of abuse of dominance as it stands
82

2013 CLCSLR

VOL.1 ISSUE 1

today, no enterprise or group shall abuse its dominant position.65 This implies that the ambit of dominant position66 is to be analysed only when the entity being examined for violation is either an enterprise or a group as defined within the realm of the Act. Even though this application may include vast numbers of cases within it, it can be said with certainty that entities that fall outside the scope of a group can never be held liable for abuse of dominance and collective dominance. Before assessing the case from the point of view of collective dominance, it is important to highlight the background, which supports the Researcher's hypothesis. The facts highlight that, of the four ways in which a viewer may review broadcast of TV programs; Cable TV followed by DTH was the most popular. Being relatively new technology in India, DTH sought to replace cable TV network that used cables to transmit signals.67 Also, there was evidence of increasing use of DTH services in the coming years.68 Presence of few players in the market, due to small number of licenses given by TRAI, indicates the oligopolistic nature of market. Based on the concept of collective dominance as evolved from the case law in Europe, it first needs to be established that the entities concerned were a collective entity which could function as one single entity, independent of the conduct of its market competitors. The six entities involved in the current case were the main service providers in the market. The pattern of behaviour displayed by these entities reveals that even though they were not in any agreement in terms of their market practices, their pattern revealed common practices being followed by all. What needs to be figured out here is, whether the common policies adopted by all of them in the absence of any definite agreement for the same could, as per the European decisions, be held to be abuse of collective dominance. Firstly, all the DTH service providers put together form an entity as economic or structural links are not required for entities to be a collective entity. Two completely independent entities therefore can be collective entity. Individual Dominance of every entity is not required for them to be collectively dominant. We, therefore look towards other relevant links which
65Competition
66

Act, 2002, 4(1). Supra note 62. 67See p. 6 of the Order, see http://www.cci.gov.in/menu/MainOrderConsumer250411.pdf, decided on March 24, 2011, (last visited June 18, 2013). 68See p. 8 of the order, see http://www.cci.gov.in/menu/MainOrderConsumer250411.pdf, decided on March 24, 2011, (last visited June 18, 2013).
83

2013 CLCSLR

VOL.1 ISSUE 1

could help us determine the collectiveness of the entities. The relevant market in the case was the market of DTH operators. These service providers were restricting competition amongst themselves, by engaging in conduct leading to distortion of competition in the market. As was noted earlier, that the market was in its nascent stage, all the service providers were trying to replace cable TV market and not engage in competition amongst them. The conditions imposed by these service providers were onerous on the manufacturers who did not sell the STB of the make supplied by the DTH service provider to consumers as they could not avail the services of another DTH operator until they bought new hardware. This would, in the long run, drive the manufacturers of STB of different make to move out of the market. This practice was being carried out by all the service providers, without exception.69 Here, it is of great relevance that the market share exercised by these four entities was more than 80% of the total DTH market.70 Being the dominant players in the relevant market, their common policies were undoubtedly driving competitors out and helping to circulate consumer base amongst them. To sum up, the DTH service providers took complete advantage of the nascent market coupled with information asymmetry. Their practices were not only forcing the manufacturers other than the select few who sold their hardware, out of business, but they were also preventing consumers from migrating to other providers by including an arbitrary clause in the agreements. Can this conduct of these entities together not fall under collusion with a view to establish their collective dominance? As established by European case laws, it is certainly difficult to draw the distinction between collusive and parallel behaviour. Whether in the DTH operators case, it could be said that the operators employed more than parallel conduct, sufficing to say that they were colluding, is not the only possible interpretation. One might say that Market share of entities combined can certainly not be the only factor to be applied to uphold collusion and hence collective dominance. There need to be certain other factors based on the factual matrix of the case in hand, which can be resorted
69See

p. 13 of the order, http://www.cci.gov.in/menu/MainOrderConsumer250411.pdf, decided on March 24, 2011, (last visited June 18, 2013) 70See p. 15 of the Order, http://www.cci.gov.in/menu/MainOrderConsumer250411.pdf, decided on March 24, 2011, (last visited June 18, 2013)
84

2013 CLCSLR

VOL.1 ISSUE 1

to. In the instant case, if we take a look at a host of factors, including the combined market share of the entities71, the nature of the products involved72, the size and number of undertakings and also the fact that TRAI (Telecom Regulatory Authority of India) itself provided for interoperability, both commercially and technically,73 changed anything. Could the Commissions decision have been any different had the concept of collective dominance been prevalent in India, is certainly worth a thought. V. CONCLUSION

It is clear from the above discussion that oligopolies pose a major challenge for competition law in various jurisdictions. They could even affect the very essence of the objectives that Competition law aims to protect. However, as pointed out earlier, this could not be a reason for either a complete ban or a situation of no remedy. The law on collective dominance might still be developing in other jurisdictions including EU. However, the case laws there do explain the need for a mechanism to deal with situations like oligopolies. The present article was not oriented towards reflecting on the flaws or problems that come up with interpretation of a concept having its presence in more than one Treaty or Article. The aim of examining those case laws was to outline the significant need for having such a mechanism in the first place. Doubts, if any, on the existence of the concept of collective dominance in India must be dispelled as, not only has the commission stated the same in several decisions74, but also because, had the concept found place in the current legislation, there would have been no requirement to table the same in the Competition Amendment Bill, 2012, in explicit terms. The amendment is clarificatory in nature, which shows the intention of the legislators. Therefore, undoubtedly even when the commission did recognise the fact that dominance either singly or jointly was possible, absence of the words singly or jointly made it impossible for the commission to read them within the framework of our legislation and gave room for abuse merely
71Id.

The Commissions order compares the DTH Market to the Mobile phone services where a consumer can use any hardware to access the signals of any of the mobile service providers as long as the consumer buys the SIM card of that particular mobile service provider, p. 11 of the order, supra note 66. 73Seep. 36 of the Order, supra note 70. 74Id.
72

85

2013 CLCSLR

VOL.1 ISSUE 1

because of the wording of the Act. This amendment will bridge the difference of opinion and confusion on the state of affairs. What the law would address now is abuse of dominance by an enterprise either singly or jointly or by a group either singly or jointly. The scope of collective abuse which was earlier confined to groups only is now extended to entities which are not groups, but can exercise collective dominance even without the presence of agreements as exists in oligopolistic markets. Even though the dividing line between tacit collusion and adopting similar practices due market requirements is very thin and vague, these practices will lead to abuse which may go unnoticed and leave the market open to anti-competitive practices. This move is therefore, without question, a step forward in the right direction, towards aligning the Indian Law with the best practices worldwide, with the possibility of mending the loopholes present in others.

86

2013 CLCSLR

VOL.1 ISSUE 1

ANTI-COMPETITIVE IMPLICATIONS OF REVERSE PAYMENT SETTLEMENTS WITH SPECIAL REFERENCE TO INDIA Anirudh Krishan Gandhi and Hitakshi Mittal The pharmaceutical sector can primarily be divided into two major sectors. One innovating and the other cashing upon the innovations made, as has been duly facilitated by the recent amendments to the IPR regime under Hatch Waxman Act in the US. The leverage granted to generic medicines to enter the market without making the huge investment in innovation, as done by the original drug manufacturer, has given rise to massive litigation in US. Most of such challenges to the patents are settled through an out of court settlement by the generic and the branded firm. These settlements involve restriction on generic entry for a specified period along with payment for such delay. This paper deals with the validity of such settlements as regards the competition policy adopted in US and other jurisdictions, specifically India. It also suggests the manner in which such settlement agreements can be harmonized with the competition policy. I. INTRODUCTION The Indian pharmaceutical industry has witnessed a robust growth of around 14% since the beginning of 2007 from about Rs 71000 crores to over Rs. 1 lac crores in 200910.1 This amounts to around 20% of total volume of global generics.2 Owing to this phenomenal growth of the Indian Pharmaceutical industry there is an immense possibility of a number of reverse payment settlements being negotiated by Indian generic firms with their branded counterparts in the near future. Therefore, the need of the hour for India is to have a competition policy regime in place that can validly reconcile such settlements in its framework. Competition law has been understood as the Magna Carta of free enterprise. Reverse payments settlements, prevalent in the US pharmaceutical industry, pose a puzzle to the antitrust enforcement. Such settlements emerge as an alternative to patent litigation between the manufacturer of a patented drug and its would-be rival, the generic drug maker seeking to market a competing version of the same drug prior to the patents scheduled

IVth Year, B.A. LL.B.(Hons) National Law University, Delhi Summary on Indian Pharmaceutical Industry (2010), available at http://planningcommission.nic.in/aboutus/committee/wrkgrp12/wg_pharma2902.pdf. 2Id.
1Executive

87

2013 CLCSLR

VOL.1 ISSUE 1

expiration. The widely accepted view held by authors grant such settlements a per se Anti-competitive status as such agreements between the two market players essentially restricts the generic entry leading to a creation of competitive advantage for the manufacturer. However, the present paper aims to challenge the above argument and attempts to bring out an alternative understanding. It further seeks to envisage the prospects of such settlements in the Indian paradigm and analyse the possible challenges that the Indian legal framework might face while dealing with such claims. Part I of the paper analyses the abuse of dominant status granted by IPRs vis--vis the Competition policy that condemns such monopolization. It further dwells upon the dire need for patent protection specifically to promote innovation in the pharmaceutical sector. Part II presents the conceptual understanding of reverse payment settlements and tries to challenge the prevalent argument of such settlements being anti-competitive in nature. It further gives the Federal Trade Commission (hereinafter referred to as FTC) data on the nature of such agreements till date, provides the landmark litigations on such settlements, discusses the tests that emerged and were deployed by courts to deal with such litigations and lastly envisages such a scenario in the Indian paradigm. Part III concludes the paper and makes an attempt to reconcile such settlements with the competition policy. II. COMPETITION POLICY: WHERE DOES PHARMACEUTICAL SECTOR STAND? Competition policy aims at securing consumer welfare by ensuring fair competition in the market and avoiding undue dominance by any players. However, the competition law of various jurisdictions does reconcile intellectual property rights as valid for creation of dominant status in the right holder as an incentive to the intellectual effort devoted in the innovation. Thus, in a way both the competition policy and the IP regime aim to foster development, research in innovation, promote public welfare and benefit. This section highlights the interface between competition policy and IPR. It delves into abuse of dominant position as recognised under the competition law and the grant of dominance by IP Rights. It further narrows down to the pharmaceutical sector and identifies the importance of competition in the said sector.

88

2013 CLCSLR

VOL.1 ISSUE 1
A. INTERPLAY OF ANTI-TRUST AND IPR

The Competition Policy envisages the idea that any firm holding a dominant position with an exclusive right to exploit the same leads to an appreciable adverse effect on competition in the relevant market3. There is an inherent conflict between the patent law which grants limited monopolies to inventors and the anti-trust laws which broadly condemn monopolies and restrictions on competition.4 In US the corresponding term for abuse of dominant position is monopolization or attempt to monopolize. The Sherman Act prohibits conduct which monopolizes, or attempts to monopolize any part of trade or commerce.5Dominant position is defined as a position of economic strength enjoyed by an undertaking which enables it to behave to an appreciable extent independent of its competitors, its customers and ultimately of the consumers.6 The existence of dominant position per se does not produce anticompetitive implications. However, an abuse of such a position as described under Section 4 of the Competition Act, 2002 bears appreciable adverse effects on competition in India. Abuse may therefore occur if an undertaking in a dominant position strengthens such position in such a way that the degree of dominance reached substantially fetters competition.7 Section 19(3) of the 2002 Act visualizes the agreements that amount to appreciable adverse effects to competition. The two broad categories of business conduct recognised as abusive are first, the exclusionary abuse where a firm prevents the entry of new competitors in the market8. Any conduct that causes a principle deterrent to a new entry amounts to an abuse. Second, exploitative abuse where a firm uses its dominant position in disadvantage to others by charging high prices is detrimental to consumers interest. The firm often enters into predatory pricing scheme whereby the pricing is at a price which is below the cost, as may be determined by regulations, of production of goods or provision of services with a likelihood, or reasonable prospect, of later recouping the investment by increasing prices. This practice of pricing below an appropriate measure of
Competition Act, 2002, 2 (r), (s) & (t) read with 19(5), (6) & (7) (India). Geoffrey A. Manner, Competition Policy and Law under Uncertaintly, 498 (1st ed. 2011). 5 Sherman Act, 1890, 2 (US), see also United States v. Grinnel Corporation , 384 US 563(1966). 6 N. V. Netherlands Banden Industrie; Michelin v. Commission of the European, [1983] ECR 3451. 7 Europemballage Corporation and Continental Can Company Inc. v. Commission of the European Communities, [1973] EUECJ C-6/72. 8 supra note 7.
3 4

89

2013 CLCSLR

VOL.1 ISSUE 1

cost amounts to an abuse of dominant position since it is aimed at eliminating competition in the short run and reducing competition in the long run.9 An indisputable function of law is to strike an efficacious balance between conflicting interests and to reconcile the evident anomalies in the socio-economic system.10 The constant and inevitable tension between IPRs and competition policy is sought to be resolved in various major jurisdictions with the aid of flexibilities in law, guidelines and through judicial interpretation.11 The recent innovation economics approach adopted by antitrust authorities in the various jurisdictions aims at resolving the tension between the two by treating IPR and competition law as complimentary to each other and striking a fair balance between the two.12 In Europe, the IPR/competition law interface finds expression in Article 81 of the EC Treaty which discusses the compatibility of IPR licensing agreements with competition policy. Further, in Nungesser v. EC Commission13 the European Court of Justice concluded that exclusivity provisions did not automatically infringe Article 81. The US law, under Section 33 of the Lanham Act also pays special attention to the entanglement of trademarks and competition law, based on the recognition of the fact that trademarks become valuable property rights, as opposed to monopoly rights14. Further, the United States Antitrust Guidelines for the Licensing and Acquisition of Intellectual Property, 1995 recognises that competition policy and IP laws are intertwined with the common objective of promoting innovation and consumer welfare, and the licenses that blend the complementary factors of production produce pro-competitive results.15 Article 40 of the TRIPS is regarded as the intersection of intellectual property standards and competition law. It provides for an important exception from the application of the agreement. Article 40.2 reads as follows,
Keith N. Hylton, Antitrust Law: Economic Theory and Common Law Evolution, 213 (1st ed. 2003) 10Eshan Ghosh, Competition Law and Intellectual Property Rights with Special Reference to the TRIPS Agreement, available at http://cci.gov.in/images/media/ResearchReports/EshanGhosh.pdf. 11Id. 12Avinash Gupta, The Interface between Competition Law and Intellectual Property Rights, available at http://cci.gov.in/images/media/ResearchReports/req1_20081103135559.pdf. 13[1983] 1 CMLR 278 (England). 14 The Lanham Act, 1946, 33(7)(b) (US). 15Robert D Anderson et al, Abuse of Dominant Position-Enforcement Issues, in Competition Law Today 76 (Vinod Dhall eds. 2007).
9

90

2013 CLCSLR

VOL.1 ISSUE 1

Nothing in this Agreement shall prevent members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market.
B. IPRs-REWARDING INNOVATION EFFICIENTLY

Intellectual property rights are legal rights granted to creators and owners of works that are results of human intellectual creativity. These exclude others from exploiting a non-corporeal asset.16 They include patent, trademark, design rights, copyright, etc. They may lead to significant market power where there are no substitutes on either the demand or the supply side, thereby creating a monopoly in the market.17 They pose an entry barrier and make it harder for new competitors to enter the market.18 These exclusive rights may be justified on the grounds that without the prospect of an exclusive right, few firms would invest large resources in research and development. The investor would meet competition from those who are not investing and are able to take a free ride without performing any original R & D.19 Thus, intellectual property rights work on the premise that information itself is a public good but once known would be consumed at zero marginal cost; discovering and making information useful requires input that are rival and are susceptible to efforts to exclude others.20 There is a trade-off between providing the incentive to invest in innovation and the liberty of others to exploit the protected product.21 Most IPRs are limited in various ways by the legislation granting them to encourage competition. They do not last forever. For instance, a pharmaceutical patent lasts for twenty years and thereafter it is free to be used by others.22 Further, the legislations also prescribe exceptions to the use of these rights. Use of copyrighted work for fair use23, provision of

16Valentine

Korah, Competition Law and IPR in Competition Law Today 140 (Vinod Dhall ed. 2007). 17Id, at142. 18 Dr Birgitte Andersen, Intellectual Property Right Or Intellectual Monopoly Privilege: Which One Should Patent Analysts Focus On?, available at http://redesist.ie.ufrj.br/globelics/pdfs/GLOBELICS_0050_Andersen.pdf 19 Supra note 12. 20 Supra note 17, at 503. 21 Supra note 19. 22 Patent Act, 1970, 53 (India). 23 Copyright Act, 1957, 52 (India).
91

2013 CLCSLR

VOL.1 ISSUE 1

compulsory licensing under patents24, use of copyright of a protected work for research purpose are few such instances.25 Thus, these IPR rights cannot be designated as an absolute restriction to use.
C. VITAL IMPORTANCE OF PATENT PROTECTION IN PHARMACEUTICAL SECTOR

Competition forces the market players to search for better permutations and combinations for providing greater profits with greater efficacy.26 Competition in the pharmaceutical industry is centred on development and innovation of new therapies. International competition in the pharmaceutical industry has led to an increased growth in the industry.27 The manufacture of pharmaceutical products is an innovation to improve public health and welfare. Competition in innovation is widely thought to be more important than competition in providing another product altogether.28 As was argued by Joseph Schumpeter, competition in innovation ensures better prices and quality and also brings in a new contribution to the market for the greater public good.29 Patents are of a greater commercial importance in the field of chemistry, pharmaceutical, and biotechnology than in other fields such as engineering or electronics.30 A new chemical product is easier to imitate with less investment than a complex new machine. To bring a new pharmaceutical to the market requires a vast amount of investment; a major part of which is spent on testing the compound for safety and efficacy.31 The pharmaceutical industry develops products that take a very long time to reach the market but once they do, they continue to be sold for years.32 Thus, pharmaceutical companies are the most interested in excluding competition by obtaining the

24Supra 25Supra

note 23, 84. s note 24, 52. 26 T. Ramappa, Competition Law in India, pp. 12-34 (2nd ed. 2009). 27Document on International Pharmaceutical Trade Pattern, available at http://www.duke.edu /web/ soc142/team2/trade.html. 28Allan Fels, Competition and Regulation, in Competition Law Today, pp 112 (Vinod Dhall ed. 2007). 29Id. 30Supra note 16, at 498-500. 31Simon Priddis et. al., The Pharmaceutical Sector, Intellectual Property Rights and Competition Law in Europe, in Intellectual Property and Competition Law, pp. 123-134 (Anderson et al. eds. 2011). 32Document on Pharmaceutical Patent, http://www.innovation.org /documents / File / Pharmaceutical_Patents.pdf.
92

2013 CLCSLR

VOL.1 ISSUE 1

maximum possible effective patent term. The usual drug development process involves four major steps33: 1. Lead Finding- Research Planning, obtaining test compounds and screening. It takes an average of two years 2. Preclinical Trials in two stages that takes average of four to six years 3. Clinical Trials in three phases that takes about four to six years 4. Registration, Launch and Sales that requires two to three years Further, it is estimated that out of approximately 5000 compounds found to have activity in early testing only one out of every 5000 is ultimately marketed.34 So there are a number of drugs that fail even after full clinical trial. The average cost of producing a new drug is US$402 million. 35 The period from first patent filling to the marketing of the new drug is therefore typically between seven to fourteen years.36 Besides this, the products ultimately reaching the market do not always guarantee financial success. Pharmaceutical companies therefore look to the promise of monopoly profits earned on that small proportion of marketed products to finance the cost of bringing successful products to market, as well as funding the ultimately unsuccessful projects. IP rights are immensely important to them in ensuring the risks and rewards of innovation are appropriately balanced.37 In absence of a good patent protection for the compound, sales by imitators with no research overheads would destroy any possibility of the innovator recovering its investment.
D. ABUSE/ MISUSE OF PATENT IN PHARMACEUTICAL INDUSTRY

Patent Act, 1970 by way of Sections 2(m), 2(j) and 2(ja) provides that the awarding of a patent is based on objective criteria of novelty, industrial application and inventiveness of the product.38 If each of these criteria is not met the patent is not granted. A patent can be obtained for an initial discovery known as the primary patent or on a new formulation of the same compound or molecule
33Id. 34Supra 35Id. 37Id. 38The 36Supra

note 16, at 563. note 32.

Patents Act, 1970, 2(m), 2(j) and 2(ja) (India); Astra Zenaeca v. Commission, (1991) ECR-I-3356.
93

2013 CLCSLR

VOL.1 ISSUE 1

known as the secondary patent.39 A mere obtaining of patent does not infringe competition law even if the applicants stated intention is to exclude competition on that discovery.40 This amounts to being a legitimately gained valid patent. The Federal Trade Commission of the US recognises that in cases where the initial application is broadly worded to include inventions, which the applying company considers to have little or no prospect of being developed or commercialized once granted, the company holds it to protect itself against actual or potential competition. Such conduct amounts to abuse of patent.41 Abuse of patent creates competition concerns when firms form patent clusters. These clusters make it hard for the potential competitors to understand the exact scope of the patent relating to the specific product.42 Further, if the initial patent were found to be obtained as a result of misrepresentation, misleading conduct or fraud in the patent office just to exclude rivals, it would amount to abuse.43 Competition concerns also arise in secondary patents (a kind of evergreen patents44) obtained by building and developing on the existing patent right either by discovery of a more effective way of formulating the same product or in an easier way.45 This leads to a second generation patent switching by improving upon the same first generation product in the market.46 As a result, on the expiry of the initial primary patent the generic will not be free to imitate the product because of the second generation patent. The generic is left with the option to imitate only the First generation drug which at that point would have been usurped by the second generation product. So effectively the first patent itself gets a protection of way longer period than designated for it. Such a protection to the original patent leads to anti-competitive results, thereby constituting abuse of patents.
Swiss National Centre Working Paper on Legal Notion on Abuse of Patent Rights available at, http://www.wti.org/fileadmin/user_upload/nccr-trade.ch/ wp3/3.5 /The% 20Legal% 20Rights.pdf. 40Id. 41Supra note 32. 42Id. 43Id. 44Supra note 40. 45Id. 46Claire Chandler, Is an Absolute Ban on Reverse Payments the Appropriate Way to Prevent Anticompetitive Agreements Between Branded- and Generic- Pharmaceutical Companies?, 86 TEX. L. REV. 647 (2007).
39

94

2013 CLCSLR

VOL.1 ISSUE 1

In order to combat such adverse effects on account of ever-greening of patents, the Indian Parliament introduced Section 3(d) in 2005. This subsection excludes the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance from the ambit of invention. In Novartis v. Union of India47, Madras HC observed that objective of this sub-section is to prevent ever-greening, to provide easy access to the citizens of this country to life saving drugs and to discharge their Constitutional obligation of providing good health care to its citizens. Further, Sections 54-56 deal with a special type of patent called patent of addition. Wherein, the grant of patent will not be refused only on the ground of lack of inventive step. The qualifications provided for grant of the said patent require the invention to relate to an improvement or modification of the main invention and such an improvement must come within the scope of an improvement described under the specifications of the main invention. Section 54 further qualifies that the term of a patent of addition shall be granted only for a term equal to that of the patent for the main invention. Thus, the dilution of the requirement of novelty under Section 56 ensures there is no abuse by way of ever-greening patents. III. REVERSE PAYMENT SETTLEMENTS AND ANTITRUST IMPLICATIONS

As has already been explained Reverse payment settlements are agreements alternative to litigation between the manufacturer and the Generis drug firm resulting in the restriction of generis entry into the market through various means. There are no straitjacket principles applied by courts to reach decisions, leading to a varied view in case to case basis. This section delves into the varied approaches evolved by the court and concludes by outlining the prospects of such settlements in the near future by the emerging Indian pharmaceutical industry.
A. PROCESS FOR GENERIC ENTRY LEADING TO REVERSE PAYMENT CONSEQUENCES

The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act allows a generic manufacturer to rely on the clinical studies performed by a previous pioneer drug manufacturer. The generic drug manufacturer files an Abbreviated New
47(2007)

4 MLJ 1153.
95

2013 CLCSLR

VOL.1 ISSUE 1

Drug Application (hereinafter referred to as ANDA) to get the approval of US Food and Drug administration (hereinafter referred to as FDA).48 The generic-drug manufacturer must certify that it is filing its ANDA under one of four paragraphs: the pioneer drug is not covered by a patent (Paragraph I), the patent covering the pioneer drug has expired (Paragraph II), the generic drug will not be marketed until the patent covering the pioneer drug has expired (Paragraph III), or the patent covering the pioneer drug is invalid or not infringed by the generic drug (Paragraph IV).49
B. GENERIC ENTRY RESULTING IN REVERSE PAYMENT

When an ANDA application is certified under Paragraph IV, an act of patent infringement is likely to occur and the branded-pharmaceutical company can sue the ANDA filer for patent infringement.50A reverse payment occurs when the branded-pharmaceutical company (plaintiff) in the patent infringement suit agrees to pay the generic manufacturer (defendant) a sum of money in the context of a settlement agreement wherein the generic manufacturer agrees to certain terms. In return, the Generic agrees to either exit the market for the life of the patent or to split the remaining life of the patent i.e. delay its entry into the relevant market. A patent splitting settlement is a settlement of patent litigation in which the alleged infringer obtains the ability to exploit the patent but not for the full range of time or uses. Thus, the patent holder continues to practice the patent for the entire patent life while the infringer practices the patent for part of that life. 51 For example, a patent might have ten years left to its life and the settlement might permit the alleged infringer to enter five years from the date of the settlement, splitting the patent 50-50. Due to the above settlement, the patent is never litigated, and a court never determines whether the patent is valid or whether the generic product infringes on the patent. Such a settlement agreement that delays or prevents market entry of the generic product is bad as it would have precluded consumer access to a more affordable generic product.52 A patent holder
Carl Shapiro, Antitrust Limits to Patent Settlements , 34 RANDJ. ECON.391 (2003). note 47. 50Thomas F. Cotter, Antitrust Implications of Patent Settlements Involving Reverse Payments: Defending a Rebuttable Presumption of Illegality in Light Of Some Recent Scholarship, 71 ANTITRUST L.J. 1069 (2003). 51Id. 52 Marc G Schildkraut, Patent-Splitting Settlements and the Reverse Payment Fallacy, 71 ANTITRUST L.J. 1033 (2003-2004).
48 49Supra

96

2013 CLCSLR

VOL.1 ISSUE 1

essentially uses a reverse payment to bribe an alleged infringer to settle a patent litigation on terms that are better for the patent holder and worse for consumers than the expected outcome of the litigation.
C. REVERSE PAYMENT AGREEMENTS FILED SO FAR AS PER FTC

The FTC Bureau of Competition is an American Regulatory Authority. The FTC works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop and avoid them.53 One of the major objectives of the FTC is to find out and challenge anticompetitive conduct in the marketplace, including monopolization and agreements between competitors.54 To achieve the above objective, Section 1112 of the Medicare Prescription Drug, Improvement, and Modernization Act, 2003 requires that brand-name drug manufacturers and generic drug applicants file certain agreements with the FTC and the Department of Justice. The FTC is empowered to undertake enforcement actions against the pharmaceutical companies if the patent drug agreements are not filed with the FTC. The Commission has taken antitrust law enforcement actions55 against various branded and generic drug companies whose allegedly anticompetitive agreements took advantage of the provisions of Hatch Waxman Act. During the fiscal year 2011 (October 1, 2010 to September 30, 2011), the FTC received 156 final resolutions of patent disputes between a brand and a generic.56 Twenty eight final settlements contain both compensation to the generic manufacturer and a restriction on the generic manufacturers ability to market its product. One hundred final settlements restrict the generic manufacturers ability to market its product, but contain no explicit compensation while twenty eight final settlements have no restrictions on generic entry.57 As can be derived from the data available with FTC fiscal year, 2011 witnessed the continued trend of record numbers of brands and generics resolving patent litigation prior to a final court decision on the merits and a significant numbers of such settlements potentially involving
53Document 54Document

presenting the missions of FTC, available at http://www.ftc.gov/ftc/about.shtm. defining the Role of FTC, available at http://www.ftc.gov /bc/tech/ property/ index.htm. 55FTCs Enforcement Action against Sanofi-Aventis Watson Pharmaceuticals and Synthon Holding,s, available at ,http://www.ftc.gov/opa/2011/05/sanofi.shtm. 56Report by the Bureau of Competition on Overview of Agreements Filed in FY 201, available at http://www.ftc.gov/os/2011/10/1110mmaagree.pdf. 57Id.
97

2013 CLCSLR

VOL.1 ISSUE 1

pay-for-delay. While there were no such agreements in 2004, the number of such pay for delay settlements increased to twenty eight in 2011.
D. SIGNIFICANT COURT LITIGATIONS HOLDING REVERSE PAYMENT SETTLEMENTS VALID

FTC generally holds that such agreements injure competition and consumers, and articulates a ban on settlements where the generic drug manufacturer receives anything in monetary value to defer its activities. However, the FTC also grants flexibility by providing that if any payments that can be linked to litigation costs and the Commission is notified of the such settlements, then the parties need not worry about a later antitrust attack. There have been various instances where the courts have approached the issue of reverse payment settlements in a positive sense rather than granting it a per se anti-competitive status. For instance in, Schering-Plough Corp. v. FTC58, Schering owned a formulation patent on the coating of its K-Dur 20 potassium supplement. In the settlement, Schering and generic challengers agreed that in exchange for payments reaching US$60 million, the generics would remain off the market for a specified period of time and Schering would obtain licenses on unrelated products owned by the generics. The Eleventh Circuit Court found that because of Scherings underlying patent right, the agreements did not result in any unreasonable restraint of trade. The court found the agreements sufficiently narrow because they were commensurate with the protections under the patent. Therefore, in this case the court went into the merits of the settlement to come to a conclusion regarding its validity. In re Tamoxifen Citrate Antitrust Litigation59 the Barr Laboratories wanted to market a generic form of AstraZeneca Incs successful breast cancer drug Tamoxifen. It was a compound patent held by AstraZeneca Inc. The generic settled the case in exchange of US$21 million with a license to sell Tamoxifen in the United States, and refrain from marketing its generic formulation elsewhere until the patent expired. The Second Circuit court threw light on the fact that a compound patent by its nature excludes all generic versions of the drug. Therefore, it validated the settlement, holding that the agreement did not exceed the scope of the patent because it did not prevent the introduction of non-infringing products by the generic. The
58402 59In

F3d 1056, 1058 (11th Cir. 2005). re Tamoxifen Citrate Antitrust Litigation, 466 F3d 187 (2nd Cir. 2006).

98

2013 CLCSLR

VOL.1 ISSUE 1

Supreme Court has recently refused to interfere with the Second Circuit Courts decision so the same is held to be final. 60 In Valley Drug Co v. Geneva Pharms, Inc61 the patent holder entered into agreements with two generic manufacturers whereby the generics would refrain from marketing their version for a certain period in exchange for quarterly payments of US$6 million to one generic and monthly payment of US$4.5 million to the other. The Eleventh Circuit Court found the per se illegality treatment of such settlements inappropriate. The court primarily held that unless the exclusionary effects of an agreement exceeded the exclusionary scope of the patent, the agreements would not be subject to per se antitrust condemnation. Since the agreement contemplated generic entry into the market prior to patent expiration, this agreement was narrower than the patents exclusionary effect, thus it was not found to be violating any antitrust principles. This case again depicts the divergence of the courts opinion regarding the nature of such agreements. In the Cephalon litigation62 the generic drug companies agreed not to market their generic version until a certain date in exchange for payments by Cephalon for various licensing agreements, supply agreements, and research and development deals. The Judge adopted the prevailing scope of the patent test, pursuant to which the court first examines if the agreements in question exceed the exclusionary patent right granted to the patent holder. In this case, the terms of agreement improperly granted rights that went way beyond the scope of Cephalons patent rights. Therefore, the settlement agreement was adjudicated as being against anti-trust principles. In Asahi Glass Co. Ltd. v. Pentech Pharmaceuticals63, the settlement agreement between GlaxoSmithKline, the producer of branded-Paxil and a generic manufacturer precluded the generic manufacturer from selling its version in the fifty states. However, the settlement did provide the generic a license to sell a generic version in Puerto Rico. Thus, the settlement precluded the generic manufacturer from competing in the fifty states in exchange for a right to sell in Puerto Rico. The court recognised the fact that Glaxo paid the generic to stay out of the domestic market (e.g., by permitting
60News

Report Regarding Tamoxifen Litigation, available at http://www.drugs.com/news/u-ssupreme-court-denies-review-tamoxifen-citrate-antitrust-lawsuits-6372.html. 61344 F3d 1294, 1300 (11th Cir 2003). 62FTC v. Cephalon, Inc., 551 F. Supp. 2d 21 (2008). 63289 F. Supp 2d 986.
99

2013 CLCSLR

VOL.1 ISSUE 1

it to sell branded-Paxil in Puerto Rico) and held that had Glaxo continued to litigate its patent infringement claim, the generic would not have been able to sell in Puerto Rico, and ultimately, the rest of the United States, until 2007. According to the court, the settlement is, therefore, pro-competitive as it enabled the generic to sell immediately in Puerto Rico. Thus, the courts have in the recent days adopted varied approaches and tests to determine the validity of reverse payment settlements instead of resorting to the traditional approach or following a singular method of determination.
E. PROMINENT TESTS TO DETERMINE THE ANTI COMPETITIVE SETTLEMENTS

As is apparent from the above cases, courts have not tended to use either of the traditional antitrust tests like per se or the rule of reason test, instead evolving new tests to review competition issues raised by pharmaceutical patent settlements. Per se test presumes reverse payment agreements to be anticompetitive without going into their merits while the rule of reason test starts with the assumption that such agreements are tenable in law and then takes rebuttals against this assumption. In re Tamoxifen Citrate Antitrust Litigation case, the Second Circuit found that reverse payment settlements do not necessarily violate the antitrust laws. The court enunciated a new test called the scope of the patent test, holding that such settlements are not anticompetitive as long as they do not block generics from entering the market after the brand-name manufacturers patent rights expire. The Second Circuit also confirmed the scope of the patent test in a subsequent reverse payment in Ciprofloxacin Hydrochloride Antitrust Litigation.64 So the three-step process in the scope of the patent test looks to: 1. The scope of the exclusionary potential of the patent; 2. The extent to which the challenged agreement exceeds that scope; and 3. Any resulting anti-competitive effects.

64544

F3d 1323, 1333 (Fed Cir. 2008).

100

2013 CLCSLR

VOL.1 ISSUE 1

The Quick look rule of reason test adopted by the Third Circuit65 starts with a presumption that a reverse-payment settlement is prima facie evidence of an unreasonable restraint of trade, which can be rebutted by proof showing the payment or other benefit was for a purpose other than delayed entry or had some other pro-competitive benefit as was observed in the Asahi Litigation.
F. REVERSE PAYMENT SETTLEMENTS- ARE THEY REALLY ANTI-COMPETITIVE?

As seen above, there is no prescribed, straitjacketed formula to determine if a reverse payment settlement is anti-competitive. Some cases have simply declared reverse payments per se illegal. Other courts have virtually declared such arrangements per se legal. Reverse payments are in a state of flux. On the one hand, if the patent is invalid or not infringed, a reverse payment resulting in a patent-splitting agreement could lead to later entry than litigation.66 On the other hand, if the patent is valid and infringed, such a settlement could not be anticompetitive because the patent holder could have blocked the infringer from the market entirely.67 Indeed, the split would be pro-competitive if it permitted the infringer to get in the market before the end of the patent term. 1. Reverse payments being pro-competitive - Views Held The reverse payments are not necessarily anticompetitive. There are many circumstances where a reverse payment is necessary to resolve a patent litigation and that resolution is better for consumers than continued litigation. Settlements; even those containing reverse-payment provisions, can ensure that consumers gain access to generic versions of branded therapeutics prior to expiration of the patent covering the branded product.68 For instance, if the patent owner were to succeed in trial, the generic manufacturer could not receive FDA approval until the patent expired.69 Then a reverse-payment settlement is the only mechanism that succeeds in

65Andrx 66

Pharms., Inc. v. Biovail Corp. Intl, 256 F.3d 799 (D.C. Cir. 2001). Laura J. Robinson, Analysis of Recent Proposals to Reconfigure Hatch-Waxman, 11 J. INTELL. PROP. L. 47, 47 (2003). 67Id. 68 Kent S. Bernard & Willard K. Tom, Antitrust Treatment of Pharmaceutical Patent Settlements: The Need for Context and Fidelity to First Principles, 15 FED. CIR. B.J. 617, 624-25(2006). 69Id.
101

2013 CLCSLR

VOL.1 ISSUE 1

ensuring market entry of a generic product prior to expiration of the patent covering the branded product. There are two major scenarios wherein reverse-payment settlement agreements are theoretically pro-competitive. First, parties may fail to accurately assess their likelihood of success in the upcoming litigation given the complexities of patent litigation.70 Second, the generic manufacturer may be willing to refrain from marketing its product until a negotiated date, but it may be concerned that its present financial position does not allow it to sustain its operations until this date.71 In this situation, it may be necessary for the patent owner to provide some payment to the generic manufacturer in order for the settlement to be finalized. Every legal system aims to promote settlements and since in pharmaceutical litigations the stakes are high and there is great degree of uncertainty, such settlements should not be discouraged. Thus, an absolute ban on all such settlements is not the appropriate means of preventing anticompetitive settlements because it also bans certain pro-competitive agreements. 2. Reverse Payment Settlements being Anti-Competitive The Competition Act prohibits any agreements with respect to production, supply, distribution and storage, acquisition of control of goods which causes or is likely to cause appreciable adverse effect to competition.72 Further the Act provides that appreciable adverse effects to competition include the creation of barriers to new entrants in the market foreclosure of competition by hindering entry into the market.73 Thus, a reverse payment settlement that essentially restricts the generic entry into the market for a specified period amounts to being an anti-competitive agreement. The harmful effects of anti-competitive agreements include intra-band competition, compartmentalization of market, price monopoly, monopoly in quality of goods and so on.74 Reverse payment settlement agreements ultimately lead to these adverse consequences and therefore are in violation of competition policy.
C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlements as a Regulatory Design Problem, 81 N.Y.U. L. REV. 1553, 1564 (2006). 71Id. 72Competition Act, 2002, 3(i) (India). 73Supra note 75, 19(2). 74Supra note 29 at 562.
70

102

2013 CLCSLR

VOL.1 ISSUE 1

G. INDIA AND REVERSE PAYMENT SETTLEMENTS

The Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers states that the Indian pharmaceutical industry ranks third in terms of volume- i.e. 10% of global shares75 after USA which has 169 ANDA approvals (needed for marketing generic drugs in the US), India had the highest number (132 approvals) in the year 2007.76 Even considering that the industry is moving up the value chain, studies77 have pointed out to several inherent limitations on Indian firms that prevent them from maturing into global firms due to low R&D intensity. Thus, the strength of the Indian industry lies in offering price-based competition to the global pharmaceutical industry by producing generic version of patented drugs.78Furthermore, as mentioned above, seeing the phenomenal growth of the pharmaceutical sector in the Indian paradigm, there is a great possibility of a number of reverse payment settlements negotiated by Indian firms with their branded manufacturers in the near future. A litigation of the said nature has not yet come up before the Indian courts. One of the only involvements of India in such settlements has been in the Aventis litigation. Aventis Pharmaceuticals Inc. has been indicted in the United States on the charges of instituting a patent infringement suit against a generic competitor with the intention to delay the market entry of the generic counterpart of its blockbuster heart drug Cardizem CD and then entering into an agreement with the generic firm to prevent market access. Aventis has the third largest market share amongst the multinational pharmaceutical companies operating in India.79 Bristol-Myers Squib, present in India as Bristol- Myers Squib India Pvt. Ltd., has been charged in the United States for indulging in practices which blocked the availability of the cheaper generic counterpart of Taxol, which is used to treat breast and ovarian cancer.80 While these cases have
75CEBTAD

Report 2011on Competition Law and Indian Pharmaceutical industry, available at http://www.cci.gov.in/May2011/Advocacy/EnglishAnnualReport201011.pdf. 76Id. 77 Martin Adelman and Sonia Baldia, Prospects and Limits of the Patent Provision in the TRIPS Agreement: The Case of India, 29 Vand. J. Transatl L. 507 (1996). 78Id. 79 Susannah Markandya et.al., Timeline of Paclitaxel Disputes, available at http://www.cptech.org /ip/ health/taxol/taxol-timeline2001.html. 80Id.
103

2013 CLCSLR

VOL.1 ISSUE 1

originated abroad, such practices may soon be identified in the Indian marketplace as well. Thus the Indian laws need to be equipped to cope with such a situation. In light of the lack of legal framework, the most plausible course of action at present could be a resort to Section 27 of the Indian Contract Act, 1872 that declares as void any agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind. Another plausible future cause of action could be amendments to the Competition Act provisions. The framework of competition law in India does not envisage the possibility of anti-competitive agreements to settle patent litigation. It is essential to suitably amend Section 3(5) of the Competition Act, 2002 to bring such agreements within the purview of the Competition Commission of India.81 Agreements involving transfer of economic value and accompanied by a delay in market entry of generics should, as and when they take place, be submitted to the Commission for ex post review.82 A legal fiction may be created, which can regard such agreements as presumptively unlawful, and imposing the burden of proof on the parties to the agreement to exhibit a justification to allow the agreement to take effect. However, a rigid per se rule against pay-for-delay agreements can be counterproductive as it can lead to inhibiting innovation by denying the generic a source of income by means of a settlement. Thus, in the Indian perspective, attempts should be made to reconcile some form of such agreements under its competition policy. IV. CONCLUSION

There have been arguments on both ends of the spectrum with regard to the validity of reverse payment settlements vis--vis competition policy. There can be no such thing as a singular position to determine the nature of such settlements. The patents under pharmaceuticals are granted to protect the innovation created after the huge investment made by the branded drug firm. However a generic drug manufacturer can obtain the right to market the imitated version of the drug without spending the required R&D, time and money and thereby take a free ride over the investment made by the original manufacturer. Under the usual
81Bhushan

Jatanis, Pay for Delay settlements: Potential threat to Indian Pharmaceutical sector, available at http://cci.gov.in/images/media/ResearchReports/BhusanInterns010611.pdf. 82Id.
104

2013 CLCSLR

VOL.1 ISSUE 1

circumstances he would challenge the patent of the branded manufacturer in the court as being invalid and if the court decides in favour of generic, it would obtain immediate market access. However with respect to recent practice, the branded drug company being in a dominant position is able to lure the generic to enter into a reverse payment settlement with them whereby they pay the generic for the loss due to restriction from entry in the market and further allow the entry for only a certain term of the patent. Thus, the courts do not decide on the validity of the patent, rather it is privately settled by the parties. Such agreements should not per se be declared void but the extent of control exercised upon the generic that augmented it to enter such a settlement need to be seen before validating these agreements. Thus, as has been laid down by various cases, the scope of patent and quick look rule of reason test should be adopted to decide their validity in specific cases. In order to harmonize such agreements, relevant amendments to the competition laws of various jurisdictions are required. Further the court practice of a particular jurisdiction should be such that it tries to analyse each case in its peculiar facts and circumstances. The courts should make positive efforts in trying to harmonize such agreements rather than choosing to declare them per se void. Mutual settlements are encouraged in every legal system, however it should be ensured that they do not go against the prevalent competition practice and not hinder greater consumer welfare.

105

2013 CLCSLR

VOL.1 ISSUE 1

GAAR IS INDIA READY FOR A DOUBLE-EDGED SWORD?

Meghna Chandra

The General Anti-Avoidance Rules (hereinafter referred to as GAAR) finally saw the light of day when the Finance Bill 2012 was tabled in the Parliament. There were diversified views expressed by stakeholders including tax payers, FIIs, experts, ASSOCHAM, etc. claiming on either side whether tax avoidance should or should not be checked. The government took a stiff stand and the Bill was passed, but it has been recently deferred till 2016. The tax authorities found themselves powerless during the Vodafone judgment and the existing SAAR provisions proved to be ineffective. The Standing Committee and the Shome Committee critically acclaimed GAAR and suggested fixing of certain loopholes in order to avoid further discrepancies. Going by the trend, India should have GAAR in place as the leading jurisdictions like USA, UK, Australia, Canada, South Africa and China have already recognised its importance and have set rules and precedents for the same, so that the economy does not suffer the perils of structural loopholes in tax laws that allow the tax payers to circumvent them. India must learn lessons from these countries and have GAAR in place in a structured and time-bound manner in order to check tax-avoidance. I. INTRODUCTION

The income tax law of India traces its history back to 1961, but numerous changes, additions and amendments have been made to it, making it suitable to the needs of the people on one hand and the progressive nature of the economy on the other. Until March 20121, there had never been a general provision on anti-avoidance rules (GAAR) as opposed to certain provisions in the Income Tax Act, 1961 which have specific anti-avoidance rules. Judicial precedents have also contributed to the development of the scope of tax avoidance in India. There is a need to understand the thin line of distinction between various terminologies involved, like tax-avoidance, tax evasion, tax mitigation, etc. Tax planning, tax efficiency and tax avoidance by companies is not equal to tax evasion. Tax evasion is the method of evading tax by dishonest means like suppression, conscious violation of rules, etc. The prime
1

IVth Year, B.A.,LL.B.(Hons.), National Law University, Delhi The Finance Bill, 2012 (16 March 2012).
107

2013 CLCSLR

VOL.1 ISSUE 1

objectives of tax planning are reduction of tax liability, minimization of litigation, productive investment, healthy growth of the economy and economic stability. There is a very thin line of demarcation between tax avoidance and tax evasion, though both result in avoidance of tax.2 In tax avoidance, the tax payer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any tax payer qualifying for such reduction in his tax liability.3 Simplistically, tax avoidance is the attempt to minimize tax within the confines of the law and often involves a transaction entered into in order to obtain a certain tax benefit, like tax planning, tax mitigation, and both acceptable and unacceptable forms of tax avoidance. Conversely, evasion relates to illegal attempts to minimize tax.4 Tax avoidance is the legal utilization of the provisions of tax laws in such manner as to minimize tax liability. Tax laws, however, contain specific provisions to counter this tax avoidance. The Income Tax Act, 1961 contains Section 92, 93 and 94 under Chapter X which deal with tax avoidance. Section 92 to Section 92F relate to computation of income from international transactions with regard to arms length price. Section 93 deals with avoidance of tax by transactions resulting in transfer of income to nonresidents and Section 94 deals with avoidance of tax by certain transaction in securities.5 II. JUDICIAL TRENDS

As stated earlier, India has never had GAAR and has totally relied on the judiciary to analyze any arrangement as being legal or not. India has a long history of judicial trends which has laid down certain principles and doctrines, some of which are borrowed from the English law. The judicial pronouncements have also created confusion and certain contradictions in their application. This was also one of the reasons that a need was felt to codify the law, and remove doubts from the minds of many.

2Roy 3Id. 4Id. 5K.

Saunder et al, The Principles of International Tax Planning, 35 (2005).

N. Chaturvedi, Taxmanns Interpretation of Taxing Statutes, 142 (2008).

108

2013 CLCSLR

VOL.1 ISSUE 1

One of the first cases wherein the Honble Supreme Court commented upon the legality of tax avoidance is CIT v A Raman6where J. Shah in his reported judgment stated: ....Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-Tax Act. Legislative injunction in tax statutes may not, except on peril of penalty, be violated, but may lawfully be circumvented. After Ramans case, the Supreme Court took a stiff stand in McDowell and Co. Ltd. v. Commercial Tax Officer7and supported the principle which was laid down in IRC v. Duke of Westminster8and held that tax planning was legitimate so long as it was strictly within the four corners of the law and any colourable device or dubious methods to minimize tax incidence were not legally permissible. In McDowell and Co. Ltd v. CTO9, evil consequences of tax avoidance were summarized as follows: i. ii. iii. iv. Substantial loss of much needed public revenue; Serious disturbances caused to the economy; Sense of injustice and inequality; Ethics of transferring the burden of tax liability to the shoulders of the guideless good citizens from those of artful dodgers.

In Union of India v Azadi Bachao Andolan10, the principle of Duke of Westminster has again been upheld in the quoted lines as, In our view, the principle in Duke of Westminsters case11 is very much alive and kicking in the country of its birth. The Madras High Court in 1988 in M. V. Valliappan v ITO12while explaining the judgment of McDowells case stated that not every attempt of tax planning is illegitimate and that not every transaction or arrangement permissible under law having the effect of reducing the tax
6(1968)

67 ITR SC 11 154 ITR SC 148 8(1936) AC 1 (HL). 9(1985) 154 ITR SC 148 10(2003) 263 ITR SC 706 11(1936) AC 1 (HL). 12(1988) 170 ITR Mad. 238 (India).
7(1985)

109

2013 CLCSLR

VOL.1 ISSUE 1

burden of the assessee should be looked upon with disfavour. It is only colourable devices adopted for evading a tax liability that has to be scrutinized. The recent Vodafone case13which has been decided by Honble Supreme Court has also to a great extent taken forward the legacy of taxavoidance in India.14 III. WHAT TRIGGERED GAAR?
A. DIRECT TAXES CODE BILL, 2010

The general public perception regarding the introduction of GAAR has been that the Vodafone case forced the tax authorities to enact GAAR and make it workable owing to their helplessness in the absence of general provisions of tax avoidance. However, the present GAAR provisions under Chapter XA owe their origin to the DTC Bill of 2010 which was introduced in the Lok Sabha on 30 August 2010 where, for the first time, a formal distinction in proposed statutes was made between avoidance of tax and evasion of tax, apart from them being differentiated by the judiciary alone. Therefore, it would be wrong to impute a cause-effect relationship between the Vodafone case and the present GAAR. Under Part F of the DTC Bill, 2010, Chapter XI titled Special Provisions relating to Avoidance of Tax deals with arms length pricing15, advance pricing agreement16, avoidance of tax by transactions resulting in transfer of income to non-residents17, etc. Also, Clause 123 deals with impermissible avoidance arrangement and its consequences as defined under Clause 124. Finally, the presumption of purpose which has been a topic of criticism for the present GAAR provisions is also present under DTC Bill, 2010.18
B. STANDING COMMITTEE REPORT ON DTC BILL, 2010

The Direct Taxes Code Bill, 2010 was referred to the Standing Committee on Finance of Parliament on 9 September 2010 chaired by Shri Yashwant Sinha for detailed examination and report.19 The Committee
Vodafone International Holdings BV v. Union of India, (2012) 204 Taxmann SC 408 also IX (c). 15 Direct Taxes Code 2010, Clause 117. 16Id, Clause 118. 17Id, Clause 119. 18Id,Clause 125. 19 Taxmanns Guide to Standing Committee Report on Direct Taxes Code Bill , 2010.
13 14See

110

2013 CLCSLR

VOL.1 ISSUE 1

submitted its report which was introduced in Parliament on March 2012 after inviting objections and suggestions from various stakeholders. The important recommendations of the Standing Committee were: 20 i. Greater clarity should be brought in the provisions by the MoF and CBDT; if not, then the tax authorities will have unfettered power which is subject to misuse; The burden of proof should rest with the authorities and not tax payers; The Dispute Resolution Panel should be more independent; GAAR should not have a retrospective application; Interest of international investors must be protected under the treaty regime; Litigation should be avoided and proper guidelines must be framed.

ii. iii. iv. v. vi.

The recommendations made by the Standing Committee are pragmatic and positive because they cater to the interest of all the stakeholders involved. It is not just game-play of the Government; there must be incentives for investors and corporations to sustain in India, rather than investing behind a blindfold of suspicion and presumptions. IV. ANALYSIS OF SUBSTANTIVE PROVISIONS OF GAAR

Chapter XA of the Income Tax Act ranges from Section 95 to 102 and presents the provisions relating to tax avoidance. GAAR is applicable where an arrangement can be declared as an impermissible avoidance arrangement, if one of the steps of the arrangement or the whole of it fails to pass the two-fold test, namely the main test and the critical test.
A. MAIN TEST

This test determines the main purpose of an arrangement or one of the main purposes, and whether it is to obtain a tax benefit or not. The definition of tax benefit is very wide and includes even the deferral of tax to another year, including treaty benefits.

20Ministry

of Finance, 49th Report, Standing Committee on Finance on Direct Taxes Code Bill, 2010 available at <http://www.itatonline.org/info/index.php/download-report-of-standingcommittee-on-direct-tax-code-bill-2010/.
111

2013 CLCSLR

VOL.1 ISSUE 1

While analysing the term main purpose under Indian GAAR, the question arises how this main purpose is to be determined? Should it be based on intention of the parties or should other facts and circumstances be considered? A South African discussion paper on tax avoidance21 explains that main has generally been construed to mean the dominant purpose. Also, mainly has been construed as a quantitative measure of more than 50%22; as conveying the idea of dominance.23 Therefore, if the motive behind individual steps is to obtain a tax benefit,but the overall scheme is not geared towards the same, the individual steps will nevertheless be treated as an arrangement and GAAR may be invoked. To clear doubts and prevent abuse of the GAAR provisions by tax authorities, it must be made clear that the purpose of a party to the transaction may be taken into account as one of the relevant facts, but this will not be the determining factor in making such objective determination.
B. CRITICAL TEST

1. Abnormal Rights and Obligations Test It deals with the creation of any right or obligation between parties to the arrangement which would not normally be created between persons dealing at arms length.24 Any person who evaluates what is normal for the purpose of implementing GAAR will have to put himself in the shoes of a businessman entering into the transaction. 2. Misuse or Abuse Test What constitutes misuse or abuse is very subjective in nature. According to the South African Revenue Service, a tax benefit may be denied under the South African GAAR if that tax benefit would abuse or misuse the object25, spirit or purpose of the provisions of the Income Tax Act. Therefore, a purposive interpretation to these provisions is required. 3. Commercial Substance Test An arrangement is deemed to be lacking commercial substance if the substance or effect of the arrangement is inconsistent with or differs
21South

African Revenue Services, Discussion paper on Tax Avoidance and Section 103 of Income Tax Act, 1962, available at <http://www.sars.gov.za/home.asp?pid=5981>. 22 SBI v. Lourens Erasmus (Edms) Bpk, (1966) 4 SA 434 (A) (South Africa). 23 CIR v. King, (1947) 2 SA 196 (A) (South Africa). 24 Finance Bill, 2012, Section 96(1)(a). 25 Id, Section 96(1)(b).
112

2013 CLCSLR

VOL.1 ISSUE 1

significantly from the form of its individual steps or part; or it includes, or involves round trip financing or an accommodating party or any element having the effect of offsetting or cancelling each other; or a transaction which disguises the nature, source, ownership or control of the fund. 2627 Therefore, even this test is a subjective test opening it to conflicting interpretations. 4. Bona fide Purpose Test An arrangement would be termed as an impermissible avoidance arrangement if it is entered into or carried out by means, or in a manner, which would not normally be employed for bona fide purposes.28 Bona fide is a very general concept which needs more explanation. A transaction may appear to be bona fide to one, and non-bona fide to another. V. CONCERNS OF ASSOCHAM AND FOREIGN INVESTORS
A. FOREIGN INVESTORS

Foreign institutional investors and others who have been investing in India under the Double Tax Avoidance Agreement (Treaty) by way of a holding company had strong objections when GAAR was initiated for the first time under Direct Taxes Code Bill, 2010. Thereafter, when GAAR was formally added to the Income Tax Act, 1961 by way of Finance Bill, 2012, it upset FIIs and other tax planners, as their easy way out was sought to be shut down completely.29 Corporations could be forced to restructure salaries of employees if authorities concluded that these were structured to avoid taxes. FIIs may have to pay capital gains tax for their investment in Indian equities.30 The proposition of GAAR to give primacy to Chapter XA over tax treaty31 has been seen as a threat to investments and loss of revenue to India at a crucial time. The question which needs to be answered is do we need to pander to these foreign institutional investors or strengthen our tax regime and bring it at par with that of other developed nations?
26Id,

Section 96(1)(c). National Seminar General Anti-Avoidance Rule (GAAR): Boon or Bane for the Economy, (26 July 2012). 28 Finance Bill, 2012, Section 96(1)(d). 29See also IX (d). 30Gaurav Choudhary, Heres why GAAR jarrs, Hindustan Times (17th July 2012), available at http://www.hindustantimes.com/business-news/WorldEconomy/Here-s-why-GAAR-jarrs/Article1-890763.aspx. 31 Income Tax Act, 1961, Chapter XA Section 98.
27ASSOCHAM,

113

2013 CLCSLR

VOL.1 ISSUE 1

GAAR has been a part of the tax code of Canada since 1988, Australia since 1981, South Africa from 2006 and China from 2008. Australia and China also have SAAR in place to check abuse of tax treaties and transfer pricing.32
B. ASSOCHAM

ASSOCHAM conducted a National Seminar on 26 July 2012 where the theme was GAAR: Boon or Bane for the Economy?. The discussion paper put forth various concerns of ASSOCHAM relating to certainty in application, guidelines, due process, fairness, independence of the panel, treaty overriding provisions, etc.33 Later, there have been many press releases by ASSOCHAM34 wherein it has come down heavily on the violation of interest of various stakeholders, including foreign industries, foreign institutional investors, bona fide tax planners, the countries with which India has favourable tax protecting regimes such as BIT, etc. One of the press releases of 16 August 201235 strongly reiterated ASSOCHAMs stand on GAAR, considering it to be unacceptable in its present form because of its dubious and unclear stipulations with respect to foreign entrepreneurs. According to ASSOCHAM, it might scar the image of India internationally at a time when he gates for FDI in various sectors are being increasingly opened. VI. GAAR AN INTERNATIONAL REGIME

Different jurisdictions have adopted different mechanisms to address the issue of tax avoidance. Initially, tax avoidance was permissible in most of the nations that viewed it as proper utilization of law. The United States Supreme Court has stated that The legal right of an individual to de crease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.36 Thereafter, when this practice of legal avoidance gained prominence resulting in a loss of revenue
32Deloitte,

General Anti-Avoidance Rules: India and International perspectives, available at http://www.deloitte.com/assets/Dcom India/ Local% 20Assets / Documents / Tax% 20documents/GAAR%20-%20India%20and%20International%20Perspective.pdf. 33 ASSOCHAM, supra note 27. 34Available at www.assocham.org. 35ASSOCHAM strongly opposes GAAR, (16th August 2012), available at http://www.assocham.org/prels/shownews.php?id=3650. 36Tax Avoidance, available at<http://en.wikipedia.org/wiki/Tax_avoidance>.
114

2013 CLCSLR

VOL.1 ISSUE 1

from direct taxes, the judiciary and the legislature of various countries came into action, and thereby GAAR and its allied principles followed. There are two ways of addressing the problem of tax avoidance first, by evolving and recognising doctrines through judicial pronouncements and second, by enacting a statute or set of rules called General Anti-Avoidance Rules. Economies like USA and UK have adhered to the vigorous judicial anti-avoidance doctrines, whereas Australia, Canada, New Zealand and South Africa have enacted statutory GAARs.37
A. UNITED STATES OF AMERICA

USA does not have a statute in the form of GAAR. However, the courts have recognised and applied various common law doctrines for tax avoidance over the years. These doctrines are: i. Economic substance doctrine This doctrine was codified in US law on 30 March 2010 through insertion of section 7701(o) in the Internal Revenue Code (IRC) applicable to transactions entered into after 31 March 2010. The touchstone of applicability of this section is fulfilment of two pre-conditions. Firstly, the transaction requires that the taxpayers economic position should be changed in a meaningful way and secondly that the taxpayer should have a substantial purpose for entering into such a transaction. This two-fold test reflects a subjective and objective assessment of the tax-payer and the transaction. Substance over form doctrine This doctrine emerged during the renowned case of Gregory v. Helvering38. The Court held, . The transaction upon its face lies outside the plain intent of the statute. To hold otherwise would be to exalt artifice above reality and to deprive the statutory provision in question of all serious purpose.39

ii.

The doctrine of substance over form is essentially that for Federal tax purposes, a taxpayer is bound by the economic substance of a transaction where the economic substance varies from its legal form.

John Avery Jones et al (ed.), Comparative Perspectives on Revenue Law: Essays in Honour of John Tiley, pp. 11-20 (2008). 38 (1935) 293 US 465 39 Id.
37

115

2013 CLCSLR

VOL.1 ISSUE 1

iii.

Step transaction This doctrine is often used in combination with other doctrines. In the case of Commissioner v. Clark40 it was explained as interrelated yet formally distinct steps in an integrated transaction may not be considered independently of the overall transaction. By thus linking together all interdependent steps with legal or business significance, rather than taking them in isolation, federal tax liability may be based on a realistic view of the entire transaction. The step transaction doctrine originated from a common law principle in Gregory v. Helvering41 which allowed the court to re-characterize a tax-motivated transaction.42 Business purpose doctrine Gregory v. Helvering43 set out the business purpose doctrine which lays down that where a transaction has no substantial business purpose other than the avoidance or reduction of Federal tax, the tax law will not regard such a transaction as valid. The Court said: 44 When the statute speaks of a transfer of assets by one corporation to another, it means a transfer made 'in pursuance of a plan of reorganisation' of corporate business; and not a transfer of assets by one corporation to another in pursuance of a plan having no relation to the business of either, as plainly is the case here. Putting aside, then, the question of motive in respect of taxation altogether, and fixing the character of the proceeding by what actually occurred, what do we find? Simply an operation having no business or corporate purpose - a mere device which put on the form of a corporate reorganisation as a disguise for concealing its real character, and the sole object and accomplishment of which was the consummation of a preconceived plan, not to reorganise a business

iv.

v.

Doctrine of sham transaction Since the 1930s, the courts have used what is known as the sham transaction doctrine to invalidate

(1989) 489 US 726, 738 (1935) 293 US 465 (USA). 42Step Transaction doctrine, at http://en.wikipedia.org / wiki / Step_transaction_doctrine. 43 (1935) 293 US 465 44 Id.
40 41

116

2013 CLCSLR

VOL.1 ISSUE 1

deals designed solely to skirt income tax.45 As a general rule, importing the sham transaction doctrine from the income tax to estate and gift taxes areas has also been considered reasonable.46
B. UNITED KINGDOM

In the early to mid-twentieth century, the courts took a fairly handsoff approach to tax avoidance and observed that No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.47 Thereafter in 1981, the Ramasay case48 laid down the seeds of anti-avoidance tax considerations by way of judicial activism wherein the doctrine of purposive interpretation was adopted, noting that tax legislation should be read in accordance with its purpose, then applied to a realistic view of the facts. The United Kingdom is now seriously considering the introduction of a form of GAAR after having relied for years on judicial doctrines of antiavoidance as expounded in cases like WT Ramsay Ltd v. IRC49, CIR v. Burmah Oil Co. Ltd.50, Furniss v. Dawson51, Craven v. White52, Ensign Tankers (Leasing) v. Stokes (HMIT)53.54 The contradictory principles developed in the UK cases have impelled an Advisory Committee consisting of a distinguished people to advocate for a moderate rule that targets abusive arrangements, but rejects a broad spectrum general anti-avoidance rule.55 The proposed GAAR has two primary elements i.e. abnormal arrangement having abnormal features, and abusive tax results. To assess this
45Chisholm 46Louis

v. Commissioner, (1935) 79 F.2d 14 (USA). S. Harrison & Robert S. Held, Sham Transaction Doctrine: How far will this income tax concept invade the estate and gift tax planning realm?, Trusts and Estates, (February 2003) 11, available at<http://www.harrisonheld.com/library/sham.transaction.pdf>. 47 Lord Clyde, Ayrshire Pullman Motor Services and Ritchie v. IRC , (1929) 14 TC 754 (UK). 48 (1981) STC 174 (HL). 49Id. 50 (1982) STC 30 (HL). 51(1984) STC 153 (HL). 52(1988) STC 476 (HL). 53(1992) STC 226 (HL). 54Donald G.H. Bowman ,A general anti-avoidance rule (GAAR) for the United Kingdom? , available at http://www.lexology.com/library/detail.aspx?g=bbb5e97a-8537-4234-a884-921c736 fea37. 55Id.
117

2013 CLCSLR

VOL.1 ISSUE 1

draft GAAR, a Committee was set up which made recommendations as well. Thereafter the UK government announced that after consultation, GAAR may be introduced through the 2013 Finance Bill. Certain precautions which were recommended to be taken while introducing GAAR in UK were: 56 i. Transactions that are outright unreasonable would come under GAAR while admitting that unanimous agreement on reasonableness of a transaction may be difficult to arrive at. This may be decided by the appellate authority. Arrangements not conceived solely for tax benefits are protected and it requires the beneficiary to prove that the transaction was not planned or designed solely for a favourable tax outcome. The third safeguard requires HMRC57 to prove that the transaction is not protected by the first two safeguards. This blocks HMRC from using GAAR for a revenue objective. Only highly artificial tax avoidance schemes are to be targeted.
C. AUSTRALIA

ii.

iii.

Tax avoidance has taken many forms in Australia including high income individuals utilizing trust structures to split income with a nonworking spouse58 or under-age children59, thereby taking advantage of Australias progressive tax rates scale. Australias GAAR was introduced in 1981 and is contained in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936).60 The assessment of a scheme (or transaction) is done in Australia through a four-step process: i. Sham transactions - Sham transactions are those that purport to be something that they are not. Under common law, such transactions are not effective and the true character will be recognised under the law.

Expert Committee, Report on General Anti Avoidance Rules (GAAR) in Income-tax Act, 1961, 92-93 (2012) available at<http://finmin.nic.in/reports/report_gaar_itact1961.pdf>. 57 Her Majesty's Revenue and Customs. 58 Federal Commissioner of Taxation v. Everett, (1980) 143 CLR 440 (Australia). 59The specific splitting of income with underage children has been negated as a tax planning strategy by Division 6AA of Part III of the Income Tax Assessment Act 1936. 60Income Tax Assessment Act, 1936 http://www.austlii.edu.au / au / legis / cth / consol_act/itaa1936240/
56

118

2013 CLCSLR

VOL.1 ISSUE 1

ii.

Status under the law - If the transaction is not a sham, the transaction must be effective under the substantive law. For example, Section 8-1 of the ITAA, 1936 provides for deduction in assessable income. To qualify as a deduction the expenditure must be (at least in part) incurred in gaining or producing assessable income; or it must necessarily be incurred in carrying on a business for the purpose of gaining or producing assessable income. Expenditure that satisfies this connection with the assessable income requirement is further denied deductibility if the expenditure is capital in nature or of a private or domestic nature. Specific Anti-Avoidance Rules -If the transaction is effective in the face of the law, it is then tested under the various SAARs located throughout the tax legislation. These provisions aim at negating the tax benefits associated with specific forms of transaction. These anti-avoidance rules look through the entity structure. There are many SAARs like trading in franking credits61, personal services income62, foreign income deferral, employee share schemes, company tax losses, trust tax losses, taxation of minors, etc.63 General Anti-Avoidance Rules -If the transaction does not fall within SAAR, then the GAAR contained in Part IVA of the ITAA, 1936 are applied. Application of GAAR involves: a. Compliance with statutory definition of scheme which is so wide that it covers almost every conceivable arrangement including informal and nonbinding agreements.64

iii.

iv.

61Buying

and selling shares just to claim the franking credits without holding on to them long enough to bear ownership risk. 62Diverting income that is earned through your efforts into another entity with a lower tax rate. 63Taxpayers Australia Inc, Tax avoidance and tax evasion, available at http://www.taxpayersassociation.com.au/investment/tax-evasion.html. 64Income Tax Assessment Act, 1936, Section 177A -scheme means (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct.
119

2013 CLCSLR

VOL.1 ISSUE 1

b. This scheme must produce a tax benefit defined under Section 177C.65 c. Finally, this scheme must have been entered into for the dominant purpose of obtaining the tax benefit. This is an objective test, using the reasonable person yardstick. The assessment of purpose must be ascertained by an exhaustive list of eight considerations set out in Section 177D.66 If Part IVA applies, the Commissioner of Taxation has the power to reconstruct the transaction for tax purposes only (other legal consequences, such as transfer of property rights, are not affected), so as to remove the tax benefit for the taxpayer.67 Part IVA attacks 'legal' means of tax avoidance (that is, not criminal tax evasion or fraud) and does not require one to have the deliberate intention to avoid tax.
D. CANADA

The general anti-avoidance rule is found in Section 245 of the Income Tax Act of Canada68 introduced in 1988 and applies to transactions entered into after 13 September 1988.69 If a transaction falls under Section 245(3) of the avoidance transaction, then the Canada Customs and Revenue Agency can deny a tax benefit. Section 245 is an extreme provision and should not be invoked routinely.70 The Federal Court of Appeal in the case of OSFC Holdings Limited v. The Queen71provided for two tests under Section 245(3) that must be satisfied in order for a transaction to be a tax avoidance transaction:

Income Tax Assessment Act, 1936, Section 177C. Income Tax Assessment Act, 1936, Section 177D This Part applies to any scheme that has been or is entered into after 27 May 1981, and to any scheme that has been or is carried out or commenced to be carried out after that date (other than a scheme that was entered into on or before that date), whether the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia. 67Keith Kendall FTIA, Tax Avoidance in Australia ConTax Student e-Newsletter, 3 (September 2009) available at http://www.taxinstitute.com.au / files/ /dmfile / Feature_Article_Sept09.pdf. 68 Income Tax Act, 1985 RSC c 1 (Canada). 69 Income Tax Act, 1985 Part XVI (Canada). 70 Jabs Construction Limited v. The Queen, 99 DTC 729 (Canada). 71 (2001) DTC 5471 (Canada).
65 66

120

2013 CLCSLR

VOL.1 ISSUE 1

i.

A results test, which requires a determination of whether a transaction or series of transactions would, but for GAAR, result in a tax benefit, and A purpose test, which focuses on the primary purpose of the transaction (or the individual transactions that form the series). Only if a transaction would result in a tax benefit is it necessary to consider its primary purpose.

ii.

Canadian GAAR provisions are applied to a transaction which results in a tax benefit to a party, unless the transaction is carried out for bona fide purposes or it is not a misuse of the provisions of the Act.72 Recently, the Canadian Supreme Court in the case of Copthorne Holdings Ltd. v. Canada73, observed that GAAR requires three questions to be decided: (1) was there a tax benefit?; (2) was the transaction giving rise to the tax benefit and avoidance transaction?; and (3) was the avoidance transaction giving rise to the tax benefit abusive? Providing further guidelines, the Court emphasised that the transaction may have a tax purpose, but that does not necessarily mean that the tax purpose will always be the primary reason for the transaction. However, where a transaction takes place primarily for a non-tax purpose, there will be no avoidance transaction. In the absence of an avoidance transaction, the fact that a transaction may have a secondary tax benefit purpose will not trigger the GAAR. Whether the transactions are between parties at arms length or not should be immaterial.74
E. SOUTH AFRICA

The Income Tax Act, 1962 was amended in 2006 to introduce the GAAR which applies to impermissible avoidance arrangements.75 The fourstep process of South African GAAR is: i. ii. iii. the existence of an arrangement; the existence of a tax benefit; the sole or main purpose of the avoidance arrangement is to obtain a tax benefit; and;

Expert Committee, supra note 57. (2011) SCC 63 (Canada). 74Stubart Investments Ltd v. The Queen, (1984) 1 SCR 536 (Canada). 75 Income Tax Act, 1962 (South Africa).
72 73

121

2013 CLCSLR

VOL.1 ISSUE 1

iv.

the avoidance arrangement is characterized by the presence of either of these: a. Entered into or carried out by abnormal means for a non-bona fide purpose; b. Lack of commercial substance; c. Creation of non-arms length rights or obligations; d. Abuse or misuse of the provisions of the Income Tax Act, 1962.76

One of the major areas of criticism of the South African GAAR is with respect to its remedy (or penalty). Section 80B allows the Commissioner to remedy an avoidance arrangement using any method he deems appropriate.77 This could result in the Commissioner levying higher taxes on a taxpayer than are warranted, resulting in lengthy and costly legal battles.
F. CHINA

The Enterprise Income Tax Law of the People's Republic of China has come into force from 1 January 2008 with major changes as compared to the old law.78 Chapter VI, titled Special Tax Adjustments from Article 41 to 48 relates to tax avoidance. Article 47 states that If an enterprise enters into any business arrangement without bona fide commercial objective that results in reduced taxable revenue or income, the tax authority is entitled to make adjustments based on reasonable methods.79 The Chinese law is very open-ended in nature and leaves a lot of scope for interpretation of the use and misuse by the tax payers, and even by the authorities. It must be noted that Article 58 of EITL, 2007 makes it clear that in case of a conflict between the domestic law and any treaty entered into by the Chinese government, the treaty shall prevail.80
76Id. 77

Income Tax Act, 1962, Section 80B (South Africa). Income Tax Law of the People's Republic of China , available at <http://www.thaicombj.org.cn/edit/UploadFile/2008111114927809.pdf>. 79Enterprise Income Tax Law of the People's Republic of China, Article 47, available at <http://www.thaicombj.org.cn/edit/UploadFile/2008111114927809.pdf>. 80Enterprise Income Tax Law of the People's Republic of China, Article 58 In case any provision in a tax treaty concluded between the government of the People's Republic of China and a foreign government is different from the provisions in the present Law, the provision in the said treaty shall prevail.
78Enterprise

122

2013 CLCSLR
G. LESSONS TO BE LEARNT

VOL.1 ISSUE 1

Since all taxes are imposed by statute, all questions of tax are ultimately ones that involve the interpretation and application of the statute. The result in the Duke of Westminster case was as much a product of the literal interpretation of taxing statutes that prevailed at the time in the UK and Commonwealth countries as the result in the contemporary US case, Gregory v. Helvering81, was the product of a more purposive approach to interpretation.82 The Indian GAAR proposes that a transaction could become an impermissible avoidance arrangement even if a step in it benefits the taxpayer. This overarching Indian provision conveys a contrary position to the first UK safeguard that seems to limit the scope of GAAR; and the second safeguard is also milder than the implications of the Indian provision. Provisions should not be such that they completely dis-incentivise the investors. VII. SHOME COMMITTEE REPORT

GAAR in India was not as well received as it was expected to be. After much demand, the Prime Minister constituted an Expert Committee on 17 July 2012 to assess the workability of GAAR in India. This Committee was to be chaired by Dr. Parthasarathi Shome and three other members83, who were carefully chosen for excellence in their respective fields. The Committee submitted its report on 1 September 201284 on Chapter XA of the Income Tax Act, 1961 along with allied rules and guidelines and gave recommendations. The Expert Committee had found numerous loopholes in GAAR and made various recommendations. Some recommendations that have given relief to many taxpayers, are discussed below: i. The implementation of GAAR may be deferred by three years (it must be noted that ASSOCHAM has recommended the deferral of GAAR by at least five years)85 because of: a. Administrative reasons;

(1935) 293 US 465 (USA). Avery Jones et al (ed), supra note 37. 83 Expert Committee, supra note 57. 84 Id. 85ASSOCHAM strongly opposes GAAR, supra note 35.
81 82John

123

2013 CLCSLR

VOL.1 ISSUE 1

b. The tax officers must be trained in the use of GAAR as an instrument of tax administration, rather than of revenue generation; c. Pre-announcement being a common practice in a scenario of free flowing capital; d. A proper understanding of the new legislation and guidelines, while eschewing dubious tax avoidance arrangements, needs time so as to allow legitimate tax planning/mitigation. ii. iii. iv. v. vi. vii. viii. ix. x. xi. Only those arrangements whose main purpose is tax benefit should fall under GAAR. Lacking commercial substance should be exhaustively defined under Section 97. The Approving Panel should be reconstituted. A clear distinction should be made between tax mitigation and tax avoidance. A monetary threshold of rupees 3 crore of tax benefit should be used for GAAR application. GAAR should not be made applicable retrospectively. There should be no overlapping in liabilities between SAAR and GAAR; and GAAR and tax treaty. An impermissible avoidance arrangement should be limited to a specific portion and not to the whole. For better and efficient administration of GAAR, time limits should be prescribed for various assessment stages. The Authority for Advance Ruling should be made applicable to get prior consent on a transaction.86
VIII. MERITS AND DEMERITS

A. BURDEN OF PROOF AGAIN SHIFTED ARMLESS AUTHORITIES

According to the original GAAR provisions, the burden of proof was vested in the taxpayer and not in the revenue authorities. On the other hand, the Indian judiciary has set precedents where the burden of proof rests with

86

Expert Committee, supra note 57.

124

2013 CLCSLR

VOL.1 ISSUE 1

the revenue authorities.87 After much criticism, the position was clarified by Mr. Pranab Mukherjee in the Parliament by amending Section 96. Presently, the burden of proof rests with the revenue authorities. This immediate step has been received well by the stakeholders. The question however remains as to what was the reason for this immediate step to be taken, and whether it is justified. Presumption of innocence is featured as one of the principles of natural justice in India, more so in criminal cases where the burden of proof to be discharged by the prosecution is very high. The preamble of GAAR advocates that: ..there is a need for statutory provisions so as to codify the doctrine of substance over form where the real intention of the parties and the effect of transactions and purpose of an arrangement are taken into account for determining the tax consequences, irrespective of the legal structure that has been superimposed to camouflage the real intent and purpose.88 The constitutionality of shifting the burden of proof has already been upheld by the Supreme Court in the case of Collector of Customs, Madras v. Nathella Sampathu Chetty89 wherein the Court said that Section 178A of the Sea Customs Act, 187890 is in line with the principle underlying the structure of the rights guaranteed by Article 19 of the Constitution of India, namely, a balancing of the need for individual liberty in the matter inter alia of the right to hold property or of the right to trade, with the need for social control in order that the freedoms guaranteed to the individual sub-serve the larger needs moral, social and economic.91 It is not unknown that tax mitigation has taken a form of tax avoidance, and the tax authorities become armless when they have to
87K

Chellaram v. CIT Bombay, (1980) SC 125 ITR 713 (India); K G Thomas v. CIT, (1985) SC 156 ITR 412 88Sukumar Mukhopadhyay, General Anti-Avoidance Rule and the burden of proof , Business Standard (7 May 2012) <http://business-standard.com/results/news/general-antiavoidance-rulethe-burdenproof/473569/>. 89 Collector of Customs, Madras v. Nathella Sampathu Chetty, (1962) SCR 3 786 (India). 90In 1955, the Sea Customs Act, 1878, was amended by the introduction of Section 178A in that Act, which provided, inter alia that where goods were seized, under that Act in the reasonable belief that they were smuggled goods, the burden of proving that they were not smuggled goods shall be on the person from whose possession the goods were seized. 91 Sukumar Mukhopadhyay, supra note 88.
125

2013 CLCSLR

VOL.1 ISSUE 1

circumvent an otherwise legal arrangement, and prove it illegal in lieu of vague terms like lack of commercial substance, a non bona fide arrangement, substance over form doctrine, etc. India would not be the lone country where the burden of proof shall partially vest with the taxpayers. In other jurisdictions like Australia, China, Ireland, New Zealand, the burden of proof rests with the tax payers. In Brazil and South Africa, the tax authorities and the tax payers share the burden of proof.92 As an emerging economy, India needs strict compliance with provisions and cannot afford to lose revenue in the absence of sufficient evidence. Therefore, the burden of proof must not completely rest with the tax authorities; rather it should be shared by the assessee as well.
B. SHIFT TOWARDS COLOURABLE DEVICES

In the Duke of Westminster93, and in several subsequent tax cases including Ramsay v. IRC94, Furniss v. Dawson95, Craven v. White96and others, English Courts have consistently affirmed the cardinal principle that if a document or a transaction is genuine, courts cannot go behind it to find out the underlying substance. This principle has been applied in India too in several cases, the more recent among them being the Azadi Bachao Andolan97case and the Vodafone98case. The Supreme Court in the McDowell case frowned only upon the use of colourable devices and resort to dubious methods and subterfuges, and as clarified by the Supreme Court in the Vodafone case, not all tax planning in general.99
C. LOOK AT APPROACH OR LOOK THROUGH APPROACH

In the famous Vodafone judgment100 of the Supreme Court which overruled the Bombay High Court judgment101, the look at approach of
ASSOCHAM, supra note 27. AC 1 (HL). 94(1981) STC 174 (HL). 95(1984) STC 153 (HL). 96(1988) STC 476 (HL). 97Supra note 10. 98(2012) SC 204 Taxmann 408 (India). 99KPMG, General Anti-Avoidance Rule in India, <http://www.kpmg.com / Global / en / IssuesAndInsights/ArticlesPublications/taxnewsflash/Documents/india-april242012no2.pdf>. 100Supra note 13. 101Vodafone International Holdings BV v. Union of India , (2008) Bom HC 175 Taxmann 399 (India).
92 93(1936)

126

2013 CLCSLR

VOL.1 ISSUE 1

Section 9 of Income tax Act, 1961 was challenged. The three judge Bench stated that a look-at approach needs to be adopted for the transaction, rather than a look through approach in interpreting the relevant tax provisions. The Bench held that investment structures had to be respected and it was to be determined whether an investment was made for participation in the entity or whether it was a pre-ordained transaction aimed at avoidance of taxes. The Bench also examined the need to review the decision of the Supreme Court in Azadi Bachao Andolan102and concluded that there seemed to be no reason to refer the decision for reconsideration by a larger Bench. Finally, the Court stated that genuine strategic tax planning could not be ruled against. The court said: The question of providing look through in the statute or in the treaty is a matter of policy. It is to be expressly provided for in the statute or in the treaty. Similarly, limitation of benefits has to be expressly provided for in the treaty. Such clauses cannot be read into the Section by interpretation. For the foregoing reasons, Section 9(1)(i) held to be as not a look through provision.103 It cannot be said that the Vodafone judgment was lopsided and went against many past principles, because all the three judges based their arguments on the special nature of the transaction between Vodafone and HCIL. But, this judgment in fact opened the eyes of many with respect to the distinction between avoidance which can be legal or illegal. This judgment also triggered the need of implementing GAAR.
D. TREATY SHOPPING FAVOURABLE JUDICIAL TRENDS

Historically, Indian Courts have been favourable to tax payers when it comes to treaty shopping in light of the Azadi Bachao Andolan case104. There are certain treaties which India has signed where there is no Limitation of Benefit Clause (LOB). For instance, the Indo-US treaty has Article 24 as the LOB clause105; the India-Singapore treaty also has an LOB clause whereas the India-Mauritius treaty (Double Tax Avoidance Agreement) does not have it. Therefore, an investment through the Mauritius
102Supra 103Supra

note 10. note 13. 104Supra note 10. 105Article 24 stipulates that benefits will be available if 50% of the shares of a company are owned directly or indirectly by one or more individual residents of a controlling state.
127

2013 CLCSLR

VOL.1 ISSUE 1

channel comes under a scanner in India, and creates doubts in minds of many. What happens to the Vienna Convention on Law of Treaties (VCLT)? In the absence of the same, it may result in violation of international principles of treaty interpretation.106Pacta sunt servanda is based on good faith. In respect to international recognition of the concept, the VCLT under Article 26 provides that international agreements are to be interpreted in good faith.107 Also Article 27 states that domestic law will not be a defence for non-observance of an international treaty.108 But, in case any international agreement/treaty leads to unintended consequences like tax evasion or flow of benefits to unintended persons, it is open to the signatory to take corrective steps to prevent abuse of the treaty. Such corrective steps are consistent with the obligations under the VCLT.109 Indian GAAR provides for a treaty override in case of a conflict, but this has been much criticized lately. It must also be noted that in most recent treaties concluded by China, specific provisions relating to GAAR have been inserted. This means that in case of a conflict, GAAR will prevail over treaty law. IX. DO WE REALLY NEED GAAR?
A. STRUCTURAL LOOPHOLES

The need for GAAR is usually justified by a concern that existing laws, judicial practice and tax administration are not adequate to prevent the erosion of the tax base from the use of sophisticated forms of tax avoidance being adopted by the tax payers after the liberalization of the economy. 110 Until the introduction of statutory GAAR, judicial pronouncements based on various principles existed and known instances of tax avoidance were dealt by SAAR. Tax avoidance is generally characterised by use or misuse of the tax laws. This is often driven by structural loopholes in the law to achieve
106Deloitte, 107Article

supra note 32. 26 -Pacta sunt servanda Every treaty in force is binding upon the parties to it and must be performed by them in good faith. 108Article 27 Internal law and observance of treaties - A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty. This rule is without prejudice to article 46. 109 Deloitte, supra note 32. 110 ASSOCHAM, supra note 27.
128

2013 CLCSLR

VOL.1 ISSUE 1

outcomes not intended by the Parliament.111 For dealing with such practices, GAAR should be such that they address these loopholes and do not leave any scope for misuse. There are certain reasons why GAAR will be an improvement on SAAR and act as a complimentary tool to them.
B. GAAR COMPLEMENTS SAAR

SAAR is a set of rules which target specific known arrangements for tax avoidance. They specifically lay down the conditions or situations where they may be invoked and cater to the arrangements which Parliament had envisaged.112 S. No. 1. SAAR GAAR

They are more specific and They are very general in help reduce time and cost application, involving high involved in tax litigation. cost of litigation and long drawn battles. They provide certainty to any tax payer while arranging his affairs or while formalizing any arrangement. They can more effectively counter the tax payers out of the box thinking in devising new means of tax avoidance.

2.

3.

They do not generally grant They grant wider discretion any discretion to the to Revenue Authorities to Revenue Authorities. invalidate arrangements as impermissible tax avoidance. They are very specific and They have broader have a limited scope of application resulting in more application. extensive interpretation.

4.

111 112

Ralph Committee, J Ralph Review of Business TaxationA Tax System Redesigned (July 1999). ASSOCHAM, supra note 27.
129

2013 CLCSLR

VOL.1 ISSUE 1

X.

CONCLUSION

The Consultation document released by the UK government states that a narrowly focused GAAR targeted at artificial and abusive tax avoidance schemes would improve UKs ability to tackle tax avoidance while maintaining the attractiveness of the UK as a location for genuine business investment.113 India should partially move in the direction of UK by not making broad GAAR provisions while at the same time maintaining some checks. OECD provides that the general anti-avoidance rules would override the provisions of the tax treaty.114 India has similar provisions. But does this solve the problem? No! It just hampers the reputation of India with respect to foreign investment. No one should forget what happened to India in the White Industries case115, where India has been heavily penalized for violating the India-Australia BIT. The broad provisions of GAAR may even scrutinise and penalise the use of favourable treaty jurisdictions to house intellectual properties such as copyrights, trademarks, patents, etc. Indias GAAR is a replica of South African GAAR to a great extent. Today, South Africa is in recession and experts suggest loosening up the stringent GAAR.116 Given the tax and operational advantages offered by the LLP route, many companies are increasingly considering converting into an LLP. Even these conversions may be evaluated under GAAR. Adverse consequences could ensue if it cannot be appropriately demonstrated that the conversion was entered into with bona fide commercial purposes. Tax planning may be legitimate, provided it is within the framework of the law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay their taxes honestly without resorting to subterfuge. The budget presented this year (28 February 2013) has deferred GAAR which will come into effect from 1April 2016 and will be applicable
113HMRC

(UK), General Anti-Abuse Rule (GAAR) Consultation document, available at www.customs.hmrc.gov.uk/ 114Id. 115UNCITRAL award of 30 November 2011 116Yaasir Haffejee, A critical analysis of South Africas general anti -avoidance provisions in income tax legislation, available at http://www.nmmu.ac.za/documents/theses/1%20GAAR%20%20Yaasir%20Haffejee%20Dec2009.pdf.
130

2013 CLCSLR

VOL.1 ISSUE 1

on transactions undertaken in the financial year commencing 1 April 2015 and in the following years.117 One fundamental question that needs to be considered deeply is: Is it the right time to introduce GAAR? When the country is running a huge trade deficit and consequently high current account deficit, dont we need more capital inflow rather than sceptical investors? Experience has shown that wherever GAAR has been introduced, the economy has taken a considerable time to stabilise. GAAR in its present form reflects revenue collection which in the long run is not going to earn the confidence of investors leaving them in lurch of uncertainty. Presently, we need a time-bound program involving all stakeholders in moulding the provisions and addressing their genuine concerns.

117

Union Budget and Economic Survey, Union Budget 2013-14 (28th February 2013), available at http://indiabudget.nic.in/ub2013-14/bh/bh1.pdf
131

2013 CLCSLR

VOL.1 ISSUE 1

UNDERSTANDING TRADITIONAL KNOWLEDGE IN POST TRIPS REGIME

Mayank Kapila

Initially, the developed world considered only property a resource of economic significance and did not consider knowledge or information from the developing world a resource oof any value. Recently however, when the developed world realised the importance and potential of Traditional Knowledge (TK) as a worthy resource for the creation of intellectual property, it tried to acquire the knowledge and genetic resources by defrauding the traditional communities, under the garb of research expeditions or through the use of force. This resulted in bio-piracy and the one-way flow of genetic resources and traditional knowledge. Now the West is engaged in misappropriating the TK wealth of the developing world of which the traditional communities are living in ignorance, and that too by neither acknowledging them nor sharing any benefit with these traditional communities. This debate has raised a number of substantial questions and has highlighted a lot of problems related to the field of Traditional Knowledge. This research paper seeks to explain TK and address the key issues within its domain. I. INTRODUCTION

In an era characterised by the globalisation of trade, culture and communications, we are witnessing a meeting between two areas: on the one hand, there is the intellectual property system as it is known today, and on the other, the areas of genetic resources, traditional knowledge and folklore. Until now the developed world has always super-imposed its rigid set of IP protection norms upon the developing world and at the same time has accused the developing countries of encouraging or at least not doing their best to prevent piracy. Interestingly enough, in the recent past, the developing countries have hit back with a counter-accusation against the developed world and its corporations of stealing their wealth in the form of traditional knowledge. Traditional knowledge and its relationship to the formal IPR system has emerged as a mainstream issue in international negotiations on the conservation of biological diversity, international trade, and intellectual property rights, including the TRIPS Agreement. Over the past few years, high-level discussions on the subject took place at the WTO,

II Year LL.M, NALSAR University of Law, Hyderabad.

133

2013 CLCSLR

VOL.1 ISSUE 1

the Conference of the Parties to the Convention on Biological Diversity (CBD), and at the World Intellectual Property Organisation (WIPO) which has established an Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore (IGC). Several developing countries in these forums have adopted the view that TK and folklore need to be protected legally, and have criticised the formal IPR system for legitimising their misappropriation. The question is- what should be done for its protection? Solutions to the protection of traditional knowledge in IPR law may be sought in terms of positive protection and defensive protection. Positive protection refers to the acquisition by the TK holders themselves of an IPR such as a patent or an alternative right provided in a sui generis system. Defensive protection refers to provisions adopted in law or by regulatory authorities to prevent IPR claims to knowledge, a cultural expression or a product being granted to unauthorised persons or organisations. However, even before seeking protection of TK the real problem is to identify and define TK- what sort of knowledge qualifies as traditional knowledge? The answer to this question is not as simple as it appears. II. UNDERSTANDING TRADITIONAL KNOWLEDGE Traditional knowledge is the information that people in a given community, based on experience and adaptation to a local culture and environment, have developed over time, and which continues to develop. This knowledge is used to sustain the community and its culture and to maintain the genetic resources necessary for the continued survival of the community. Traditional knowledge is the body of knowledge built by a group of people through generations living in close contact with nature. It includes systems of classification, sets of empirical observations about the local environment and a system of self management that governs resource use.1 Human communities have always generated, refined and passed on knowledge from generation to generation. Such knowledge is often part of their cultural identities. Traditional knowledge exists in the particular knowledge which passes from one generation to the other as heritage of that local or indigenous community. It may either relate to agriculture, medicine,
1Johnson,

1992, pp.3-4, see Graham Dutfield, Intellectual Property, Biogenetic Resources and Traditional Knowledge, p.91.
134

2013 CLCSLR

VOL.1 ISSUE 1

environment management practices, customary practices or religious beliefs. TK has played and continues to play a vital role in the daily lives of a majority of the population, especially in the developing world. The use of plao-noi in Thailand2 for the treatment of ulcers, the use of the hoodia cactus by Kung Bushmen in Africa3 to stave off hunger, the use of turmeric in India for wound-healing, the use of ayahuasca in the Amazon4 basin for religious and healing purposes, the use of joublie in Cameroon and Gabon as a sweetener can be cited as a few examples of traditional knowledge. The expression traditional does not necessarily, in all cases, mean that the knowledge is ancient or static. It is representative of the cultural values of a people and thus is generally held collectively and is not limited to any specific field of technology or the arts.5 As Barsh explains: What is traditional about traditional knowledge is not its antiquity, but the way it is acquired and used. In other words, the social process of learning and sharing knowledge which is unique to indigenous culture lies at the very heart of its traditionality. Much of this knowledge is actually quite new, but it has a social meaning, legal character, entirely unlike the knowledge indigenous peoples acquire from settlers and industrialized societies.6 While TK is handed down from one generation to the other, this does not mean that what each generation inherits is what it passes on; TK develops incrementally, with each generation adding to the stock of knowledge. It is also to be understood that TK is not necessarily local and informal and that to assume this would exclude formalised traditional systems of knowledge that are well documented in ancient texts and are part of the cultural mainstream of countries such as the Ayurvedic, Siddha, and Unani health systems of the South Asian countries. Such a narrow approach would be wrong. In some countries, these systems are formalised to the
2Euphorbiaceae-plaonoi(medicinalplant),

http://herbstohealth.blogspot.in/2008/07/euphorbiaceae-plao-noi.html. 3 See: http://www.rebirth.co.za/hoodia/hoodia_xhoba.htm, for Kung Bushmen - Kalahari Hoodia Gordonii plant known as Xhoba. 4 Ayahuasca.com Overviews Shamanism On The Origin of Ayahuasca. 5 Daniel J. Gervais, Spiritual but Not Intellectual? The Protection of Sacred Intangible Traditional Knowledge, 11 Cardozo Journal of International and Comparative Law, 2003.A1 6 Barsh, 1999, p.73; see Graham Dutfield, Intellectual Property, Biogenetic Resources and Traditional Knowledge, p.94.
135

2013 CLCSLR

VOL.1 ISSUE 1

extent that they are studied at universities and have as high a status as western biomedicine. In India, some commentators differentiate these knowledge systems from local folk knowledge, which still tends to be orally transmitted, even though they consider all these kinds of knowledge to be traditional.7 Therefore, we have to view TK with a wider perspective in order to understand its true nature and scope.
III. DEFINING TRADITIONAL KNOWLEDGE

The concept of traditional knowledge is very dynamic and it changes with the changing needs of a particular society or group of people associated with it. Therefore, it is not easy to draw the boundaries within which this expression can be confined. The term is often misunderstood and applied in a confusing variety of ways. Many use the concept of traditional knowledge interchangeably with that of indigenous knowledge. Indigenous knowledge refers to knowledge that is held and used by people who identify themselves as indigenous to a place based on a combination of cultural distinctiveness and prior territorial occupancy relative to a more recently-arrived population with its own distinct and subsequently dominant culture.8 Traditional knowledge is, on the other hand, held by members of a distinct culture and/or sometimes acquired by means of inquiry peculiar to that culture, and concerning the culture itself or the local environment in which it exists.9 Indigenous knowledge fits neatly in the traditional knowledge category but traditional knowledge is not necessarily indigenous. That is to say, indigenous knowledge is traditional knowledge but traditional knowledge is not necessarily indigenous. There is no concise definition of TK and it has been defined depending upon the importance given or not given to some aspects. 10
Graham Dutfield, Intellectual Property, Biogenetic Resources and Traditional Knowledge, p.92. UNEP/CBD/COP/3/Inf. 33, Annex 2. 9 Ibid. 10 In 2002, the International Council for Science (ICSU) defined traditional knowledge as a cumulative body of knowledge, know-how, practices and representations maintained and developed by peoples with extended histories of interaction with the natural environment. These sophisticated sets of understandings, interpretations and meanings are part and parcel of a cultural complex that encompasses language, naming and classification systems, resource use practices, ritual, spirituality and worldview. According to Barsh, [w]hat is traditional about traditional knowledge is not its antiquity, but the way it is
7 8

136

2013 CLCSLR

VOL.1 ISSUE 1

Although the lack of a concise and acceptable definition may not seem to be a hurdle, defining TK also sets the boundaries and contents of TK. 11 Instead of confining TK to one particular field or limiting it as a matter of culture, keeping a flexible and open ended view makes sense because TK is not frozen in time, nor can it be limited to contributions from the previous generations. But still, a clear definition helps in identifying the protectable subject matter and also determines the scope of protection. There are certain other International Documents and National Legislations which define traditional knowledge. In 2006, WIPO Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore12 provided a definition of the term which states that the term traditional knowledge refers to the content or substance of knowledge resulting from intellectual activity in a traditional context, and includes the know-how, skills, innovations, practices and learning that form part of traditional knowledge systems, and knowledge embodying traditional lifestyles of indigenous and local communities or contained in codified knowledge systems passed between generations. It is not limited to any specific technical field, and may include agricultural, environmental and medicinal knowledge, and knowledge associated with genetic resources.13 In Brazil, Traditional Knowledge is defined as associated to genetic heritage as information or individual or collective practices of an indigenous or local community having a real or potential value and associated with the genetic heritage.14 Thus the Brazilian law on this point associates traditional knowledge with genetic heritage. The use of the word heritage conveys a different meaning and suggests that traditional knowledge is not merely a
acquired and used. In other words, the social process of learning and sharing knowledge, which is unique to each indigenous culture, lies at the very heart of its traditionality. Much of this knowledge is actually quite new, but it has a social meaning, and legal character, entirely unlike the knowledge indigenous peoples acquire from settlers and industrialized societies, Russel Barsh, Indigenous Knowledge, in Spiritual and Cultural Values of Biodiversity (D.A. Posey ed., 1999). 11 According to Leistner, [c]onsequently, definitions based on modern conventional law with its distinction of protected intellectual property, and cultural property, which generally falls into the domain public may thus be perilous to the very root concepts of the development of traditional knowledge, Matthias Leistner, Traditional Knowledge, in Indigenous Heritage and Intellectual Property: Genetic Resources, Traditional Knowledge and Folklore (Silke von Lewinski ed., 2004). 12 Article 3 (2) of the Annex to document WIPO/GRTKF/IC/10/5. 13 Ibid. 14Article 7 of Brazil Provisional Measure No. 2186-16 of 2001 Regulating Access to the Genetic Heritage, Protection of and Access to Associated Traditional Knowledge.
137

2013 CLCSLR

VOL.1 ISSUE 1

form of property, but is equally connected with the cultural and spiritual beliefs of the communities. Such information and practices are transmitted from one generation to the other as heritage. The inclusion of the word heritage conveys the holistic and sacred nature of traditional knowledge under the law of Brazil. The African Model Legislation for the Protection of the Rights of Local Communities, Farmers and Breeders, and for the Regulation of Access to Biological Resources 2000 provides a definition of Community Knowledge. It states that Community Knowledge or indigenous knowledge is the accumulated knowledge that is vital for conservation and sustainable use of biological resources and/or which is of socio-economic value, and which has been developed over the years in indigenous/local communities.15 Community rights have been defined as the rights held by local communities over their biological resources or parts or derivatives thereof, and over their practices, innovations, knowledge and technologies. The Peruvian law uses the term Collective Knowledge instead of traditional knowledge. Article 2 (b) states that collective knowledge means the accumulated, trans-generational knowledge evolved by indigenous peoples and communities concerning the properties, uses and characteristics of biological diversity.16 The core Committee of the TK Draft Bill 200917, India, provided an elaborate and apprehensive definition of TK18, which states that Traditional Knowledge refers to the collective knowledge of a traditional community or a family related to a particular subject or a skill passed down from generation to generation for at least three generations including but not limited to: cultural products and practices from traditional communities such as weaving patterns, pottery, painting, poetry, folklore, music and the like;

15African

Model Legislation for the Protection of the Rights of Local Communities, Farmers and Breeders, and for the Regulation of Access to Biological Resources 2000 , (12/03/2011), http: www.farmersrights.org/pdf/africa/AU/AU-model law00.pdf. 16 Peru Law No 27811 (2002). 17 It is a yet unpublished document prepared by the Core Committee on TK Protection and discussed in Round Table Meeting on 25-26 January 2010 at the National Law School of India University, Bangalore in association with the Ministry of Human Resource and Development. 18 Article 2.17 of Traditional Knowledge (Protection and Regulation of Access) Bill of India 2009.
138

2013 CLCSLR

VOL.1 ISSUE 1

genetic material discovered, selected, cultivated, domesticated, developed or conserved by traditional communities, regardless of whether they were used or can be used in the development of new plant varieties or animal breeds or which can be harnessed for other potential uses; agricultural practices and devices developed from indigenous or traditional material, customs, and knowledge; medicinal products and processes developed from indigenous or traditional material, customs and knowledge by traditional communities; all other products or processes not made by one person and which was discovered through a community process, or when the person making the innovation does not claim the knowledge as his own or when the person has discovered it to be used openly for common purposes; discoveries, innovations and technologies made by communities that are usually not recorded in written form, and are transmitted orally from generation to generation.

According to one view, TK encompasses three dimensions and all the three need to be acknowledged and protected. Traditional knowledge encompasses three dimensions: a cultural aspect (it reflects the culture and values of a community), a temporal aspect (it is passed on through the generations and slowly adapts to respond to changing realities) and a spatial aspect (it relates to the territory or the relationship which a community has with its traditionally occupied/used lands and waters)19 Traditional Knowledge is difficult to define, but an attempt has to be made to understand the policy objectives which might help in drafting a general definition. Otherwise, an alternative is to not define TK but rather to describe its essential characteristics which in turn will help in policy making and will also give scope to a country to define it in accordance with their domestic normative structure. From the above definitions, the common elements of TK definitions are as follows-

19Development

of Elements of Sui Generis Systems for the Protection of Traditional Knowledge, Innovations and Practices to Identify Priority Elements, CBD SECRETARIAT, 16, (Sept. 20, 2012), http: UNEP/CBD/WG8J/5/6.
139

2013 CLCSLR

VOL.1 ISSUE 1

TK is community based knowledge i.e. collective knowledge; It is inter-generational i.e. passed from one generation to another; It is holistic in nature; It is related to a particular territory and practices associated with a particular community.

Therefore, any definition which includes these elements is satisfactory for the identification of TK as subject matter. IV. IDENTIFYING STAKEHOLDERS

The question of who owns Traditional Knowledge assumes significance in the attempt to understand the same. Generally speaking, a knowledge holder is a person who identifies, holds, develops, spreads, practices and maintains a particular system of knowledge. A knowledge holder may be an individual, a group or a community. However, in the context of traditional knowledge, the general notion has been that only a group or a community is considered to be the holder of TK. Since traditional knowledge is community knowledge developed from the practices and experiments applying the trial and error method by a specific community, the whole community can be identified as the holder of that particular knowledge. In other words, traditional knowledge holders have deep understanding and full information of the knowledge in question. Though traditional knowledge is shared knowledge which belongs to the community at large, there can be instances when such knowledge is controlled and managed by a particular group or sometimes by an individual within the community. In such a case the holders of TK possess TK as trustees and have the responsibility to share that knowledge within the community or outside as per the existing norms of the community. According to the World Intellectual Property Organisation (WIPO), traditional knowledge holders are the persons who create, originate, develop and practice traditional knowledge in a traditional setting and context.20
20

Intellectual Property Needs and Expectations of Traditional knowledge WIPO report on fact-finding missions on intellectual property and traditional Knowledge (1998-1999), p. 26.
140

2013 CLCSLR

VOL.1 ISSUE 1

Indigenous communities, peoples and nations are traditional knowledge holders. But the question which remains unanswered is whether the term indigenous community refers to aboriginals, indigenous people or tribals? The Indian TK Draft Bill provides a definition of the term Indigenous community as a group of people sharing common language, customs, traditions and other distinctive traits, and who have, since time immemorial, occupied, possessed, and utilized a territory except when such possession is either prevented or interrupted by war, force majeure, displacement or force, deceit or stealth, or other usurpation.21 In Brazilian Law, the definition of local community is provided as Local community: human group, including remnants of Quilombo communities, distinguished by its cultural conditions, that traditionally organises itself throughout successive generations and through its own customs and preserves its social and economic institutions.22 According to Peruvian Law, Indigenous peoples refers to aboriginal peoples holding rights that existed prior to the formation of the Peruvian State, maintaining a culture of their own, occupying a specific territorial area and recognising themselves as such. These include people in voluntary isolation or with whom contact has not been made, and also rural and native communities. The term indigenous shall encompass, and may be used as a synonym of, aboriginal, traditional, ethnic, ancestral, native or other such word form.23 All these different definitions actually encompass the same basic idea of a group of people residing in a specific geographical area, sharing the same language, cultural and social values and practices, and retaining their individual identity as a separate community. There is no universal definition of indigenous and tribal peoples, but ILO Convention No. 16924 provides a set of subjective and objective criteria which are jointly applied to identify them. According to ILO, indigenous peoples are of descent from populations who inhabited the country or geographical region at the time of conquest, colonisation or establishment of
Traditional Knowledge (Protection and Regulation of Access) Bill of India, Article 2.8, (2009). 22 Article 7(iii) of Brazil - Provisional Measure No. 2.186-16 Of August 23, 2001. 23Peru Law 27811, Article 2 (a), (2002). 24ILO Convention No. 169, Understanding the Indigenous and Tribal Peoples Convention, 1989.
21

141

2013 CLCSLR

VOL.1 ISSUE 1

present state boundaries. They retain some or all of their own social, economic, cultural and political institutions, irrespective of their legal status. The Convention further defines tribal people as those whose social, cultural and economic conditions distinguish them from other sections of the national community and whose status is regulated wholly or partially by their own customs or traditions or by special laws or regulations. Many scholars restrict their approach to the above three as they live in groups and form separate communities possessing knowledge about the bio-resources around them and are governed by a separate normative system. However, if we adopt this approach, then farmers who also have the knowledge about the flora, soil and climate of a particular region suitable for a particular crop may get excluded. From this perspective we also favour the patenting of neem or haldi as we are then stopped from claiming that it is a part of Indias traditional knowledge. Other scholars believe that holders of traditional or indigenous knowledge may come from a diverse range of populations and occupational groups, such as traditional farmers, pastoralists, fishermen and nomads whose knowledge is based on a particular place and is likely to be because of a long period of occupancy spanning several generations. Often this knowledge is differentiated from more generally-held knowledge and from the knowledge of urbanized societies. But still the issue stands as it is. Who holds Traditional Knowledge? Is it the individual or a group, or Leader of the community, or The whole community, or Small clan within each community, or Communities collectively, or Shared freely because Traditional Societies do not have concepts of property or do not apply such concepts to knowledge.

There is no definite answer to this. The holder of such knowledge may include a person living in an urban area because what constitutes TK is not the area in which it is practiced but the type of knowledge which qualifies for protection as TK. Further TK can be community knowledge or it can be knowledge held by an individual which is inherited from his forefathers. It
142

2013 CLCSLR

VOL.1 ISSUE 1

also depends upon the normative structure of the community or a group. This gives rise to the next issue Property rights in TK- that of whether TK is owned by the traditional societies or whether it is in public domain. V. A MOVEMENT FROM COMMONS TOWARDS PRIVATISATION

The general notion about TK is that it is a community-based right, evolved by the members of a particular community and used by them in their daily life. Communities develop traditional knowledge as collective knowledge and do not claim any personal rights to it. TK is developed by using locally available resources and usually verbally passed from one generation to the next. Based on this assumption, a misconception has arisen that TK is freely accessible to all and in the public. This notion gives rise to a debate about the status of TK- whether it is community knowledge or knowledge in the public domain. One set of scholars supports privatisation of TK i.e. of granting exclusive rights to the community concerned and the other set believes TK should remain in public domain i.e. freely accessible to all.
A. TK AS COMMON PROPERTY

Until the emergence of the Convention on Biological Diversity in 1992 and the FAO Treaty on Plant Genetic Resources in 200125, opinion had hardened that the principle of common heritage of mankind regulated international transfer of plant genetic resources.26 With respect to the food grains, it is a belief that they form a part of common heritage as no single State has ever been wholly sufficient to meet the food needs of its population. Genetic resources gained value throughout the twentieth century by virtue of increasing demand and decreasing supply. While organised crop breeding increased the demand for genetic resources, genetic erosion that accompanied agricultural modernization threatened the supply of those
25The

1983 conference establishing the FAO Commission and International Undertaking affirmed a resolution stating that Plant genetic resources are a heritage of mankind and consequently should be available without restriction. 26Ikechi Mgbeoji , Beyond Rhetoric: State Sovereignty, Common Concern & the inapplicability of The common heritage concept to plant genetic resources, LEIDON JOURNAL OF INTERNATIONAL LAW, 16 (2003), 821-837.
143

2013 CLCSLR

VOL.1 ISSUE 1

resources. The development of plant breeding, the expansion of Breeders Rights, and the recognition of genetic erosion as a social cost of agricultural development seemed to portend the inevitable demise of common heritage. The apparent failure of the common heritage system to contain the degradation of crop genetic resources conforms to the Tragedy of the Commons scenario. The opinion that plant resources are a part of common heritage is fallacious. The principle of common heritage is a recent development in international law and therefore, prior to that, plant and genetic resources have always been subject to the national jurisdiction of the country concerned.27 However, with the rise of the information age, the flashpoint debates about property have moved from land to information. The public domain is now the cause clbre among progressive intellectual property and cyber law scholars, who extol the public domain as necessary for sustaining innovation.28 This creative commons movement has highlighted the benefits of the public domain and has exposed the perils of property. The advocates of the movement also argue in favour of placing TK and genetic resources in the public domain. They contend that this will result in equal use of TK by all which ensures better utilization of their knowledge and resources which have until now been under-utilised. Further, the nature of TK makes it nonexhaustive (which is a wrong notion about TK) and therefore, it does not suffer from the dangers of over-use. Traditional knowledge being a community right and shared knowledge is kept out of the purview of TRIPs. This has led to a misconstruction that TK includes information falling in the public domain. It is significant to note that the notion of public domain has been used to serve as a tool to not only deny the claims of TK for IP protection but also as a tool by the bio-prospecting corporations to legitimise the free
27Supra 28The

note 26. scholars obscure the distributional consequences of the commons. They presume a landscape where every person can reap the riches found in the commons. This is the romance of the commonsthe belief that because a resource is open to all by force of law, it will indeed be equally exploited by all. But in practice, differing circumstances including knowledge, wealth, power, access, and abilityrender some better able than others to exploit a commons, Anupam Chander and Madhavi Sunder, The Romance of the Public Domain, California Law Review, Vol. 92, 1331.
144

2013 CLCSLR

VOL.1 ISSUE 1

appropriation of what has come to be regarded as global commons. However, this concept of global commons is misapplied to TK and to regard TK as falling in the public domain and that too in a state of res-nullius is an incorrect proposition. Traditional Knowledge does not become an exploitable entity by falling in the public domain. It is controlled by various sets of norms, either customary or religious, which govern the communities. Traditional knowledge and resources are controlled and managed by special normative systems of each community. Therefore, the concept of global commons is alien to TK; however, it can be regarded as being in the state of limited commons.29 Regarding TK in a state of limited commons signifies vesting the rights of such knowledge either in the State or the local community. Further this limited property regime implies that such knowledge would be available to the members of that particular State or community, as the case may be, for free but at a price to those outside.30
B. TOWARDS PRIVATISATION

Under the garb of public domain, there is misappropriation of the TK wealth of the developing world of which the traditional communities are living in ignorance. Today, the developing countries are demanding recognition through private rights over their traditional knowledge and genetic resources. Granting them these rights would enable them to deal with the cases of misappropriation of their wealth more effectively and also would afford them a right to be indemnified or compensated for the wrong caused to them with respect to TK wealth. Therefore, they are now presenting a strong case for its privatisation. However, this case for privatisation is also being misconstrued. The demand for private rights over TK is not about privatisation as commonly understood. It nowhere deals with private rights in the sense of conferring absolute rights over the resources with no access to the third parties. Their claim includes a demand for enclosures which help restrict access to the third parties. This idea of enclosure ensures that no third party can use/misuse the resources belonging to a particular community without their consent. This will be effective in granting communities the

Examples of Limited Commons- Traditional Knowledge Databases offered by China and TKDL in India. 30Carol M. Rose, The Several Futures of Property: Of Cyberspace and Folk Tales, Emission Trades and Ecosystems, 83 MINN. L. REV. 129 (1998) (proposing recognition and development of limited commons property regimes).
29

145

2013 CLCSLR

VOL.1 ISSUE 1

right to recognition and also the locus to demand compensation in case of misappropriation of their resources without their consent. Another philosophical argument in support of their contention is that when a resource is in the public domain or is to be used in common, it will lead to depletion of resources. Further, in such cases as the liability is to be shared by all, the resources may be in danger of over-use for individual benefit. An individual usually applies a simple calculation that by using the resource in a particular way, the benefit which will accrue to him is much higher as compared to the loss which is a small fraction as the loss is to be borne by the community as a whole.31 Also, as no individual takes the responsibility of managing the common property, such a property is bound to be exhausted at a faster rate. To avoid such a situation, privatisation of resources is the answer to the Tragedy of Commons.32 The threat of leaving TK in the public domain is nearly the same. The genetic resources and knowledge will also face the danger of overutilization. Ultimately, this will lead to depletion of TK resources and also disintegration or loss of the normative system which existed in the communities. Therefore, there is a need for greater control over the resources through privatisation. However, applying Hardins solution33 to TK is riddled with problems. Firstly, identification of holders of TK will prove to be a hurdle in determining on whom the ownership/proprietary rights are to be conferred. Secondly, if the holders of TK (earlier regarded as Trustees) on becoming the owner/proprietor of the TK abuse their position, it will lead to the destruction of the normative system of the communities. Thirdly, creation of private rights on TK and genetic resources will lead to commoditisation and will raise new challenges to the integrity and cohesion of the societies. This concept will again be welcomed by corporations and bio-prospecting countries as it will now enable them to enter into lawful agreements with the holders of TK, which may result in over-use of genetic resources and depletion of genetic wealth. Therefore, Privatisation of TK (in the strict
31Garrett

Hardin, Tragedy of Commons, SCIENCE , NEW SERIES, Vol. 162, No. 3859. (Dec. 13, 1968), 1243-1248, published by American Association for the Advancement of Science.(15/10/2012) http://links.jstor.org/sici?sici=00368075%2819681213%293%3A162%3A3859%3C1243 %3ATTOTC%3E2.0.CO%3B2-N. 32 Ibid. 33 Hardins solution refers to the problem discussed as Tragedy of Commons, Supra note 31.
146

2013 CLCSLR

VOL.1 ISSUE 1

sense as proposed by Hardin) is not feasible in the light of above arguments. The idea of creating enclosures is more realistic and can prove to be the perfect solution to protect the rights of the TK holding societies and also to check the problem of bio-piracy. VI. TRADITIONAL KNOWLEDGE AND IPR

The role of TK with its spiritual, cultural and economic values is being increasingly recognised today. The products based on TK are important sources of income, food and healthcare in developing countries in particular, and in turn, for their sustainable socio-economic development. Western societies in general had not recognised any significant value of TK and the obligations associated with its use. These societies viewed TK as information in the public domain which was freely available for use. The concept of any compensation to the creators and possessors of TK also did not exist. It is often argued that the rights of the indigenous people are being violated when their access to resources and benefits from their contribution to science and technology are ignored. This has become the background for varying claims: for the knowledge rights of the indigenous communities to be given parity within the TRIPs framework; for the production of TK systems, for an end to biopiracy and the one-way genetic resource flow; for the development of equitable benefit-sharing mechanisms; for community property rights, etc. These are all rights which emanate from the central claim for knowledge rights of the indigenous/traditional people which are as much aspects of their socio-economic rights as rights to food or health.34 There is a push from the developing world to protect TK either as an IPR under TRIPs regime or by adopting a sui generis model. TRIPs has been criticised for being a pro-west agreement deliberately ignoring TK as a subject-matter to be protected while being fully aware of its economic potential which can be exploited by the western nations to their advantage. Hence, before claiming protection under TRIPs, one has to determine whether TK falls within the scheme of the agreement as a subject matter.
34Rajshree

Chandra, Knowledge as Property- Issues in the Moral Grounding of Intellectual Property Rights, 280, Oxford University Press (2010).
147

2013 CLCSLR

VOL.1 ISSUE 1

Intellectual property is a legal concept that deals with creations of human ingenuity. These creations, whether they are inventions, designs, trademarks or artistic works, are considered to be property and are protected for a certain period of time. Although there is no reason why such categories of rights may not apply to various expressions of traditional knowledge,35 there are several characteristics of TK that create barriers to protection through the use of existing forms of IPRs. Possession and Ownership are probably the most important basis of an intellectual property rights claim. An intellectual property is that which is capable of being delineated, with an identifiable author or inventor and is capable of being possessed or owned. On the basis of the location i.e., who possesses it, knowledge may be categorised as individual knowledge, distributed knowledge, or communal knowledge. According to Kibet A. Ngetichs analysis, knowledge can exist in either of these forms in all societies, including traditional societies.36 This feature is found in almost all traditional societies, where privately held knowledge is not private in the exclusionary sense and also the knowledge held by a handful of people in the communities does not belong to them. It is community held knowledge and the holders do not own it as such, but have obligations to share the knowledge within the community.37 They may hold knowledge as trustees of the community. The other necessary criterion that IP must meet is that it must be considered non-obvious or novel. Indigenous knowledge often falls short of this requirement as TK is often orally transmitted and evolves gradually. It never actively endeavours to be novel or distinct from nature. For example, in many indigenous communities, shamanic knowledge or medicinal products are believed to arise from natural or supernatural sources as

For example, the knowledge of how certain plants within an indigenous groups homeland are used to treat fever would fall under IP rights. Likewise, particular understandings of the land, ecology, or environment of a certain area may also fall under IP rights. The key point is that IP rights refer to knowledge that otherwise would not be available. It is not knowledge gained through scientific experimentation, nor is it knowledge gained through empirical deductions. Rather, it is knowledge that is gained (some may say earned) through time, place and experience. 36Kibet A. Ngetich, Indigenous Knowledge, Alternative Medicine and IP Rights Concerns in Kenya . 11th General Assembly, Theme: Rethinking African Development: Beyond Impasse, Towards Alternatives (Maputo, Mozambique, 6-10 December 2005), Supra note 34 at p. 293. 37 Sometimes TK is possessed by the dominant caste/clan within the communities. These persons possess a greater control over TK resources, but basic notion remains that TK is a shared right and the holder in the community is in position of a trustee.
35

148

2013 CLCSLR

VOL.1 ISSUE 1

opposed to being man-made or invented.38 The extent of what constitutes natural and what is man-made differs from culture to culture, indicating difficulty in determining what should be considered an innovation or simply a product of nature. This has an implication for IP claims - unless a product is substantially different from one found in nature, and is thus the result of non-obvious human invention, the product or its knowledge cannot be considered a subject of intellectual property. A third feature which prevents TK from being regarded as intellectual property is the element of disclosure. Traditional knowledge, especially in India and China39 has gradually been disclosed as a result of codification, wide use, or through collection and publication by anthropologists, historians, botanists or other researchers and observers.40 The moment it is disclosed it becomes publicly available and hence, under current IPR rules, lies in the public domain making it an obvious form of knowledge that cannot be claimed as intellectual property. This problem has been discussed in earlier parts of the article.41 These barriers have kept the traditional knowledge societies outside the loop of intellectual property rights. VII. CONCLUSION

The very nature of TK poses a challenge to traditional notions of IP. There are some inherent characteristics of traditional knowledge which make it incompatible with the existing IPR regime. Though they are not considered to be a protectable subject matter under TRIPs42, TK deserves protection through a sui-generis model of protection. The African model43, the
N. Roht-Arriaza, 1996, Of Seeds and Shamans: The Appropriation of the Scientific and Technical Knowledge of Indigenous and Local Communities, Michigan Journal of International Law, 17 (919), 919-965. 39 D. Shankar, A. Hafeel, and T. Suma, 1999, Cultural Richness of Green Pharmacy, Compass Newsletter, 2, p. 10. 40 M. Koning, 1998, Biodiversity prospecting and the equitable remuneration of ethnobiological knowledge: Reconciling Industry and Indig enous Interests, Intellectual Property Journal, 12. 41 See the discussion under sub heading- TRADITIONAL KNOWLEDGE- A Movement from COMMONS towards PRIVATISATION. 42Supra note 34 at p. 297. 43 African Model Legislation for Protection of the Rights of Local Communities, Farmers and Breeders, and for the Regulation of Access to Biological Resources, 2000 . The principal objective of this legislation is to ensure the conservation, evaluation and sustainable use of biological
38

149

2013 CLCSLR

VOL.1 ISSUE 1

Philippines model44 and the Peruvian Model45 are some of the sui generis regimes which can be studied. It is also to be noted that these issues cannot be resolved without taking into account the rights of communities and the unique nature of communally held knowledge and resources. The model of protection should ensure adequate measures of protection and schemes for benefit sharing. However, it should also cater to the holistic nature and requirements of the traditional knowledge societies and should not be in conflict with the normative systems existing in the communities.

resources, including agricultural genetic resources, and knowledge and technologies in order to maintain and improve their diversity as a means of sustaining all life support systems. 44 Philippines Model Act No.8371- An act to recogniserecognise, protect and promote the rights of indigenous cultural communities/ indigenous peoples, creating a national commission on indigenous peoples, establishing implementing mechanisms, appropriating funds therefor, and for other purposes. 45 Peru Law No 27811 of 2002 is the law introducing a protection regime for collective knowledge of indigenous peoples derived from biological resources. Traditional agricultural knowledge, traditional medicinal knowledge, even traditional knowledge related to sustainability of ecosystem and environment will be included, but traditional cultural expression will not be covered by this law. The intention is to promote the use of the knowledge for the benefit of the indigenous peoples and mankind in general 45 and to avoid situations where patents are granted for inventions made or developed on the basis of collective knowledge of the indigenous peoples of Peru without any account being taken of that knowledge as prior art in the examination of the novelty and inventiveness of the said inventions.

150

2013 CLCSLR

VOL.1 ISSUE 1

FROM WARSAW TO MONTREAL RAMIFICATIONS OF DEVELOPMENTS IN AVIATION LIABILITY: AN INDIAN PERSPECTIVE

Swati Singh Baghel* and Gargi Rajvanshi** Traditionally, air transport has been perceived as a luxury of the rich. But in the last decade, with the advancement in technology and liberalization in government policies, the aviation industry has grown by leaps and bounds. Mindful of this rapid increase in air activity and its growing importance, the authors have critically analysed the national and international legal framework governing liability of air carriers and the shift from a procarrier to a pro-consumer approach vis--vis Warsaw Convention to Montreal Convention. Further, since this paper was written with the backdrop of the Mangalore crash of 2010, the various developments in this case have been traced. Taking into account that this was the first major international air accident since Indias accession to the Montreal Convention, questions pertaining to establishing liability and calculation of damages have been discussed in detail. Lastly, the authors have addressed the ambiguities and deficiencies in the Indian legal framework and propose that it is imperative for the government to take requisite action in order to achieve the objectives behind the adoption of the Montreal Convention and the subsequent amendment of the Carriage by Air Act, 1972. I. INTRODUCTION

The year 2003 marked the centenary year of powered flight.1 However, famous inventors such as Leonardo da Vinci, John Stringfellow and Lawrence Hargrave had conjured up ideas of how to get some of the strangest machines to fly long before the Wright brothers famous first flight at Kitty Hawk.2 Over the course of the century, on one hand air transport has witnessed an exponential growth3 impacting global and national economies and shrinking the World and on the other hand, the increased air
* V Year, B.A.LL.B. (Hons.), National Law Institute University, Bhopal. **Assistant Professor, National Law Institute University, Bhopal; Ph.D. Research Scholar, Indian Institute of Technology, Kharagpur. 1Buzz Aldrin, L1 Gateport (November 28, 2012), http://buzzaldrin.com/spacevision/rocket_science/l1-gateport/. 2 Global Aircraft, History of Aviation (November 28, 2012), http://www.globalaircraft.org/history_of_aviation.htm. 3 According to SITA Baggage Report, 2012, a total of 2.87 billion passengers travelled by air transport in the year 2011. SITA, Baggage Report 2012 (November 23, 2012), http://www.sita.aero/knowledge-innovation/industry-surveys-reports/baggage-report2012.
151

2013 CLCSLR

VOL.1 ISSUE 1

activity has also seen the rise in aviation accidents resulting in death or injury to passengers and cases of lost or damaged baggage/cargo.4 These technological and legal realities posed pressing problems and necessitated the establishment of a legal regime governing aviation liability internationally. In this paper, the authors have followed a scheme where Part II discusses the global legal regime governing the liability for international air transportation primarily the shift from Warsaw Convention, 19295 towards Montreal Convention, 19996. Part III deals with the liability of air carriers in India, pre and post accession to the Montreal Convention, 1999. Part IV of the paper further discusses the impact of Indias ratification to the Montreal Convention on compensation, in the light of the 2010 Mangalore crash and lastly, Part V provides the concluding remarks of the authors. II. AVIATION LIABILITY: THE GLOBAL LEGAL REGIME

The Montreal Convention is not an amendment to the Warsaw Convention. Rather, the Montreal Convention is an entirely new treaty that unifies and replaces the system of liability that derives from the Warsaw Convention.7 The Warsaw Convention, 1929 was the first legal instrument laying down the rules for liability and limitations of liability for international air carriage, with the primary aim of fostering growth of the commercial aviation industry. It became the law during the infancy of inter-continental aviation and it soon proved itself incapable of adequately regulating liability issues in the burgeoning jet age.8 Since the antiquated Warsaw Convention provided for significantly low limits on carrier liability, the signatory nations were provided with additional instruments, namely, the Hague Protocol, 1955;9 the
According to statistics published by SITA in 2011 the mishandled baggage rate has more than halved since 2007. It has dropped from 18.88 bags per thousand passengers in 2007 to 8.99 bags per thousand last year. Ibid. 5 Convention for the Unification of Certain Rules Relating to International Transportation by Air (1929). 6 Convention for the Unification of Certain Rules Relating to International Carriage by Air (1999). 7 Ehrlich v. Am. Airlines, Inc., 360 F.3d 366 (2d Cir. 2004). 8 Gary A. Gardner and Brian C. McSharry, The Montreal Convention: The Scram Jet of Aviation Law (December 2, 2012), http://www.wilsonelser.com/files/repository/MontrealConvention_April2006.pdf. 9Protocol to Amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air (1955).
4

152

2013 CLCSLR

VOL.1 ISSUE 1

Guadalajara Convention, 1961;10 the Guatemala City Protocol, 197111 and Additional Montreal Protocols (1-4).12 These additional instruments sought not only to raise the amount of compensation but also to supersede Warsaws reliance on the out-dated gold standard and update rules with respect to movement of cargo.13 However, these did not produce the desired results due to a large number of States abstaining from ratifying them. In Chubb & Son, Inc. v. Asiana Airlines14the US Court of Appeals observed, The Warsaw Convention system includes the various laws, treaties and individual contracts governing the international transportation of persons, baggage and goods by air A single State might be bound to one version of the Warsaw Convention with another State, a separate bilateral treaty with another State and a separate contract with a private party. This concurrent operation of multiple legal instruments created confusion amongst the courts on the question of applicability of rules and calculation of damages, leading to a situation of utter chaos and adding to the woes of the aggrieved passengers. Given this patchwork of amendments, supplementary conventions and protocols established by the Warsaw system, there was a growing need to establish a new legal framework for ascertaining aviation liability. As a result, the Montreal Convention (hereinafter referred to as the Convention) was adopted in 1999. It supersedes the Warsaw Convention and came into force on 4 November 2003. The Convention reflects the changing goals of the international community vis--vis air carriers and their passengers.15 Furthermore, it aims to consolidate the large number of rules and preserve the body of case law interpreting and applying the Warsaw system.16 The preamble of the Convention lists protection of the interests of consumers in international carriage by air and the need for equitable compensation based
10Convention

Supplementary to the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air Performed by a Person other than the Contracting Carrier (1961). 11 Protocol to Amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air (1971). 12 Collectively known as the Warsaw System. 13 Gardner and McSharry, supra note 8. 14 214 F.3d 301, 306 (2d Cir. 2000). 15 Gardner and McSharry, supra note 8. 16 Bartholomew J. Banino, Recent Developments in Air Carrier Liability un der the Montreal Convention, The Brief, Volume 38, Number 3 (Spring 2009); (November 28, 2012), http://www.condonlaw.com/attachments/Banino%20Brief_Spr09.pdf.
153

2013 CLCSLR

VOL.1 ISSUE 1

on the principle of restitution as its primary object. Under the new liability regime, the major change brought about is the elimination of meagre and arbitrary limits of carrier liability. A combined reading of Articles 17 and 21 of the Convention states that air carriers will be held absolutely liable for the first 100,000 Special Drawing Rights (SDRs)17 of damages, even if damage was caused by a third party, so long as the injury producing event meets the conditions for liability and was not contributed to by the passenger. 18 According to Article 17 of the Convention, the carrier is liable for damage sustained in case of death or bodily injury of a passenger upon condition that the accident took place on board the aircraft or in the course of any of the operations of embarking or disembarking. In case of damage sustained due to destruction or loss of checked baggage, the carrier is liable when the event took place on board the aircraft or during any period within which the checked baggage was in the charge of the carrier and in the case of unchecked baggage, when the damage resulted from its fault or that of its servants or agents. In practice, the compensation under the Convention is computed for each case separately on the basis of proof of loss.19 Calculation of loss suffered is based on a persons economic/net worth, pecuniary and general damages and future prospects. 20 Some of the determining factors include age of the person, educational qualifications, employment status, income, dependants, loss of future income and alike.21 In order to recover an amount exceeding 100,000 SDR, a carrier can escape liability if it proves that (a) damage was not due to the negligence or other wrongful
17The

SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries official reserves. Its value is based on a basket of four key international currencies consisting of euro, Japanese yen, pound, sterling and US dollar. SDRs can be exchanged for freely usable currencies. See, International Monetary Fund, Factsheet: Special Drawing Rights (August 24, 2012),http://www.imf.org/external/np/exr/facts/sdr.htm. 18 Christopher R. Christensen, The Montreal Convention of 1999 (August 28, 2012), http://www.condonlaw.com/attachments/montreal_convention_1999_CRC.pdf. 19See, Commonwealth v. Amann Aviation Pty Ltd. (1991) 174 CLR 64 at 116 and 118: To satisfy the requirements of the principle, a plaintiff must affirmatively establish assessable damage, that is to say, loss or injury which is capable of being measured in monetary terms The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act. 20John Arthur, Damages and Equitable Compensation in a Commercial Setting (March 8, 2013), http://www.gordonandjackson.com.au/uploads//documents/seminarpapers/Damages_and_Equitable_Compensation_-_John_Arthur.pdf. 21International Foundation for Aviation, Aerospace and Development, Note on Air Carrier Liability Law in India for Ministry of Civil Aviation (December 2, 2012), http://www.iffaadindia.org/iffaad.html.
154

2013 CLCSLR

VOL.1 ISSUE 1

act or omission of the carrier or its servants or agents; or (b) such damage was solely due to the negligence or other wrongful act or omission of a third party. Article 20 of the Convention further provides for the exoneration defence when the carrier proves that the damage was caused or contributed to by the negligence or other wrongful act or omission of the person claiming compensation, or the person from whom he or she derives his or her rights, the carrier shall be wholly or partly exonerated from its liability. This is a significant departure from the 125,000 gold francs (approximately $10,000) limitation placed on damages under the Warsaw Convention.22 Thus, it can be said that the Montreal Convention is no longer a Convention for airlines but a Convention for consumers/passengers.23 III. THE INDIAN SCENARIO

In India, the rights and liabilities of air carriers are determined by the Carriage by Air Act, 1972 (hereinafter referred to as the Act).24 It was enacted (and amended in 2009) to implement Indias treaty obligations under the Warsaw Convention (and later the Montreal Convention) according to the constitutional scheme laid down in Article 253 read in the light of Schedule VII List I Entry 14.25 It extends to the whole of India and is applicable to Indian citizens involved in domestic carriage by air and in international carriage by air, irrespective of the nationality of the aircraft performing the carriage.26 According to Section 5, the Act does not bar the applicability of acts like the Fatal Accidents Act, 1855 or any other law in force in India.

22Gardner 23Ibid. 24 25

and McSharry, supra note 8.

As amended by the Carriage by Air (Amendment) Act (2009). Under the VII Schedule of the Indian Constitution, Entry 14 of the Union List empowers the Central government to enter into and implement treaties, agreements and conventions. Further, Article 253 reads as follows: 253. Legislation for giving effect to international agreements Notwithstanding anything in the foregoing provisions of this Chapter, Parliament has power to make any law for the whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body. 26 International Foundation for Aviation, Aerospace and Development, supra note 21.
155

2013 CLCSLR

VOL.1 ISSUE 1

A. PRIOR TO MONTREAL CONVENTION ACCESSION

1. Determination of Liability and Compensation From 1972 to 2009, India functioned under a low carrier liability regime as set forth in the provisions of the 1929 Warsaw Convention reflected in First Schedule (125,000 gold francs) to the Act and the Hague Protocol, 1955 carrier liability regime as reflected in Second Schedule (250,000 gold francs) to the Act.27 The application of law for determination of quantum of damages to be awarded to Indian nationals depended on which instrument had been ratified by both India and the international air carrier. Apart from this, there were no provisions dealing with the requirement of advance payment to be made by the carrier.28 Thus, most claimants were left with no option but to go to a court of law in order to seek compensation. The courts while dealing with the question of quantum of damages relied heavily on motor vehicle claims and took into account various determinants. In the 2009 ruling of the Gujarat High Court in the case of Airport Authority of India v. Ushaben Shirishbhai Shah and Ors.,29the court awarded an amount of Rs. 7.53 lakhs (approximately $16,700) as compensation (and 9% interest from the date of filing the appeal) based on factors like income of the victim in 1988 viz., Rs 1 lakhs (approximately $2,200), likely residual life, potential expenses during residual life and loss of future income.30 Further, Section 6 of the Act delinked the compensation payout from the gold standard and pegged it to the currency exchange rate applicable as on the date of payment.31 This worked to the detriment of Indian nationals wanting to settle compensation with the insurers/carrier.32Later, in the landmark judgment of Geeta Jethani v. Airport Authority of India and Ors33, the
27Ibid.

Pooja Yadava, Carrier Liability for Passengers (November 25, 2012), http://www.psalegal.com/upload/publication/assocFile/AviationBulletinIssueX10052010030334PM.pdf. 29 (2010) 1GLR 321. 30 Yadava, supra note 28. 31 Section 6 of the Carriage by Air Act, 1972 reads as follows: Conversion of francs Any sum in francs mentioned in rule 22 of the First Schedule or of the Second Schedule, as the case may be, shall, for the purpose of any action against a carrier, be converted into rupees at the rate of exchange prevailing on the date on which the amount of damages to be paid by the carrier is ascertained by the Court. 32 International Foundation for Aviation, Aerospace and Development , supra note 21. 33 III (2004) CPJ 106 NC.
28

156

2013 CLCSLR

VOL.1 ISSUE 1

Supreme Court upheld the order of the National Consumer Disputes Redressal Commission directing compensation to be calculated by converting the 125,000 gold francs provided for under the First Schedule into INR value, thereby striking down the provisions of Section 6. 2. Jurisdiction The prohibitive provisions required filing of claims against foreign carriers in the territory of signatories of Warsaw Convention which could be where the carrier had principal residence, primary place of business, the place where the contract was made or the place of final destination of the flight. 34 This pro-carrier approach defeated the purpose of the enactment because in most cases it was not feasible for the aggrieved to institute claims in foreign countries. Due to this, there is an absence of precedents in India dealing with international aviation liability claims instituted under the Act. Instead, the trend has been for claimants to file under the Consumer Protection Act, 1986 on the ground of deficiency of service, for cases ranging from delayed flights to lost baggage to death.35
B. POST MONTREAL CONVENTION ACCESSION

India ratified the Montreal Convention, 1999 and in 2009 brought appropriate amendments to the Carriage by Air Act, 1972. The Third Schedule of the Act harmonises the provisions of the Convention.36 1. Two-Tier Liability and Compensation As stated in the previous section, the Montreal Convention introduced the two-tier liability system in India.37 (i) The first tier for damages resulting from death or bodily injury to passenger consists of compensation not exceeding 100,000 SDR. In this case, the liability of the carrier is absolute38 and it is incumbent upon a
34See,

Carriage by Air Act, Schedule I, Chapter III, Entry 28 (1972); Convention for the Unification of Certain Rules Relating to International Transportation by Air, Article 28 (1929). 35 International Foundation for Aviation, Aerospace and Development, supra note 21. 36Ibid. 37See, Carriage by Air Act, Schedule III, Chapter III, Entry 17 and 21 (1972), as inserted by the Carriage by Air (Amendment) Act (2009). 38 This amount does not reflect the minimum liability of the carrier. The Convention has left the determination of the level of damage to the local law.
157

2013 CLCSLR

VOL.1 ISSUE 1

carrier to make advance payment (which may later be off-set against final compensation). It must be noted that this provision does not restrict the carrier from affixing a higher rate of compensation by the terms of a special contract executed between the carrier and claimant. Further, the air carriers liability does not get extinguished by application of statute of limitation.39 Mere delay on the part of claimant to approach the insurer or to reach a settlement does not absolve the carrier of liability. (ii) The second tier is for damages above the value of 100,000 SDR. In this case, there is a presumption of fault of the carrier. Unless disproved by the carrier, liability is unlimited. This applies in cases where the passenger refuses to settle and claims higher compensation than that provided for under the first tier by approaching a court of law on grounds of negligence, pilot error, manufacturers defect etc. This entails extinguishment of right to settle, even in cases where claimant withdraws his/her case. Further, the limitation period for instituting the case is two years from the date of accident. Also, Section 6A permits conversion of compensation from SDR into INR at the prevailing exchange rates.40 2. Jurisdiction Adding to the list of four jurisdictions provided under the Warsaw Convention for institution of claims, the Montreal Convention provides for an additional jurisdiction,41 namely the principal and permanent residence of the passenger, provided the carrier operating in such jurisdiction and such territory is a signatory to the Convention. Given that the determination of damages under the Convention is a matter of the local law, the jurisdiction

International Foundation for Aviation, Aerospace and Development, supra note 21. Section 6A of the Carriage by Air Act, 1972 reads as follows: 6A. Conversion of Special Drawing Rights Any sum in Special Drawing Rights mentioned in rules 21 and 22 of the Third Schedule shall, for the purpose of any action against a carrier, be converted into rupees at the rate of exchange prevailing on the date on which the amount of damages to be paid by the carrier is ascertained by the Court in accordance with the provisions of rule 23 of the said Third Schedule. 41See, Carriage by Air Act, Schedule III, Chapter III, Entry 33 and 48 (1972), as inserted by the Carriage by Air (Amendment) Act (2009).
39 40

158

2013 CLCSLR

VOL.1 ISSUE 1

where a claimant brings an action becomes significant as the assessment of damages may vary from one jurisdiction to another.42 IV. THE IMPACT OF MONTREAL CONVENTION ON THE MANGALORE CRASH OF 2010

The Mangalore Crash case is the first case dealing with the question of liability of the carrier as provided for under the Montreal Convention and Carriage by Air Act (amended in 2009). The brief facts were an Air India Express on an International flight from Dubai crashed on landing at the Bajpe International Airport at Mangalore on 22 May 2010, killing 158 and injuring the remaining ten people on board including the crew.43 This triggered the provisions of the Montreal Convention. The claimants could potentially bring action in the UAE courts (depending upon where the contract is made), or India (principal place of business of carrier) or any third state provided the permanent residence of such claimant is a party to the Convention.44 However, the insurers of Air India (formerly, National Aviation Company of India Ltd.) offered a flat interim compensation to the next of kin of the 128 deceased passengers i.e. Rs. 10 lakhs (approximately $22,000) to each adult deceased passenger; Rs. 5 lakhs (approximately $11,000) to each passenger below the age of 12; with Rs. 2 lakhs (approximately $4,400) disbursed to each injured passenger.45 Further, the families of six deceased crew members were forced to accept a maximum compensation of Rs. 35 lakhs under the Workmens Compensation Act, 1923.46 As a result, a petition seeking for damages according to the Montreal Convention was instituted in the Kerala High Court. The court47, comprising a single-judge bench, held that cabin crew fell under the category of international passengers according to Carriage by Air Act, 1972 and should be paid 100,000 SDR, which equates to Rs. 75 lakhs each, as stipulated by the
International Foundation for Aviation, Aerospace and Development, supra note 21. National Aviation Company of India Ltd. v. S. Abdul Salam & Ors. WA.No. 1197 of 2011(). 44 Yadava, supra note 28. 45 Press Information Bureau, Government of India, Statement by Mr. Praful Patel, Minister of State for Civil Aviation in the Upper House of the Parliament (Rajya Sabha) (December 10, 2012), http://pib.nic.in/release/release.asp?relid=64012. 46See, TNN, Mangalore Crash: Crews Relatives move HC for Compensation, The Times of India, June 25, 2012. 47Abdul Salam v. Union of India, 2011 (3) KLJ 662.
42 43

159

2013 CLCSLR

VOL.1 ISSUE 1

Montreal Convention that governs compensation rules for air disasters. Further the court observed, The Carriage by Air Act is a special statute by itself, taking care of the situation, particularly in the light of the steps being taken by India to join hands with other countries, to give effect to various international conventions such as Warsaw, Hague and Montreal What is intended in sum and substance, is u niformity and certainty, at least to a specified extent, so as to treat everybody alike and to provide necessary compensation; more so, when air traffic accidents are seldomWhen the statute does not refer to payment of compensation with reference to age/income/loss of dependency etc., it can never be connected to any such considerations. However, in August 2011, a division bench of the Kerala High Court stayed the verdict, directing Air India to work out an amicable settlement with the families. Further, freedom was granted to the aviation company to decide on the compensation amount based on tortious liability, ruling that air carriers are liable to pay only for actual damages proved by the claimants according to the Montreal Convention, 1999.49 As a result, an appeal was taken to the Supreme Court against the order of the division bench. In January 2012, an Apex Court bench of Justice Dalveer Bhandari and Justice Dipak Misra issued a notice to the Central government and Air India on the matter. The case will come up for hearing later in 2013. This would be a landmark decision considering that no precedents exist on the issue and the Supreme Court will be laying down the law with respect to affixing of liability and computation of damages in cases of international air carriage.
48

V.

CONCLUSION

As of 2010, 97 countries are signatories to the Montreal Convention.50 With the majority of States being party to the Convention and the increase in air activity in India and across the globe, Indias accession and amendment to the Carriage by Air Act has definitely helped in bringing about parity in the law governing aviation liability. This establishment of a uniform
48Supra

note 43. Crash: Crews relatives move HC for compensation , The Times of India , June 25, 2012; (November 27, 2012),http://articles.timesofindia.indiatimes.com/2012-0625/kochi/32408662_1_cabin-crew-montreal-convention-air-crash. 50Convention for the Unification of Certain Rules for International Carriage by Air done at Montreal on 28 May 1999 (December 4, 2012), http://legacy.icao.int/icao/en/leb/mtl99.pdf.
49Mangalore

160

2013 CLCSLR

VOL.1 ISSUE 1

legal regime has provided the long-awaited change in terms of enhanced compensation and other pro-passenger/consumer rules. However, much more needs to be done to clear the ambiguities and uncertainties in the legal framework. Firstly, though the Convention provides for a higher rate of compensation in negotiations, the procedure for calculation of damages has not yet been laid down. The Mangalore Crash case puts this law to test and it still remains to be seen whether the Supreme Court will assess the absolute liability of the air carrier on the basis of proof of loss principle or will be much more liberal in granting enhanced compensation. According to the Report of the Commission of Enquiry, the cause of the accident was the negligence of the pilot. However, it has been alleged that the pilot was fatigued due to overwork and was in fact unwilling to take the plane to Mangalore.51 There are further allegations that the incident was not an accident but was the direct result of deliberate failure of officials at the highest level in the Director General of Civil Aviation, Airports Authority of India, Ministry of Civil Aviation and the Government of Karnataka for allowing the second runway to be built in criminal negligence of applicable norms and standards.52 Thus, in the light of such circumstances, it is imperative that the Apex Court decides the matter on a fast-track basis. Prolongation of proceedings would only work to the advantage of the carrier, resulting in out of court settlements with low compensation agreements. Without losing sight of the primary objective behind the adoption of the Convention i.e. the protection of interests of consumers, the court must grant exemplary damages, defining a method for calculation of compensation. This affixing of liability based on the human aspect would not only serve as a strong precedent for future litigants but would also put an end to the tug-of-war between the airlines and the victims of air accidents. Secondly, by employing the words bodily injury, a deliberate omission of provision for damages in cases of mental trauma and other mental injuries has been made. It has often been seen that mental injuries can be equally, if
51See,

Air Marshal B.N. Gokhale, Government of India, Ministry of Civil Aviation, Report on Accident to Air India Express Boeing 737-800 on May 22, 2010 at Mangalore (March 8, 2013), http://dgca.nic.in/accident/reports/VT-AXV.pdf. 52Environment Support Group, Mangalore Air Crash Tragic Fallout of Criminal Negligence of Planning and Regulatory Authorities (March 8, 2013), http://www.esgindia.org/campaigns/bajpe/press/mangalore-air-crash-tragic-falloutcrimi.html.
161

2013 CLCSLR

VOL.1 ISSUE 1

not more debilitating than, physical or bodily injuries. This limitation on the scope of injuries would definitely give rise to inequities. Further, if the courts were to step up to the task of providing a liberal interpretation to the term bodily injury so as to encompass within it all mental injuries, it would defeat the Conventions goal of international uniformity. Thus, it becomes incumbent on the Government and the international community at large to broaden the scope via requisite amendments. Lastly, the Act only applies to international carriage and allows the Central Government to notify the same rules for application to domestic flights, under the provisions of Section 8(3).53However, since this power has not yet been exercised by the Government to notify a revision in the domestic carrier liabilities, a lacuna remains. Thus, the present difference in compensation levels for domestic and international flights is unjustified and is long overdue for revision.

53

Section 8(3) of the Carriage by Air Act, 1972 reads as follows: 8. Application of Act to carriage by air which is not international (3) [The Central Government may, by notification in the Official Gazette, apply the rules contained in the Third Schedule and any provision of section 4A or section 5 or section 6A to such carriage by air, not being international carriage by air as defined in the Third Schedule, as may be specified in the notification, subject, however, to such exceptions, adaptations and modifications, if any, as may be so specified.

162

2013 CLCSLR

VOL.1 ISSUE 1

THE DILEMMA OF PROSPECTIVE OVERRULING: ONE STEP FORWARD OR TWO BEHIND? Prithvi Rohan Kapur The doctrine of prospective overruling has been accepted as a part of the Indian legal system. This doctrine which has great practical utility is however not free from difficulties. This paper seeks to critically analyse this doctrine, and present the complications that its application may lead to. To place the position of the doctrine in Indias jurisprudence, a general background on law- making powers of the Judiciary is first provided. Having set out this basic framework, this paper goes on to explain the meaning of the doctrine, the theories that operate behind it and the manner in which it has been accepted in India. The paper finally goes on to establish the difficulties in the application of the doctrine to an increasing set of statutory provisions. These complications include the difficulty in determining when the principle may be invoked, the growth of parallel jurisprudence as its consequence, and the perceived unfairness of the doctrine in certain circumstances, amongst others. I. LAW-MAKING FUNCTIONS Amongst the very first concepts that one comes across in the study of the Indian Legal System is the demarcation of responsibilities between various organs of the State.1 This demarcation has been internalized by all participants, and resides not just in the realm of jurisprudential theory but also in our constitutional framework. The everyday workings of our laws require constant adjustments between executive and judicial functioning on the one hand, and legislative prerogative on the other. A clear instance of this adjustment is the position of the Supreme Courts declarations as the law of the land.2 This paper attempts to highlight the limitations upon such declarations and the odd position of the doctrine of prospective overruling in this regard. While the term law has been broadly used in the Constitution of India to include any ordinances, orders, bye laws, rules, regulations, notifications, customs or usages having in the territory of India the force of law3, the focus of our inquiry will be restricted to Statutory Legislation and its interpretation by the higher judiciary.

IIIrd Year, LL.B Campus Law Centre, Faculty of Law, University of Delhi Rai Sahib Ram Jawaya Kapur and Ors. v. The State Of Punjab, AIR 1955 SC 549 2 Article 141 , Constitution of India 3See Article 13, Constitution of India
1See

163

2013 CLCSLR

VOL.1 ISSUE 1

At this juncture, it may be important to note two jurisprudential questions that may naturally arise in the mind of the reader. The first is in regard to the jurisprudential question of the correct definition of law itself, and the other is what may constitute law making. These questions are not intended to be touched upon in this analysis. What is taken up for discussion is the limitation upon the exercise of what may controversially be called the law making functions carried out by the Apex Court, and within this context, the doctrine of prospective overruling. Article 141 of the Constitution of India states that the law declared by the Supreme Court shall be binding on all courts within the territory of India. In dealing with the question of the interpretation of the word declared, Subba Rao CJ stated that the term is wider than the words found or made.4 The Supreme Court has held that to declare is to announce opinion. Indeed, the latter involves the process, while the former expresses result.5 In this case, Mukherjee, J. went on to state that the Court must do away with the childish fictions that law is not made by the Judiciary.6 It may be concluded therefore that the Supreme Court considers what may loosely be called law making to be part of its functions. The other relevant Constitutional provision in this regard is Article 142 under which the Supreme Court has the power to do complete justice in matters before itself. The need for complete justice in a cause or matter would depend upon the facts and circumstances of each case and while exercising that power, the Court would take into consideration the express provisions of a substantive statute.7 In this matter the Apex Court also held that any prohibition or restriction contained in ordinary laws cannot act as a limitation on the constitutional power of the Court. It has been opined that these powers also exist independently of the statutes with a view to do complete justice between the parties and are in the nature of supplementary powers and may be put on a different and even wider footing than ordinary inherent powers of a Court to prevent injustice.8 It is therefore clear that this is a very wide power, and instances of its use even include orders which quash criminal proceedings being conducted before any Court.9 These two Articles form the basis of the Supreme Courts powers with respect to law making functions. Whilst the precise scope and ambit of these
4I.

C. Golaknath & Ors v. State of Punjab & Anr. 1967 SCR (2) 762 v. D.T.C. Mazdoor Congress Union AIR 1991 SC 101 6Ibid 7Delhi Judicial Service Association Tis Hazari Court v. State Of Gujarat and Ors. 1991 SCR (3) 936 8Durga Das Basu, Shorter Constitution of India, (14th ed. 2009) Volume 1, 1034 9Union Carbide Corporation v. Union Of India (1991) 4 SCC 584
5D.T.C.

164

2013 CLCSLR

VOL.1 ISSUE 1

provisions has been the subject of much academic and judicial discourse, a general overview of these powers is adequate for subsequent analysis. II. PROSPECTIVE OVERRULING
A. DEFINING PROSPECTIVE OVERRULING

The doctrine of prospective overruling, which has gained significant attention in the United States, has also been accepted by the Apex Court of India.10 Prospective overruling may be defined as the overruling of a previous judicial precedent, but with application only to subsequent matters. In other words, the newly declared law shall be applicable to transactions after the date of such declaration. Thus, the new interpretation would apply only to those matters which arise out of transactions entered into by persons after the date of such overruling. For instance, the altered interpretation on arbitration law in India is to apply to arbitration agreements entered into after the pronouncement of the judgment which overruled the previous position.11Another example is the matter of I.C. Golaknath (subsequently discussed), where the Court held that Fundamental Rights cannot be abridged or taken away by the amending procedure in Article 368 of the Constitution. However, this overruling was applied prospectively, thus leaving out its application to amendments already made from the time of the commencement of the Constitution till the date of the overruling. Thus, this device ensures that actions in the past are validated despite subsequent alteration of the interpretation of the law which holds otherwise for all such future actions. The reasoning of the principle is perfectly obvious. There is a need in certain circumstances to alter the interpretation of a law which has lost favour with the Supreme Court. In such cases, the Court may apply such an altered interpretation only to future transactions, so as not to disturb the transactions already entered into. It therefore has the clear advantage of avoiding multiplicity of litigation and reopening of already settled matters.
B. FOREIGN ORIGINS

The conceptual dichotomy created by this principle may be understood through the following two theories. The first is the Blackstonian theory named after Sir William Blackstone, its principal proponent. This theory suggests that the function of the Court under the common law is
10See 11Bharat

552

Supra 4 Aluminum Co. & Ors. v. Kaiser Aluminum Technical Service, Inc. & Ors. (2012) 9 SCC
165

2013 CLCSLR

VOL.1 ISSUE 1

merely to declare the law which is made by the legislative functionaries. The judge finds the law and does not make it. This theory, as was explained in the Golaknath case, would suggest that if a subsequent decision changes the earlier one, the latter decision does not make law but only discovers the correct principle of law.12 Blackstone argued that it is an established rule to abide by former precedents13, and to keep the scale of justice even and steady, and not liable to waver with every new judges opinion.14 By this reasoning he proceeds to hold that the judge is not delegated to pronounce a new law, but to maintain and expound the old one.15 The theory has indeed incited much criticism. It is obvious that Blackstones conception of the Judge follows his general conception of the law itself. In his paper titled Found Law, Made Law and Creation: Reconsidering Blackstones Declaratory Theory16, William S. Brewbaker gave a holistic criticism of the theory. The most damning criticisms provided by the author are that the theory does not have any application to cases where there are no previous governing decisions, and that Blackstone was unable to keep distinct the task of the judge and legislator. The author states that Blackstone's overall picture of the judicial role is out of balance; he emphasizes the consistency, uniformity and inherent reason of law, but only reluctantly and indirectly acknowledges the discretion that judges enjoy.17 While a complete analysis of Blackstone is a fruitful jurisprudential inquiry, it suffices to say that the Blackstonian conception of the Judge is not one that has universal acceptability. It may be noted that acceptance of the Blackstonian proposition would suggest that all rulings of the Apex Court are by necessity merely declaratory, and therefore, must apply retrospectively. The second theory, called prospective overruling, was developed by various American jurists. These included Cardozo, Canfield, Freeman and Wigmore. Their reasoning was lucid and practical. It was felt that in certain circumstances it is important to alter the law which becomes outdated,
12Supra 13Sir

4 William Blackstone, Commentaries on the Laws of England, Vol. 1 [1753], Introduction, Section III (Available at http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Ftitle= 2140&layout=html#chapter_198647) 14 Ibid 15 Ibid 16 Brewbaker, William S., Found Law, Made Law and Creation: Reconsidering Blackstone's Declaratory Theory (2006) Journal of Law and Religion, Vol. XXII, Page 255 17 Ibid
166

2013 CLCSLR

VOL.1 ISSUE 1

without compromising previous transactions. The doctrine was applied for the first time in Great Northern Railway v. Sunburst Oil and Ref. Company.18 In that case, Cardozo J, rejecting the contention that all overruling was to apply retrospectively stated that A State in defining the elements of adherence to precedent may make a choice for itself It may be so that the decision of the highest courts, though later overruled, was law nonetheless for intermediate transactions.. An American author on the subject remarks that we employ the technique of prospective overruling as an exceptional expedient when the traditional retroactivity would wreak more havoc in society than societys interest in stability will tolerate.19 This theory therefore imposes upon judges the power and responsibility to ascertain the circumstances when an overruling is to apply only prospectively.
C. ACCEPTANCE IN INDIA

The doctrine of prospective overruling was accepted in India for the first time in the matter of I. C Golaknath v. State of Punjab20. The concept was declared to be a part of Indian jurisprudence, with certain limitations. Justice Subba Rao remarked, that It is a modern doctrine suitable for a fast moving society. It does not do away with the doctrine of stare decisis, but confines it to past transactions. Whilst there was divergence of opinion between the eleven judges in this historic constitutional matter, the doctrine was finally accepted by a thin majority. Chief Justice Subba Rao while speaking on behalf of the majority reasoning that given the fact that the apex court can overrule its own previous decisions, there could be no reason why it could not restrict the operation of the same only to the future and not the past. It was held that stability does not mean that injustice should be perpetuated. The Court went on to acknowledge that the House of Lords itself had largely modified the Blackstonian theory and by implication accepted in some form the idea of prospective overruling. The Court however put the following limitations upon the application of the doctrine in Indiaa. the doctrine of prospective overruling could be invoked only in matters arising under our Constitution;

(1932) 287 US 358 John Bernard, Retroactivity: A Study in Supreme Court Doctrine as Applied, 61, North Carolina Law Review, pp. 745-797 (1983) 20 supra 4
18 19Corr,

167

2013 CLCSLR

VOL.1 ISSUE 1

b. it could be applied only by the Supreme Court as it has the constitutional jurisdiction to declare its judgments as binding on all the courts in India; and c. the scope of the retroactive operation of the law declared by the Supreme Court superseding its earlier decisions is left to its discretion, to be moulded in accordance with the justice of the cause or matter before it. The doctrine has been applied in a variety of decisions. One such matter was Indira Sawhney v. U.O.I 21, a case pertaining to the Governments Reservation Policy, where the Court held that its decision would operate only prospectively and would not affect promotions already made, whether on temporary, officiating or regular/permanent basis. The doctrine has also been discussed and applied in Waman Rao v. Union of India22, Managing Director, ECIL v. B. Karunakar23, and more recently in the arbitration matter of Bharat Aluminum v. Kaiser Aluminum Co24. Thus it seems that the original requirement that prospective overruling may occur only in cases involving constitutional matters does not hold true anymore. It has been suggested by some authors that prospective overruling is only a recognition of the principle that the Court moulds the reliefs claimed to meet the justice of the case - justice not in its logical but equitable sense.25 In some sense therefore, it is argued that prospective overruling is a logical extension of the power of the Court to do complete justice. In many instances, the Court has denied relief claimed despite holding in the claimants favour in order to do complete justice.26 Prospective overruling is therefore acceptable as a natural extension of these principles. It has even been held that prospective overruling is a part of the principles of constitutional canon of interpretation.27 While accepting its entry into the domain of Indian jurisprudence, prospective overruling runs into conceptual difficulties as far as the conventional understanding of law making functions is concerned. This is
AIR 1993 SC 477 2 SCC 362 23AIR 1994 SC 1074 24Supra 11 25Durga Das Basu, Shorter Constitution of India, (14th ed. 2009),Volume 1, 1034 26Ibid 27Ashok Kumar Gupta v. State of U.P (1997) 5 SCC 201
21 22(1981)

168

2013 CLCSLR

VOL.1 ISSUE 1

not because the courts cannot make law, or mould relief, but because in such cases the Court purposefully denies the application of the correct position of legislative provisions. For whilst the Court itself concludes that legislative intention is for a provision to be read in a certain way, it refuses to apply such interpretation to previous transactions. It may be noted from the previous discussion that the law-making functions of the Executive and Judiciary are not exercised in a manner that subverts legislative intention. III. THE DIFFICULTIES The trouble with an uncritical acceptance of prospective overruling may be put concisely in the following points.
A. WHERE DO WE DRAW THE LINE?

In ordinary matters when the Court moulds relief to do complete justice, it does not effectively deny litigants a legal remedy. This may, however, well be the case with prospective overruling and therefore the conditions of its application must be well defined. Further, Courts must ordinarily give legislative intention its full effect. Containing the effect of the same to future transactions must be done only in circumstances of absolute necessity. The extended application of this principle into areas of law such as arbitration may become problematic. For if a matter is to go into alternative dispute resolution anyway, it seems difficult to conclude why the ordinary arguments for prospective overruling should find application. In the specific instance of the Bharat Aluminium Case (previously referred to), the Court moulded relief to ensure that arbitration agreements that were entered into on the basis of the law laid down previously were excluded from the operation of the altered interpretation of the law. This position seems well considered both in terms of equitable justice as also commercial certainty. Parties that entered into an arbitration agreement keeping in mind the principles enunciated by the previous Supreme Court ruling may not be prejudiced in favour of following the then stated position of law. However, the Court did not highlight the general principles regarding when such an overruling ought to be done. It is uncertain as to what kind of issues the Court would draw the line upon the application of this principle.

169

2013 CLCSLR

VOL.1 ISSUE 1

B.

DEVELOPMENT OF PARALLEL JURISPRUDENCE

The doctrine may further have the effect of leading to the development of parallel jurisprudence on the same point. To remove the strain of delving into multiple explanatory examples, let us logically analyze the concept using the following notation. Assume that the Court has before it Case 1, where the court must come to the conclusion of whether a provision Z should be interpreted to be mean Z or Z. The following become consequential in arriving at either interpretationa. Analysis of the object of the legislation containing Z. b. Interpretation of the wording of Z. c. Interpretation of the other relevant statutory provisions, for instance A, B, and F which are contained in the same Statute which contains Z. Now, assume that the previous position was that Z was to be interpreted to mean Z, and the overruling states that Z should in fact be interpreted as Z. If the Court applies prospective overruling, then Z shall hold as the interpretation to all transactions after the date of such a declaration. Assume now that a subsequent litigation Case 2, in which the question for consideration is the correct interpretation of the provision X when applied to a transaction in the past. Since the Court has only prospectively applied the interpretation of Z, there may be two possibilities that might arise in regard to the interpretation of X in the light of the new interpretation of Z. These may be neatly provided as(1) If Z is a wide provision, and the interpretation of Z as Z and Z in itself affects the direct interpretation or application of X, then one may conclude that an argument to interpret X in a manner consistent with Z may be rejected as being against the substance of the prospective overruling. (2) If Z is a narrow provision, and the interpretation of Z as Z or Z in itself does not affect the application of X, but only its interpretative consistency with the rest of the statute, it would seem that there is no restraint to interpret X in a manner consistent with Z. This is
170

2013 CLCSLR

VOL.1 ISSUE 1

because the prospective nature of the interpretation only pertains to Z and not to In this way we have demonstrated the manner in which the parallel jurisprudence shall develop in two clear waysa. In the more obvious manner, the parallel development shall be temporal. All matters raised after the relevant date of overruling shall be handled differently from those matters before, at least in regard to the interpretation of Z. For instance, all matters pertaining to the application of a particular Section overruled prospectively will be treated according to whether the transaction the section is applied to occurred before or after the overruling. b. Even in regard to transactions entered into before the date of the overruling, there seems to be no reason why all those cases that would fall within the scope of the second case as previously highlighted should not be treated differently from those which fall into the first case. For instance, if the previous interpretation of a particular section is overruled, that should be no reason why the interpretation of another independent section in that statute should not develop according to the newly declared law, irrespective of when the underlying transaction took place.
C. LIMITING THE LAWYERS ARGUMENT

The third troubling point are the limits upon the working lawyers reasoning. It seems difficult to understand the plight of lawyers who may well have to argue two different matters on the same day, applying different positions of law to identical factual circumstances. Squarely dependent on when the underlying transaction occurred, a particular view of the law will be applied. This becomes very likely in the case of Arbitration law, as opposed to Constitutional Law. For instance, an arbitration agreement entered into before the date of the Bharat Aluminium judgment (previously referred) is as likely to go into litigation as an arbitration agreement entered into after the date of the judgment. However, different positions of law would be applied to these cases. In Constitutional matters on the other hand, by providing that the altered law is to apply only to future transactions, the Court effectively ensures that settled transactions would not be opened up on the grounds of
171

2013 CLCSLR

VOL.1 ISSUE 1

the altered law. This would hardly be the case in arbitration law, as the possibility of litigation for or in connection with such arbitration agreements irrespective of the overruling is very high. The direct consequence, however, would be the development of parallel jurisprudence.
D. THE QUESTION OF FAIRNESS

There is a case to be made regarding the fairness of such a doctrine for all those to whom the new interpretation does not apply. If an individual himself takes the effort to argue upon the alteration of a well-established precedent, it may be considered unfair not to apply the new interpretation to his case. Even more unfair would be making the exception in his particular case, and leaving out all other similarly situated matters. An answer was sought to be provided to this unfair bargain in I.C. Golaknath, where the Court held that such a person could take advantage of the new law in subsequent matters. Whether such a situation would be entirely fair is questionable. Even under American Jurisprudence this question of inequity was considered and it was stated that to refuse to apply the new rule here would deprive appellant of any benefit from his effort and expense in challenging the old rule which we now declare erroneous. Thus there would be no incentive to appeal the upholding or precedent since appellant could not in any event benefit from a reversal invalidating it.28 IV. AUTHORS COMMENTS

No doubt, in many circumstances there is a need to restrict the interpretation of a particular point of law to only future transactions. A device which enables the same must be invoked in appropriate cases. Yet it is the very question of appropriate cases that receives a vexed response. If the power is considered one of moulding relief, it may not be confined by imposing strict conditions on its application. On the other hand, given its unconventional position, as also the complications that arise from its use, some general principles regarding its application must be evolved. In Constitutional cases regarding issues such as affirmative action or public
28Molitor

v. Kaneland Community Unit District No. 302, Supreme Court of Illinois, 1959, 18 Ill.2d 11, 163 N.E.2d 89, 97

172

2013 CLCSLR

VOL.1 ISSUE 1

employment, or the validity of legislation, the application of the doctrine may be well advised on efficiency and policy grounds. Further, in cases where the altered law may affect the very root of a commercial contract ordinarily entered into (as could be argued would happen in the case of the amended arbitration law in India), the court may consider restricting the application of its decision to future transactions. To restrain the floodgates of litigation, as also to enable the smooth functioning of the government, this doctrine can be appropriately invoked in Constitutional matters where chaos may be created by a sudden change in the provision of the law. Yet only because rights may be altered under the fresh interpretation of the law may not in itself be a good ground to restrict the operation of the judgment. Requirement of certainty, development of clear jurisprudence, and an incentive to challenge settled positions of law often require retrospective application of overrulings. In an intuitive sense, both retrospective legislation and judicial precedent seem difficult to reconcile with ideas of fairness and equity. Yet both these conceptions are well founded in law. When juxtaposing the difficulties and benefits of prospective overruling, it becomes clear that closely competing principles are at work. While it may not be wise to stifle the power of the Court to mould relief, it is certainly in the interest of potential litigants and lawyers that clear principles regarding the application of this doctrine be enunciated by the higher judiciary.

173

2013 CLCSLR

VOL.1 ISSUE 1

THE CURIOUS CASE OF SHARES WITH SUPERIOR RIGHTS: IS THE BAN IMPOSED ON THEIR ISSUE JUSTIFIED? Srinivasan Ramaswamy SEBI carried out an amendment to the listing agreement in the year 2009, whereby the issue of shares carrying superior rights as to voting or dividend, with respect to shares which have previously been issued, was prohibited. This presents a two-way problem. The principal question arising here is whether the SEBI was empowered in law by the Companies Act, 1956 or the SEBI Act, 1992 to carry out an amendment which sought to nullify to a significant extent, the provisions of the Companies Act, 1956. On an analysis of the legal provisions which lay down the powers and duties of the regulatory body, we come to a conclusion that such an amendment was beyond the authority of SEBI. Another ambiguity presented by this amendment on which this article throws light is that the relevant amended provision is silent about the criterion which is to determine whether the subsequent issue is superior in nature. After considering the permutations which are possible in this regard, the author suggests considering the shares carrying the lowest rights of all as the benchmark for the purpose of determining whether the particular issue was superior in nature to those issued before. This line of interpretation flows from the idea that the primary reason behind enacting this provision was to ensure that the public shareholders were protected against possible misuse of voting powers by the directors of the company. Furthermore, this article also seeks to argue in favour of lifting the ban on shares with superior voting/dividend rights and suggest ways to ameliorate the situation. I. INTRODUCTION

The separation of ownership from management in case of a joint stock company is an outcome of it having a separate entity from that of its owners or shareholders.1 The shareholders retain the right to elect members to the board of directors of the company and also vote on other fundamental issues. The administrators or managers act as agents of the shareholders in the general everyday management of the affairs of the company.2 Thus, voting rights act as a powerful determinant of corporate control.3 This often
1

3rd Year, B.A., LL.B. (Hons.), W.B. National University of Juridical Sciences, Kolkata Solomon v. Solomon & Co. Ltd. (1895-99) All ER 33 (HL). 2 Tara Gry, Dual Class Share Structure and the Best Practices in Corporate Governance, (Aug. 18, 2005), http://www.parl.gc.ca/Content/LOP/researchpublications/prb0526e.htm 3 See, Manne, Some Theoretical Aspects of Share Voting: An Essay in Honor of Adol f A. Berle, 64, Columbia Law Review,. 1427 (1964).
175

2013 CLCSLR

VOL.1 ISSUE 1

results in a tussle between the shareholders and the management to gain a greater say in the administration of the company. Therefore, the promoters or the administrators have been known to issue shares carrying voting rights disproportionate to their ownership, with a view to have more control over the administration of the company. Initially, the Companies Act, 1956 (hereinafter referred to as Companies Act) permitted only the one shareone vote rule.4 An expert panel for the establishment of a new stock exchange was constituted in 1991, under the able chairmanship of Mr. M J. Phewani. The committee laid down the blueprint for issuance of shares which carried no rights as to voting, by public companies which had an impressive track record of paying dividends in the preceding couple of years or in four out of the last five years or five out of the last seven years.5 These recommendations made by the Phewani committee were incorporated in the Companies Bill of 1993 and 1997, thereby paving the way for the issuance of equity shares with differential rights as to voting, dividend, or otherwise, although subject to the prescribed upper limit of 25% of the issued share capital of the company. These proposals saw the light of the day in the year 2001 by the virtue of respective amendments enacted by the Parliament to the Companies Act and other by-laws. However, the Securities and Exchange Board of India6, the capital markets regulatory authority in India issued a circular on 21st July 2009 notifying the amendment of the listing agreement, whereby all the companies listed on a stock exchange were prohibited from issuing shares carrying superior rights as to voting or dividend vis--vis the rights on shares which have already been issued.7 This measure taken by the regulatory body raises several questions with respect to the issue of shares by companies in the future inasmuch as they relate to shares carrying differential rights. This article shall explicate the concept of equity shares carrying differential rights and thereafter, the position of law in different countries shall be evaluated, while providing a detailed analysis of the scenario in India
Section 88 of the Companies Act, 1956 prohibited the issue of shares with disproportionate rights; however this provision has been abrogated by the Companies (Amendment) Act, 2000. 5 Shares Minus Voting, The Business Line The Hindu Financial Daily, January 11, 2011. 6 It may be noted that the abbreviation SEBI and its expanded form Securities and Exchange Board of India have been used interchangeable throughout the course of this article. 7Vide Notification No. SEBI/CFD/DIL/LA/2/2009/21/7, available at http://www.sebi.gov.in/circulars/2009/cirla2.pdf
4

176

2013 CLCSLR

VOL.1 ISSUE 1

as well. Subsequently, this article will critique the amending circular issued by the Securities and Exchange Board of India in the year 2009, pointing out the various ambiguities contained therein and thereafter present suggestions in favour of augmenting the existing law relating to shares with disproportionate rights. II. ISSUE OF EQUITY SHARES AND THEIR CONSEQUENT VOTING RIGHTS

Voting rights are vested with equity shareholders who are registered as members in the books of the company.8 Therefore, every member of a company holding equity shares has a right to vote in respect of shares at every resolution placed by the company.9 However, voting rights cannot be exercised in respect of shares on which call money has not been paid by the member10. The issue of equity shares by a company may either carry full or proportionate voting rights or differential rights with regard to dividend or rights to participate in the management or otherwise. The right to vote vested with shareholders is the residuary means of participating in the functioning of the company, not vested with the management.11 The proportionality principle thus underlines the view that a shareholder must be entitled to the same ratio of capital inflow and voting rights.12 In India, the one share-one vote was the norm till the year 2000 when the Companies Act was amended by the Indian Parliament, whereby the issuance of shares carrying differential voting privileges were permitted with effect from 13 December 2000. The issue of equity shares with differential voting and dividend rights has further been recognised by the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 200113.14 Shares with differential voting rights have been defined in the amended Section 2(46A) of the Companies Act as any share which has been issued as carrying
Sharad Doshi v. Adjudicating officer, (1998) 3 Comp LJ 145. Life Insurance Corporation of India v. Escorts Ltd (1986) 59 Comp Cas 548 (India). 10 The Companies Act, No. 1 of 1956, 181 (India). 11 C. S. Cheung et al., Controlling Opportunistic Behavior in Corporate Governance: The Role of Disproportionate Voting Rights and Coat-tail Provisions, Journal of Institutional and Theoretical Economics, Vol. 145, No. 3, 438-450 (1989). 12 Lack of Proportionality Between Ownership and Control: Overview and Discussion, OrganisOrganisation of Economic Co-operation and Development (2007). 13 It may be noted that the terms Companies (Issue of Share Capital wit h Differential Voting Rights) Rules, 2001 and Rules have been used interchangeably throughout the course of this article. 14 Vide Notification No. GSR. 167(E), Mar. 9, 2009.
8 9

177

2013 CLCSLR

VOL.1 ISSUE 1

differential rights in accordance with the provisions of Section 86 of the Companies Act, 1986. Consequently, Section 88 of the Companies Act had to be annulled since it prohibited public companies from issuing shares with disproportionate rights as to voting, dividend, capital, or otherwise.15 The Rules however, do not distinguish between equity shares solely on the basis of the voting right which they carry, but also on grounds of dividend or any other basis as may be prescribed.16 This therefore, gives autonomy to the companies to issue equity shares which carry any of the aforesaid rights, thereby differentiating itself with other classes of equity shares. There are several prerequisites for a company issuing shares with disproportionate rights as to voting, dividend or otherwise17(1) The company must have distributable profits as required by Section 205 of the Companies Act in the three preceding financial years prior to the year when the shares were decided to be issued. (2) The company has not defaulted in filing annual accounts and annual returns for three financial years, immediately preceding the year in which it was decided to issue such a share. (3) The company has not failed to repay its deposits or interest thereon on due date or redeem its debentures on due date or pay dividend. (4) The Articles of Association of the company authorizes the issue of shares with differential voting rights. (5) The company has not been convicted of any offence arising under Securities Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Foreign Exchange Management Act, 1999. (6) The company has not defaulted in dealing with investors grievances. (7) The company has obtained the approval of the shareholders in general meeting by passing resolution as required under the provision
The Companies (Amendment) Act, No. 53 of 2000 (India). Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2(1)(b) (2001). 17 Companies (Issue of Share Capital with Differential Voting Rights) Rules, 3 (2001), Amended vide Notification No. G.S.R. 27 (E) dated 12.01.2002.
15 16

178

2013 CLCSLR

VOL.1 ISSUE 1

of sub clause (a) of sub-section (i) of Section 94 read with sub-section (ii) of Section 94 of the Act. (8) The listed company has obtained the approval of the shareholders in a postal ballot. Section 86 of the Companies Act, 1956 also stipulates the issue of two kinds of equity shares by a company limited by shares vis. equity shares with voting rights and shares carrying differential rights as to dividend, voting or otherwise in accordance with such rules and subject to such conditions as may be prescribed. Section 87(1) however, envisages that every member of a company limited by shares, holding equity shares shall have voting rights in the company. Therefore, the provision implies that the voting rights of all classes of equity shares have to be preserved although they may carry differential rights. Differential voting rights on the shares can only be made effective, by the virtue of a poll, since vote by a show of hands is only possible in case of one person one vote.18 This provision of the Companies Act vests voting rights in every member of the Company and no company by virtue of its articles or otherwise can deny a member of his right to vote on the basis of the number of the shares owned by such member.19 However, there is another category of shares with differential voting rights that carry a right to vote, which may be contingent. The privileges carried by these shares are on par with the rights enjoyed by other holders of common stock. However, the differential privilege may come into force on the happening or non- happening of a particular event i.e., non-declaration of dividend etc.20 III. HISTORY OF SHARES WITH DIFFERENTIAL RIGHTS AND OTHER JURISDICTIONS

It was in September 1986 that the Securities and Exchange Commission (SEC) in the United States resolved to abrogate its old law against the listing of shares which carried less than full voting rights. 21 The SEC a couple of years later in 1988 approved Rule 19c-4 that prohibited the
A Ramaiya, Guide To The Companies ACT 1109 (Arvind Datar et al. eds., 16th ed., 2006). Id. at 1109. 20V. R. Shah, Issue of Equity Shares with Differential Voting Rights - An Analytical Study, [2001] 32 S.C.L. 127 (Mag.). 21 New York Stock Exchange Listed Company Manual, 313 (May, 1985).
18 19

179

2013 CLCSLR

VOL.1 ISSUE 1

issue of all shares which impinged upon the voting rights of existing shareholders, thereby severely restricting the companys ability to issue shares with disproportionate voting rights. However, this move by the Securities Exchange Commission was subjected to severe criticism from various spheres, including the corporate community as well the Congress which however, had extended full support to SEC in 1926 when the one share-one vote rule was introduced for the first time.22 But the United States Court of Appeals for the District of Columbia Circuit invalidated this new rule and restored the status quo ante.23 It was even debated that as far as relinquishing of voting rights were concerned, the shareholders were well within their rights to do so.24 Thus, the companies listed at the American Stock Exchange were required to comply with the 1:10 limitation ratio with regard to the class of shares with superior voting rights and the holders of the class of inferior shares were given the right to elect at least 25% of the Board of Directors. 25 Also if the issuing companys board was dominated by independent directors, then a majority of such directors must vote for the proposition, and if the number of such directors is less than majority then all of them must assent to it.26 The sub-committee of the New York Stock Exchange also provided that the rights of all the shareholders shall be equal, except for the voting powers.27 Shares carrying subordinate voting rights are known as dual-class shares in the United States of America.28 The evolution of differential rights shares has been somewhat similar in English law. English law recognised the one vote per share principle which determined the amount of control over the company by ones investment in the company. However, gradually the courts began upholding measures taken by companies providing additional votes in resolutions seeking to remove the board of directors.29 The Jenkins Committee
Louis Lowenstein, Shareholder Voting Rights and A Response to SEC Rule 19c -4 and to Professor Gilson, 89 Colum. L. Rev., 980, 979 - 1014 (June, 1989). 23 Business Roundtable v. Securities and Exchange Commission, 905 F.2d 406 (D.C. Cir. 1990). 24Louis Lowenstein, Whats Wrong with Wall Street: Short - Term Gain and the Absentee Shareholder , 188 - 90 (1988). 25 See American Stock Exchange Guide (CCH) 10,022. 26 Joel Seligman, Equal Protection in Shareholder Voting Rights: The Common One Share, One Vote Controversy, 54 Geo. Wash. L. Rev. 687 (1986) 27 Id. 28Paul A. Gompers et al, Incentives vs. Control: An Analysis of U.S Dual- Class Companies, http://knowledge.wharton.upenn.edu/papers/1278.pdf (last visited Jan. 19, 2013). 29 See, Bushell v. Faith, [1970] 1 All E.R.53.
22

180

2013 CLCSLR

VOL.1 ISSUE 1

constituted in 1962 also made several recommendations in favour of nonvoting shares inter alia such as higher rate of return, retention of control in favour of restricted or non-voting shares.30 The Republic of Canada also permitted the issue of shares with differential rights around the same period as that of United States of America.31 An approval from the minority shareholders is required prior to the issue of such shares. 32 Similarly, shares carrying multiple votes were popularized in France in the earlier part of the twentieth century and were commonly used as a measure to thwart hostile takeover bids.33 However, this category of shares has now gained immense popularity in the country.34 Superior voting rights in shares in France are usually in the ratio of 1:2 if they have been held for two consecutive years and four years in case of publicly traded scrips.35 Corporate laws in New Zealand also permit a company to issue shares with special, limited or conditional rights as to voting, provided the same is authorized by the Articles of Association of the Company.36 However, as of now, Singaporean law does not permit the issue of shares with superior voting rights, 37 although the Ministry of Finance has proposed certain changes which seek to permit issue of shares with no or multiple voting rights provided, such an issue is authorized by the articles of the company.38

Weinberg And Blank, Takeovers And Mergers 70 (5TH edn., 2001). Lewis D. Johnson & Bohum Pazderka, The Role of Stock market in Corporate Governance, The Frazer Institute, http://oldfraser.lexi.net/publications/books/gamble/chapter2.html (last visited Jan. 19, 2013). 32 5.2, Policy 3.5, Toronto Stock Exchange Venture Exchange Corporate Finance Manual , available at http://www.tmx.com/en/listings/venture_issuer_resources/finance_manual.html. 33 Konczyk, Muriel, Big changes in ownership structures: Multiple votes in interwar France, Business, Finance & Institutions: What Can We Learn From The Past?, University of Antwerpen, Belgium, (Oct. 19, 2006), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=944808 34Renee Adams, One Share-One Vote: The Empirical Evidence, Review of Finance, University of Oxford, (2008) 12: 5191. 35 Corporate Governance And Corporate Finance: A European Perspective , (Ruud A. I. Van Frederikslust ed., Routledge Publishers) (2007). 36 New Zealand Companies Act, 1993. 37 Dual Class Shares not allowed in Singapore, Says SGX, Business Insider (Sept. 21, 2011) http://articles.businessinsider.com/2011-09-21/wall_street/30183483_1_preferenceshares-dual-class-singapore-exchange. 38 Press Release, Ministry of Finance, Singapore, Ministry of Finance Completes Review of the Companies Act (Oct. 3, 2012), http://app.mof.gov.sg/TemNewsroomDetail.aspx?pagesid=20090924508092100125&page mode=live&type=press&cmpar_year=2012&news_sid=20121003359996770534&AspxAu toDetectCookieSupport=1
30 31

181

2013 CLCSLR

VOL.1 ISSUE 1

IV.

DIFFERENTIAL VOTING RIGHTS SHARES: VARIOUS VIEWS

Shares carrying superior voting privileges are in ordinary course held by promoters and management personnel,39 because the issue of shares with disproportionate voting rights facilitates them to have voting rights in a greater proportion to their contribution to the capital of the company, thereby negating the threat of an impending hostile takeover.40 Therefore shares with lower voting rights usually carry greater dividends as incentives for investors.41 This implies that voting rights play a pivotal role in determining the ownership and administration of the company. Shares with differential voting rights are a more effective way to tackle takeovers, compared to other traditional mechanisms like poison pill and shark repellent.42 Thus, if the present administrators are entitled to higher voting rights, then the option of rejecting the offer is available to them. This provides the owners of economic capital the added incentive to manage the affairs free from all interference. Foreign investors are prohibited from investing in shares with voting rights in certain jurisdictions in order to ensure that the corporate profits are distributed within the economy. A perfect example would be that of the Norwegian capital market where the financial market regulatory norms regulated foreign investment in voting shares till the year 1995 and only 33 per cent of the companys voting rights were permitted to be held by foreigners.43 In a joint stock company, all the members may not be equally interested in participating in the management. Participation in the management of a company also offers little or no incentives to public shareholders, owing to their comparatively low volume of investment in the company.44 The differential voting shares are a step in that direction. Shares with disparate voting rights provide the managers the advantage of raising
Seligman, supra note 27. H. De Angelo & L. De Angelo, Managerial Ownership of Voting Rights: A Study of Public Corporations with Dual Classes of Common Stock, Journal of Financial Economics pp. 33 69 (1985). 41 Arnav Pandya, Change in Voting Rights, Business Standard, June 22, 2008. 42 Jeffrey N. Gordon, Ties That Bond: Dual Class Common Stock and the Problem of Shareholder Choice, 76 Cal. L. Rev. 1 (1988). 43 B. A. Odegaard, 2000, Price Differences between Equity Classes: Corporate Control, Foreign Ownership or Liquidity? Evidence from Norway 5 (Norwegian School of Management, Working Paper No. 2/2000). 44 Gompers, supra note 29.
39 40

182

2013 CLCSLR

VOL.1 ISSUE 1

capital without any significant change in the controlling rights over the company.45 At the same time, they provide an opportunity to the retail investors to earn greater returns on their investment in lieu of their voting rights. Shares carrying inferior voting rights generally tend to offer greater dividends at a lower price to attract retail investors. If these shares are issued at a lower price, then these become more attractive compared to shares with higher voting rights, since retail investors focus more on the appreciation of their investment rather than being involved in the management. Thus the differential voting rights shares enjoy a greater degree of liquidity in the share market.46 One of the foremost criticisms levelled against shares carrying greater voting privileges is that the voting powers vested with the management are liable to be abused, to the detriment of the retail shareholders. The minority shareholders are left out of the decision making process, since most of the important decisions including the appointment of directors to the board of the company are taken by those holding the shares carrying greater voting rights. This results in lack of transparency in the activities of the company. These issues involving corporate governance were highlighted by the Adelphia and the Hollinger International Inc. frauds.47 These shares have also not found any support from institutional investors owing to the aforesaid factors and also due to the reason that these shares provide no avenue for having a controlling stake in the company.48 Another criticism put forward by many is that shares with differential voting rights act as an impediment to the working of directors appointed by institution of public shareholders or financial organisations, since the full time directors may have greater say in the meetings of the company.49 Differential voting rights shares have often

Michel Magnan, Dual Class Shares: Governance, Risks and Rewards, Ivey Business Journal, http://www.iveybusinessjournal.com/topics/leadership/dual-class-shares-governancerisks-and-rewards (last visited Jan. 13, 2013). 46Forester S.R. & Porter D.C., Dual Class shares: Are there return Differences, 20(6) Journal of Business Finance and Accounting, pp. 893-903 (1993). 47 GRY, supra note 3, See, e.g., Gompers et al, Extreme Governance: An Analysis of U.S DualClass Companies, http://www.haas.berkeley.edu/groups/finance/dualpaper.pdf (last visited Jan. 19, 2013). 48 Kai Li, et al., Do Voting Rights affect Institutional Investment Decisions? Evidence from Dual Class Firms, Sauder School of Business (Aug. 2007), http://finance.sauder.ubc.ca/~kaili/dualclass_FM.pdf 49 George W. Dent Jr., Dual Class Capitalization: A Reply to Professor Seligman, 54 Geo. Wash. L. Rev. 725 (1986).
45

183

2013 CLCSLR

VOL.1 ISSUE 1

found to be traded at a discount,50 and have thereby led business managers to take necessary steps to arrest the loss of shareholder value. Therefore, the issue of differential voting right shares has oft been cited by experts as a model of poor governance.51 V. DIFFERENTIAL VOTING RIGHTS SHARES: THE INDIAN SCENARIO

The issue of differential voting rights shares in India has been sparse compared to other countries. TATA Motors Ltd. was the first company to issue shares with disproportionate voting rights in 2008,52 followed by Pantaloon Retail India Limiteds bonus issue and Gujarat NRE Coke Ltd. rights issue in 2009.53 The differential voting right shares were priced at Rs. 305 per share as opposed to Rs. 340 for ordinary equity shares and carried five per cent higher dividend than the shares with full voting rights as a compensatory measure against lesser voting rights.54 The issue by Gujarat NRE Coke has been viewed as a measure taken to thwart takeover moves by rival coking coal companies, since this issue significantly increased the promoters stake in the company to fifty-one per cent despite their contribution to equity being only forty-one percent. The next company in line was Pantaloon Retail India Limited in early 2009, when it offered shares with differential voting rights as bonus to the existing shareholders of the company. It was decided that the bonus shares with disproportionate voting rights will be offered in the ratio of 1:10 vis--vis existing shares with full voting rights held by shareholders on the record date.55 These bonus shares carried 5 per cent dividend greater than that offered by the ordinary equity shares, but ten of these differential voting rights shares carried only one vote.

Samie Modak, Tata Motors DVR Shares Trading at 45% Discount , The Financial Express (Mumbai), April 7, 2011. 51 Ronald W. Masulis et al, Agency Problems at Dual- Class Companie, The Journal of Finance, Volume 64, Issue 4, 1697 - 1727 (2009). 52 Deepak Korgaonkar, DVRs Outperform Ordinary Shares, The Business Standard (Mumbai), March 12, 2012. 53 S. Hamsini Amritha, Differential Voting Rights, The Business Line - The Hindu Financial Daily, October 5, 2008. 54 In Govern Research Services, All You Wanted to Know About DVRs, In Govern (2011), http://www.ingovern.com/wp-content/uploads/2011/12/DVRs-Differential-VotingRights.pdf. 55ENS Economic Bureau, Pantaloon Offers bonus DVR shares, The Indian Express (Mumbai), July 25, 2008.
50

184

2013 CLCSLR

VOL.1 ISSUE 1

The issue of shares with differential voting rights has also received support from the judiciary in the decision of the Company law Board in Anand Perishad Jaiswal v. Jagatjit Industries56. In the instant case, the respondent Karamjit Jaiswal along with an unlisted company LP Jaiswal and Sons Pvt. Ltd held 7,418,748 equity shares amounting to twenty three and a half per cent (eight and a half per cent by the respondent and fifteen per cent by his firm) in Jagatjit Industries Ltd. which was involved in the production of liquor. LP Jaiswal and Sons Pvt. Ltd. agreed to acquire two and a half million differential voting rights shares which carried twenty votes each in Jagatjit Industries, thereby bringing its stake in the company to a little more than nineteen per cent up from fifteen per cent. The respondent later increased his stake to thirteen per cent from eight and a half per cent by acquiring 2.19 million shares which carried full voting rights. Therefore, the twin share acquisitions resulted in the holdings of the respondent and LP Jaiswal increasing to thirty two per cent stake in Jagatjit Industries Ltd altogether. The differential voting shares now owned by L. P. Jaiswal and Sons resulted in the consolidation of voting rights worth thirty two per cent, thereby enabling them to make a public announcement to acquire to the extent of twenty per cent of the voting capital of the target company as was required under the SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 1997. This differential issue however faced an obstacle when Anand Jaiswal and Blossom Investments Pvt. Ltd, together owning eleven and a half per cent in the target company altogether, filed a petition before the Securities and Exchange Board of India challenging the pricing of differential voting shares, citing lack of transparency in the issue. It was also argued before the regulatory body inter alia that the in-principle approval as required by Clause 24(a) of the listing agreement, from stock exchanges had not been received; violations of the SEBI (Prevention of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, inappropriate pricing of the shares to be issued and also issues regarding oppression of shareholders and mismanagement had been raised. SEBI stated that it was not empowered to decide upon this issue. However it stayed the issue of the shares until the matter was finally adjudged on merits by a competent authority.57 The
56 57

(2010)1 CompLJ 509(CLB). Anand Perishad Jaiswal v. Jagatjit Industries, Order No. WTM/TCN/01/CFD/APRIL/08, (Apr. 8, 2008), available at www.sebi.gov.in/cmorder/jagatjitorder.pdf
185

2013 CLCSLR

VOL.1 ISSUE 1

powers of SEBI have been enumerated under Companies Act, 1956 as well. It stipulates that the provisions outlined by Sections 55 to 58, 59 to 81, 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207 in case of listed companies and companies intending their shares to get listed, inasmuch as they relate to issue and transfer of securities and non-payment of dividend shall be administered by the Securities and Exchange Board of India.58 Therefore, it stated that Section 55A did not confer powers on SEBI to enforce the provisions of the Securities and Exchange Board of India Act, 1992. Hence, the matter was left to be decided on merits by a competent court. Mr. Anand Jaiswal therefore moved the Company Law Board to declare the impugned resolution passed at the target companys Extraordinary General Meeting on June 16, 2004 as null and void, by virtue of which 2.5 million shares carrying differential voting rights were allotted to LP Jaiswal & Sons, with each share being entitled to 20 votes. The Company Law board decided in favour of the validity of the resolution passed at the meeting, stating that issue of differential voting shares is permissible under Section 86 of the Companies Act read with the Rules enacted by Central Government for this purpose. However, the respondents Jagatjit Industries were directed to buyback the entire holding of Mr. Anand Jaiswal in Jagatjit Industries Ltd. and L.P. Jaiswal & Sons Pvt. Ltd for a value of Rs. 365,000,000 in each of the companies, as per the terms of the settlement agreed upon by the parties. VI. REGULATORY MEASURES AND SEBIS STAND ON SHARES CARRYING SUPERIOR RIGHTS

The market regulatory authority brought in several modifications to the existing provisions governing differential voting rights shares in the year 2009. Chapter VIII of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 was amended and changes were affected in Rule 19(2)(b) of the Securities Contract Regulation Rules, thereby facilitating easier listing of shares carrying differential rights. 59 However, pursuant to a board meeting, a press release was issued in the same year notifying the prohibition of issue of shares carrying superior rights as to

58

59SEBI

The Companies Act, No. 1 of 1956, 55 (India). Notification No. SEBI/CFD/DIL/DIP/ http://www.sebi.gov.in/circulars/2009/dip342009.pdf

34/2009/24/09,

available

at

186

2013 CLCSLR

VOL.1 ISSUE 1

voting or dividend.60 Consequent to the amendment, the concerned clause 28A of the listing agreement read as follows:The Company agrees that it shall not issue shares in any manner which may confer on any person, superior rights, as to voting or dividend vis--vis the rights on equity shares that are already listed. The various stock exchanges therefore were also required to make the necessary changes to their listing agreements. This change was effected as a measure to nullify the spirit of the Company Law Boards decision in Anand Perishad Jaiswal v. Jagatjit Industries Ltd61, which permitted the issuance of shares carrying disproportionate rights of voting or dividend. The rationale behind such a move can be attributed to the power vested with the company administrators to issue such shares to their advantage and reduce the scope of the shareholders to take active participation in the day to day functioning of the organisation. VII. CONTRADICTIONS AND LOOPHOLES IN THE EXISTING LEGAL MECHANISM

It is pertinent to note that the aforesaid amendment to the listing agreement is laden with its fair share of troubles. The amendment prohibiting issue of differential rights shares meant that the shares previously issued by TATA Motors Ltd., Pantaloon Retail India Ltd. and Gujarat NRE Coke Ltd. were void in so far as they were shares carrying greater rights as to dividend, although having lower voting powers. Therefore, this assumption prompted TATA Motors to file a request dated 17 September 2009 seeking interpretative guidance from SEBI under the SEBI (Informal Guidance) Scheme, 2003.62 The SEBI vide a reply to the aforesaid request stated inter alia the following63:(a) the existing shares with differential voting rights will continue to have all the rights,

PR No.192/2009, available at http://www.sebi.gov.in/press/2009/1922009.html Supra note 57. 62Letter by TATA Motors Ltd. to SEBI under the Informal Guidance Scheme, http://www.sebi.gov.in/informalguide/Tata/tataletter.pdf 63 SEBIs reply in response to TATA Motors Ltd.s request under the Informal Guidance Scheme, http://www.sebi.gov.in/informalguide/Tata/sebiletter.pdf
60 61

187

2013 CLCSLR

VOL.1 ISSUE 1

(b) TATA Motors Ltd., shall be entitled to further issue shares of the same class on the same terms by way of a bonus of rights issue, (c) Subject to compliance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, it may issue shares of the same class by way of a follow on public offering, (d) The Company was also permitted to issue Employees Stock Options if the stock options are converted into the shares of the same class, provided they are in compliance with the SEBI (Employees Stock Options and Stock Purchase Scheme) Guidelines, 1999, (e) It was also permissible to issue such shares on exercise of convertible option by holders of Convertible Alternative Reference Securities (CARS) contingent on the compliance with other guidelines or regulations. One of the foremost issues is whether it was within SEBIs law making powers to amend the listing agreement which in terms abrogated a law that had been brought into effect vide an amendment to the Companies Act, 1956 by the Parliament in the year 2000. Section 55 of the Companies Act merely enumerates the provisions of the statute which shall be implemented by SEBI inasmuch as they deal with issue and transfer of securities and transfer of dividend. The powers and functions of the regulatory organisation have also been codified in the Securities and Exchange Board of India Act, 1992. The Board has only been vested with functions which include overseeing the functioning of stock exchanges throughout the country, regulating and registering brokers, sub-brokers, merchant bankers, underwriters and other intermediaries involved in the financial market, monitoring venture capital funds, checking unfair practices including insider trading, promoting awareness about the securities market, regulating takeovers, mergers and acquisitions and activities incidental to the aforesaid functions.64 The scope of Section 11A is also limited to regulation or prohibition of issue of prospectus, offer document or advertisements. Interestingly, in a somewhat similar scenario, a court in the United States had vacated a rule adopted by the market regulatory body on the grounds that it

64

Securities and Exchange Board of India Act, 11 (1992) (India)

188

2013 CLCSLR

VOL.1 ISSUE 1

lacked the jurisdiction to make such a rule.65 Therefore, it could be understood in the light of the aforesaid provisions that SEBI inherently lacks the power to prohibit the issue of shares with differential rights and such discretion results in the annulment of a provision of an Act enacted by Parliament. The amendment by the countrys capital markets regulatory body looks at only one side of the coin. The amendment introducing Clause 28A in the listing agreement prohibits only the issue of shares with superior rights with regard to voting or dividend, with the intention of protecting the interests of the shareholders. However, it fails to take into account the fact that an issue of shares carrying inferior voting or dividend rights vis--vis shares previously issued by the company shall have the same effect as an issue of shares with superior rights. This is because shares with inferior rights would dilute the control of the new shareholders or the existing retail shareholders (in case of a rights issue) over the company affairs with respect to the persons on the board of the company or the promoter entity. This again vests a significantly greater degree of control over the company with the promoters. This one sided view of the matter taken by SEBI does not serve the purpose it was actually intended for. This move also results in a ban against the issue of shares carrying normal voting or dividend rights. This amendment therefore, nullifies shares with inferior voting rights for all practical purposes, since an issue of such shares would only be subscribed to by the public if it promises greater dividends. But, even shares carrying superior dividend rights have been prohibited by this amendment. This conclusion throws light on another glaring ambiguity in the impugned provision. SEBI has made no indication as to the benchmark category with respect to which the differential voting rights shares are to be evaluated. Thus, there are no clear parameters which could be used to compare and differentiate the current issue of shares to the ones which have been issued by the company previously. This problem arises especially when the company has more than one class of shares listed. Therefore, in the present scheme of things, it may be difficult to judge the validity of a particular public issue. There may be instances where the company has not issued shares with differential rights in the past. If such an issue materializes, it may be argued that the concerned issue will be subject to the terms of the previously issued one vote shares. Another scenario which needs to be
65

Supra note 24.

189

2013 CLCSLR

VOL.1 ISSUE 1

considered is that if a company has issued shares with superior rights in the past, then in the event of a subsequent differential issue, it could be argued that the class of shares carrying the greatest rights must act as the benchmark for the current issue of shares carrying differential rights. The possibilities mentioned above although seem attractive are not tenable. All these arguments remain only a figment of interpretation as SEBI has not issued any directive in this regard nor have the courts had the opportunity to deal with this ambiguity. Therefore, the author also finds it pertinent to point out that applying the principles of purposive construction; the interpretations mentioned above are fallacious. The object and purpose behind introducing this amendment was to secure the interests of the shareholders against any possible misuse of power by members of the board. Hence, the only plausible interpretation of this provision would be keeping in mind the object and scope of the amendment. Taking into account the foregoing analysis, the benchmark for the newly issued shares must be the class of shares which carry the least rights. This is because a particular issue, despite carrying lesser rights than some of the previous issues, may still attract the provisions of this clause as it may be carrying greater rights vis--vis shares issued earlier but carrying lesser rights than the immediately preceding issue. Allowing such an issue would result in the dilution of the control vested with holders of shares with lesser rights. Hence, only the suggested interpretation would be consistent with the text and purpose of the amendment. It is also interesting to note that if the interpretation suggested above is adopted, then it may result in another practical difficulty. The company would only be entitled to issue shares carrying rights which are lesser than the ones issued earlier. In that case the ones being issued will constitute the yardstick for the next issue, which in turn must be of shares having even lesser rights and so on. This poses a practical absurdity. VIII. THE WAY AHEAD

It is clearly discernible that Clause 28A of the listing agreement is fraught with lacunae and severe ambiguities. Although the number of listings in the Indian capital market has been on the rise, this provision has never been put to test owing to the number of companies issuing differential rights shares in India being negligible and this is evinced by the fact that the market has witnessed only a couple of such issues in the last three years. The changes brought forward by SEBI have not served the purpose they were
190

2013 CLCSLR

VOL.1 ISSUE 1

actually meant to serve. The management could still consolidate all the controlling power by issuing shares with inferior voting rights to the public shareholders. Although the shares with inferior rights enjoy a greater degree of liquidity in the market and also higher dividends thereby enjoying public confidence,66 the blanket ban on shares with superior rights as to dividend or voting or otherwise is not justified. The issue of superior right shares is not a malpractice in itself like insider trading; it merely increases the probability of the companys board resorting to such issue to grab a greater share of control. Therefore, the regulation of such shares may be done on a case by case basis by SEBI, instead of simply putting an end to the issuance of such shares. SEBI may require the concerned entity to submit a report explaining the need for such an issue and also point out the impact of such an issue on the existing shareholders of the company. Even if such a practice is not adopted, it must clarify all the ambiguities regarding the amendment. Alternatively, SEBI could also take a leaf out of the New York Stock Exchanges book, which limits the voting rights per share to the ratio of 10:1 or the French law restricting it to 2:1. Another possible alternative would be to retain the law on the issue of shares with differential rights, but an issue of shares carrying superior voting rights may be subjected to a vote by the minority shareholders of the Company as is done in Canada.67 A proposal to issue such shares must also have the assent of all the independent directors of the company.68 On one hand, the Indian securities market is still in a nascent stage and an unclear legal provision laden with flaws like these is an absurdity in itself and would only compound the problem, thereby attracting greater manipulations of the law. Excessive regulation is uncalled for, since it deters a company from maximizing its potential by opting for a favourable capital structure.69 The Companies Bill, 2011 also contains a provision permitting the issue of shares with differential rights as to voting, dividend or otherwise.70 If this Bill is passed by the Parliament without any alterations to the concerned provisions, then it may have some serious legal ramifications. Therefore, the need of the hour is to rethink the ban on the issue of shares
Forester, supra note 47. Supra note 30. 68 Seligman supra note 25. 69Abhishek Nath Tripathi, Shares With Differential Voting Rights: A Legal and Economic Analysis, 15 Student B. Rev. 74 (2003). 70 Companies Bill, Bill No. 121, 43 (2011)
66 67

191

2013 CLCSLR

VOL.1 ISSUE 1

with superior rights imposed by SEBI and/or amend it accordingly to avoid any confusion regarding the same.

192

2013 CLCSLR

VOL.1 ISSUE 1

SMILE, YOURE ON CANDID CAMERA FINDING SOLUTIONS FOR PRIVACY VIOLATIONS BY THE PAPARAZZI IN THE RIGHT OF PUBLICITY Samira Varanasi* The right of publicity is a relatively unrecognised proprietary right in India. While it has found mention in a few Indian judgments, our judiciary relies heavily on the American courts interpretation of this right. It is argued that while the right developed in the United States out of frustration with the right to privacy that afforded celebrities little protection from unwarranted commercial exploitation of their public images, the American justification for the right of publicity is vague and elusive and consequently prone to unbridled expansion. This paper envisages a restrictive publicity right that has its basis in a justification similar to that of trademark rights. It argues that such a justification would also be more effective in protecting the right of privacy of celebrities, not only in cases where their images are being commercially exploited by advertisers but also against unwarranted intrusion of the paparazzi in their private spheres. This proposed right would fill the loopholes in the right to privacy without the risk of unchecked expansion.

I.

INTRODUCTION

The right of publicity has been defined to mean the inherent right of every human being to control the commercial use of his or her identity1. It was born out of the right to privacy in the United States and has currently attained the form of a full-fledged property right. Celebrities have traditionally used it to prevent the use of their names, photographs, likenesses or identities in advertisements without their permission. This has been hugely empowering for celebrities who intend to control the exploitation of their images without their knowledge. At present, the right of publicity has not been statutorily recognised in India. However, of late the courts have started to take notice of this right. For instance, in DM Entertainment Pvt. Ltd. v. Baby Gift House2, toy manufacturers who modelled their toys on Daler Mehndi were sued for violation of the right of publicity. The Delhi High Court recognised publicity rights as a sub-species of privacy rights whose violation would attract Articles 19 and 21 of the Constitution. In American law, the right of publicity is
* Vth Year, B.A., LL.B. Course, NALSAR University of Law, Hyderabad 1 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition 28.1 (4th ed. 2004) 2 MANU/DE/2043/2010
193

2013 CLCSLR

VOL.1 ISSUE 1

gradually growing out of a right merely associated with the right to privacy into a distinct property right recognised on Lockean principles, much like copyright. However, there has been a concern that the scope of this right has been extended beyond comfortable limits. As art is becoming increasingly commodified and deification of celebrities is becoming increasingly rampant, it becomes important to consider whether it would be prudent to import this concept into Indian law. This paper examines the major problems that have arisen during the application of the right of publicity law, whether based on common law jurisprudence or a statutory right. It concludes that the biggest threat posed by the right of publicity has been the undefined scope of this right which has led to its unbridled expansion in the United States to the point that, on many occasions, it comes dangerously close to stifling competing interests such as the First amendment freedom of speech of speech of the alleged infringers. In an attempt to find a common solution for problems arising out of the undefined scope of the right of publicity, the paper tries to confine its scope to the original purpose of its introduction by developing a trademark-like justification for the right and rejecting the justifications finding basis in copyright law that have been furnished for the right to publicity. II. THE ORIGIN AND DEVELOPMENT OF THE LAW ON THE RIGHT OF PUBLICITY

The right of publicity traces its origins to American jurisprudence on the right to privacy. In 1898, Samuel Warren and Louis Brandeis wrote an authoritative work on privacy rights titled The Right to Privacy.3 . Lamenting the fact that recent cultural and technological developments, especially an overreaching press, had effectively trivialized the private space of the individual4, they made a case for a right to privacy or a right to be left alone vested in individuals. In their discussion of an individuals right to privacy, they also suggested vesting in every individual a proprietary interest in his or her personality.5 However, since the core concern of the article was to protect the privacy of private life6, the right to privacy envisaged by Warren and Brandeis did not extend to information which had been put in
Samuel D. Warren & Louis D. Brandeis, The Right to Privacy, 4 Harv. L. Rev. 193 (1890). Ibid. at 195. 5 Id. at 205. 6 Id. at 215.
3 4

194

2013 CLCSLR

VOL.1 ISSUE 1

the public sphere through voluntary disclosure7 or in which the public had a legitimate interest.8 Unfortunately, just five years after the publication of this article, the New York Court of Appeals in the case of Roberson v. Rochester Folding Box Co.9 refused to grant the claimant remedy on the ground that the unauthorized use of her picture in the defendants advertisement had caused her mental and physical distress. It reasoned that there was no precedent in the case law for Warren and Brandeis so-called right of privacy10. However, it recognised the need for legislation to protect the interests of persons whose pictures or name are used without their consent for advertising11. In response, the New York legislature enacted a statute to this effect12. Two years later, in Pavesich v. New England Life Insurance Co.13, the Georgia Supreme Court explicitly accepted the premise of the Warren and Brandeis article and held that the unauthorized use of a persons photograph in a testimonial advertisement would result in a cause of action for the violation of the right of privacy. However, the plaintiffs in both the aforementioned cases asserted claims that could comfortably be founded on the right to be left alone. It was easy for them to claim that their images were representative of their persona and had so far, enjoyed the luxury of anonymity; and that their sudden public disclosure had caused mental distress to them. However, the same argument could not be made so convincingly by celebrities, who had not only consented to, but also invested time and effort in putting their personas within the realm of public information. The basis for violating the right to privacy was based on the tort law concept of personal injury to dignity and state of mind. Courts were unable to grant a remedy for any kind of mental distress that could have been caused to a public person from the additional publicity that would have resulted from appearing in an

Id. at 218. Stacey Dogan and Mark A. Lemley, What the right of publicity can learn from trademark law, 58 Stan. L. Rev. 1161, at 1168-69. 9 171 N.Y. 538, 64 N.E.442 (1902) 10 Id. at 544,547, 64 N.E. at 443, 444. 11 Id. at 545, 64 N.E. at 443. 12 1903 N.Y. LAWS CH. 132, 1-2 (codified as amended as N.Y. CIV. RIGHTS LAW 50, 51 (McKinney 1990)). 13 50 S.E. at 70, 74-77.
7 8

195

2013 CLCSLR

VOL.1 ISSUE 1

advertisement.14 The best known of such cases is OBrien v. Pabst Sales Co.15, where the Fifth Circuit Court rejected the claim of a college football player seeking remedy against a beer company that had purchased his photograph from the college publicity department and used it on the football calendar on the ground that since the plaintiff had gained a reputation in the national media and repeatedly posed for photographs for use in publicizing himself and [his] team, he had surrendered his right to privacy. Thus, they held that the publicity he was complaining of was the publicity that he had been seeking all along and hence there was no cause for complaint to begin with. It is William Prossers 1960 article titled Privacy that has the reputation for translating Warren and Brandeis insight into terms that could easily be adopted by the American legal system.16 He acknowledged the appropriation of the plaintiffs name or likeness17 to be a tort that could result in the violation of the common law privacy right. This right, as opposed to the other rights identified by Prosser18 was to protect an interest that was not so much mental as it was proprietary19. Action against this tort was justified on the ground that allowing an individual to control the use of his or her persona would help protect against the unpermitted use of personal identity that would have the potential of causing injury to selfesteem and dignity.20 One of the first judgments to have recognised the right of publicity was Haelan Laboratories v. Topps Chewing Gum21. In Haelan, the court held that in addition to the New York statutory right to privacy, a man has a right in the publicity value of his photograph, i.e., the right to grant the

O'Brien v. Pabst Sales Co., 124 F.2d 167, 169 (5th Cir. 1941), cert. denied, 315 U.S. 823 (1942); Paramount Pictures Inc. v. Leader Press, Inc., 24 F. Supp. 1004 (W.D. Okla. 1938) (posters of movie stars), rev'd on other grounds, 106 F.2d 229 (10th Cir. 1939); Martin v. F.I.Y. Theatre Co., 10 Ohio Op. 338 (C.P. Ct. 1938) (theater poster of actress). 15 124 F.2d 167, 169 (5th Cir. 1941), cert. denied, 315 U.S. 823 (1942). 16 Paul M. Schwartz and Karl-Nikolaus Peifer, Prossers privacy and the German right of personality: Are four privacy torts better than one unitary concept? 9 8 Cal. L. Rev. 1925, at 1942. 17 William L. Prosser, Privacy, 48 Cal. L. Rev. 383 (1960) at 389. 18 (1) Intrusion upon the plaintiffs seclusion; (2) Public disclosure of embarrassing private facts; and (3) Publicity which places the plaintiff in a false light in the public eye 19 William L. Prosser, Supra n. 8, at 406. 20 John R. Braatz, White v. Samsung Electronics America: The Ninth Circuit turns a new letter in California Right of Publicity Law, Pace L. Rev., VOL. 15, ISSUE 1, FALL 1994, ART7 21 202 F.2d 866, 868 (2d Cir.), cert. denied, 346 U.S. 816 (1953).
14

196

2013 CLCSLR

VOL.1 ISSUE 1

exclusive privilege of publishing his picture.22 The court, however, believed that it was immaterial to decide whether or not such a right was proprietary. In 1954, Melville B. Nimmer wrote the landmark article, The Right of Publicity23, which is said to have contributed to the law on the right of publicity in the same way as Warren and Brandeis article did to the law on privacy24. He claimed that celebrities, having allowed certain aspects of their life to become public, have waived their right of privacy25. Further, he reasoned that in most cases, a celebrity could not claim that the use of his or her name, photograph or likeness would cause mental distress to him or her and that allowing recovery under the right to privacy would offend the sensibilities of ordinary persons because what the celebrities really seek is payment for the use of his or her publicity value26. Further, since the right to privacy is personal and non-assignable, he opined that granting permission to another to use his or her name or likeness would simply amount to a release from the liability for invasion of the right to privacy.27 Having found that legal theories like unfair competition, breach of contract or defamation were inadequate to protect celebrities publicity value, he concluded that there was a need for a right of publicity which could be recognised as a property capable of assignment and subsequent enforcement by the assignment.28 In light of this, many courts29 and even commentator J.T. McCarthy30 have agreed that while right of privacy protects against an unpermitted use of personal identity that has the potential to cause injury to self-esteem and dignity, the right of publicity protects the proprietary and commercial value of a persons identity and persona. Therefore, while the two rights are quite similar, they can be distinguished on the ground that invasion of privacy by appropriation of name or likeness does not require the appropriation to be
22Ibid, 23

202 F.2d at 868. Melville B. Nimmer, The Right of Publicity 19 Law & Contemp. Probs. 203, 216 (1954), cited in Michael Madow, Infra n. 27 at 130 n. 13. 24 Steven J. Hoffman, Limitations on the Right of Publicity, 28 Bull. Copyright Soc'y 111 (1980). 25 Nimmer, Supra n. 24, cited in John R. Braatz, Supra n. 18, at 172. 26 Ibid. 27 Id. 28 Id. 29 Rose v. Triple Crown Nutrition, Inc., No. 4:07-CV-00056, 2007 WL 707348, at *3 (M.D. Pa. Mar. 2, 2007); Pooley v. Nat'l Hole-In-One Ass'n, 89 F. Supp. 2d 1108, 1111-12; Jim Henson Prods., Inc. v. John T. Brady & Assocs., Inc., 867 F. Supp. 175, 189 (S.D.N.Y. 1994) 30 JT McCarthy, The Rights of Publicity and Privacy, vii (1992), 5.8(A) &(C).
197

2013 CLCSLR

VOL.1 ISSUE 1

done commercially, whereas violation of right of publicity does. This also means that unlike the right to privacy, the right of publicity is transferable by license or assignment31. Thus over time, the right of publicity, which was developed out of frustration32 with the law on the right to privacy in the United States, soon began to take the form of a purely proprietary right33. The inconsistencies in this approach will be examined in the subsequent sections. III. THEORETICAL JUSTIFICATIONS FOR THE RIGHT OF PUBLICITY

Since the right of publicity is still in the process of development, it is imperative to examine possible justifications for such a right and finally identify the most persuasive one. Most justifications fall into three categories: the copyright/ incentive theory, the exhaustion or allocative-efficiency theory and the moral or natural rights theory.
A. COPYRIGHT/ INCENTIVE THEORY JUSTIFICATIONS

The incentive theory rests on the rationale that a failure to protect works would result in a situation where people are not incentivized to produce more works.34 Copyright law is an attempt to incentivize and promote the creation of valuable works of authors for the larger benefit of the society so as to ensure discourse and deliberation of these works. The incentive for the same is provided in the form of protection from reproduction that is made available to all copyrighted works. Any copying of copyrighted material done without the permission of the copyright holder can only be for a limited and transformative purpose, such as to comment upon, criticize, or parody a copyrighted work35. Thus, any new work that makes use of a copyrighted work can do so only if it is able to prove that it is making fair use of the copyrighted work and that it is not a substantial reproduction of the same.
Michael Madow, Supra n. 3, at 130 n.14. Ibid at 167. 33 Cepeda v. Swift & Co., 415 F.2d 1205, 1206 (8th Cir. 1969); Estate of Presley v. Russen, 513 F. Supp. 1339, 1355 (D.N.J. 1981); Uhlaender v. Henricksen, 316 F. Supp. 1277, 1282 (D. Minn. 1970) 34 Stewart E. Kirk, Rhetoric and Reality in Copyright Law, 94 Mich. L. Rev. 1197, 1198-1204 (1996). 35 Available at http://fairuse.stanford.edu/Copyright_and_Fair_Use_Overview/chapter9/9a.html
31 32

198

2013 CLCSLR

VOL.1 ISSUE 1

The incentive theory has often been used to justify publicity rights.36 For instance, in the case of Zacchini v. Scripps-Howard Broadcasting Co.37, where a performer brought a publicity claim against a news broadcasting channel that taped and aired the footage of his entire act, the United States Supreme Court observed that: The State's interest in permitting a right of publicity is in protecting the proprietary interest of the individual in his act in part to encourage such entertainment. . . . The State's interest is closely analogous to the goals of patent and copyright law, focusing on the right of the individual to reap the reward of his endeavours and having little to do with protecting feelings or reputation.38 However, in Zacchini, the defendant had taken not just an image or identity, but an entire performance, making it a fit case to apply the copyright justification. Subsequent to this judgment, courts began to apply copyright laws fair use doctrine to balance competing interests of celebrities against those of broadcasters who claimed a right under the First Amendment. The zeal to justify the right of publicity based on the incentive theory has also led the courts to selectively apply the fair use doctrine. Balancing First Amendment based values of the copier against the incentives for celebrities to creatively express themselves is integral to the fair use doctrine. However, there is scarcely an opportunity for this balance to be factored into an argument in favour of right of publicity. Thus, frequently, while concepts such as transformative use are applied to protect a celebritys right of publicity, American courts tend to ignore the balance between the right of publicity and the First Amendment right of freedom of speech.39 Another reason why adopting copyright justifications in their entirety to justify the right of publicity could be misleading and counter-intuitive40 is that there is little to support the claim that celebrities would invest less energy and talent in their public image (that being the work if one were to
Randall T.E. Coyne, Toward a Modified Fair Use Defense in Right of Publicity Cases, 29 Wm. & Mary L. Rev. 781, 812 (1988) 37 433 U.S. 562 (1977) 38 Ibid. at 573, 576. 39 Comedy III Prods., Inc. v. Gary Saderup, Inc., 21 P.3d 797 (Cal. 2001), cert. denied, 2002 U.S. LEXIS 212 (Jan. 7, 2002) (No. 01-368); See also Jennifer L. Koehler, Comedy III Productions v. Gary Saderup Inc.: Finding a balance between the Right of Publicity and the First Amendment Freedom of Speech, Santa Clara Computer and High technology law journal, Vol. 18, Issue 1, Article 6, 1-1-2002, available at http://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1297&context=chtlj 40 Stacy L. Dogan & Mark A. Lemly, Supra n. 6 at 1187.
36

199

2013 CLCSLR

VOL.1 ISSUE 1

draw an analogy to copyright law) without a publicity right. Even if that was the case, it is almost absurd to claim that encouraging fame would further a societal purpose. The copyright analogy would have been sufficient to support the right if it encouraged the production of any identifiable value. In light of the flaws in the incentive theory justification and the dangerous trends associated with it, it seems inadvisable to incorporate the same in the Indian jurisprudence on the Right of Publicity, if we were to have a statutory right to that effect.
B. ALLOCATIVE EFFICIENCY JUSTIFICATIONS

Frequently, the allocative efficiency theory has been used to justify the right of publicity41. This argument is based on the fear that unless the distribution of resources, which in this case would be information about celebrities, is controlled, the value of the product itself, that is the personality of the celebrity that contributes to his or her status, would dwindle and this, eventually would lead to overall economic inefficiency.42 This is known as the tragedy of commons argument, which is the idea that unless control and centralization of resources such as fame, personal resources and the like takes place, there exists a danger of overuse and eventual reduction of value in these resources leading to overall economic inefficiency.43 However, the inconsistency with this argument is that while it fits well in the context of tangible property, fame and personal information is intangible.44 As Mark Lemly points out, the problem lies with the inherent lack of understanding of the non rivalrous and non-depleting nature of the property in question i.e. information, and that the tragedy of commons
Gloria Franke, The Right of Publicity vs. The First Amendment: Will one test ever capture the starring role?, available at http://weblaw.usc.edu/why/students/orgs/lawreview/documents/Franke_Gloria_79_4.p df (last visited on March 19, 2013); Michael Madow, Private Ownership of the public image: Popular culture and publicity rights, available at http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1756&context=californial awreview (Last visited on March 19, 2013); Kim Fox, A brand new image? Should personality rights be recogniserecognised in the UK? available at www.kent.ac.uk/law/ip/resources/ip_dissertations/2005-06/Fox.doc (Last visited on March 19, 2013). 42 William M. Landes & Richard A. Posner, Indefinitely Renewable Copyright, 70 U. Chi. L. Rev. 471, 485 (2003) 43 Mark F. Grady, A Positive Economic Theory of the Right of Publicity, 1 UCLA Ent. L. Rev. 97, 109 (1994) 44 Mark A. Lemley, Ex Ante Versus Ex Post Justifications for Intellectual Property 71 U. Chi. L. Rev. 129, 144-47 (2004)
41

200

2013 CLCSLR

VOL.1 ISSUE 1

argument would stand only if the information is either under produced or over distributed.45 Moreover, it is believed that such an argument would also be anti-market because it seems to argue that the value of the celebritys image will reduce with overuse46.
C. MORAL/ NATURAL RIGHTS JUSTIFICATION

A strong justification comes from the moral rights theory. 47 Rather than focusing on a theory of personal liberty, this theory advocates a labour based moral right i.e., the right of an individual to his or her own labour and protection against unjust enrichment by competitors.48 The moral rights theory finds basis in the Kantian philosophy that an individual has the right to control the use of his own person and that any unauthorized invasion of the same by anyone else is a an infringement of a persons inherent right of freedom.49 Prof. McCarthy summarizes the argument aptly by stating that-perhaps nothing is so strongly intuited as the notion that my identity is mineit is my property to control as I see fit. Those who are critical of this principle should have the burden to articulate some important countervailing social policy which negates this natural impulse of justice.50 Thus, the idea of giving an authors proprietary interest in his identity is based on the fact that he has invested time and energy in earning the celebrity status and must be allowed the control and use of the same.51 When an advertiser borrows this fame that belongs to the celebrity to promote his own product, the advertiser must do so only with the permission of the celebrity. The natural rights theory makes room for the argument that while there might not be any visible economic harm to the individual, there is a possibility of unjust enrichment (for example a third party exploiting the information of the individual for economic gain by selling it to advertisers).
Id. William M. Landes & Richard A. Posner, Indefinitely Renewable Copyright, 70 U. Chi. L. Rev. 471, 485 (2003). 47 Roberta Rosenthal Kwall, Fame, 73 Ind. L.J. 1, 57 (1997). 48 Edward J. Bloustein, Privacy as an Aspect of Human Dignity: An Answer to Dean Prosser, 39 N.Y.U. L. Rev. 962, 989 (1964) 49 Alice Haemmerli, Whose Who? The Case for a Kantian Right of Publicity, 49 Duke L.J. 383, 411-30 (1999) 50 J. Thomas Mccarthy, The Rights of Publicity and Privacy 1.3 (2nd ed. 2011). 51 Andrew T. Coyle, Finding A Better Analogy For The Right Of Publicity, 77 Brook. L. Rev. 1167.
45 46

201

2013 CLCSLR

VOL.1 ISSUE 1

Therefore, by adhering to this theory and establishing a right, an individual needs to only show unjust enrichment and an infringement of right, and not necessarily economic harm.52 However, Professor Michael Madow points out a flaw in this justification: the fact that the celebrity is not the sole and sovereign author of what she means for others53 Celebrity value is not created entirely by the labour of the celebrity, but also by the cultural and contextual meaning and recognition given to this status by the media and the audience54. In spite of this, the natural rights theory has found wide acceptance in the courts55. However this theory has fuelled unchecked expansion of the scope of the right. For instance, in Vanna White v. Samsung Electronics, America, Inc.56, Vanna White was able to successfully claim that an advertisement using a robot modelled on her was usurping the control that she had in her persona as a matter of natural right. This case could have far-reaching consequences since it has a tendency to blur the distinction between the identity of a celebrity and a role that the celebrity may be playing causing the scope of the persona protected under this right to expand beyond permissible limits.
D. THE TRADEMARK LAW JUSTIFICATIONA MORE COMPELLING JUSTIFICATION FOR THE RIGHT OF PUBLICITY

Unlike the other theories, the trademark justification actually gives a reason to protect the right of publicity. It is also the closest analogy to the right of publicity57. The purpose of trademark law is to protect the integrity of a marks meaning by preventing uses that would result in customer confusion or interfere with their mental association between the mark and the product it endorses. This seems a legitimate justification for the right of publicity as well.58 Thus, in order for any celebrity to establish a violation of the right of publicity, the holder of the right must first establish that there has been a commercial exploitation of the celebritys public image; and
William Prosser, Privacy, 48 Cal. L. Rev. 338. Michael Madow, Supra n. 5, at 195. 54 Natalie Grano, Million Dollar Baby: Celebrity Baby Pictures and the Right of Publicity, 20 Fordham Intell. Prop. Media & Ent. L.J. 609, 639. 55 Jeffery J. Brown, Defending the right of publicity: A natural rights perspective, 10 Intell. Prop. L. Bull. 131 2005-2006 56 White v. Samsung Elecs. Am., Inc ., 971 F.2d 1395, 1401 (9th Cir. 1992) 57 Stacey Dogan and Mark A. Lemley, Supra n. 11, at 1190. 58 Ibid.
52 53

202

2013 CLCSLR

VOL.1 ISSUE 1

secondly, that such exploitation has had an adverse effect on the mental association that the audience makes between the celebrity and his or her public image. In addition to a reason to protect publicity rights, the trademark law justification also provides a clear idea of the scope of the right of publicity, which as we shall see in the subsequent sections, is particularly useful. The right of publicity is explained hereafter using four prominent prongs of trademark law and their rationales in an attempt to understand the scope of the right of publicity cases. 1. Likelihood of confusion The rationale behind the use of trademarks by product manufacturers has been to build goodwill in their products and reduce the costs of finding a product that a consumer may have to incur. This rationale forms the basis for trademark law. Traditionally, consumer confusion cases targeted passing off cases involving competitors who tried to cash in on source confusion that might have been created in the minds of the consumers. However, courts have often found that even in cases where the infringers are not necessarily competitors of the trademark owners, consumers might assume that the maker of one sponsors the production of the other and blame the trademark of the owners for any defect in the purchased good.59 Thus, frequently, even if the consumers are not led to believe that trademark owner is the one selling the product, the use of a similar trademark might give them an impression that the trademark owner is still somehow affiliated with the infringers products. Hence, the likelihood of confusion rationale draws attention to the fact that there has been a commercial exploitation of the celebritys image that has resulted in an undesired, if not adverse effect on the mental association that the audience may have made between him and his public image. This rationale applies more to right of publicity cases because the use of a celebritys name, image, voice or likeness of a celebrity in an advertisement would probably give the audiences an impression that he or she intends to endorse the advertised product60. As has already been discussed, there is a strong chance in such cases that the celebrity does not
59 60

Robert G. Bone, Enforcement Costs and Trademark Puzzles 90 Va. L. Rev. 2099 (2004). Grant v. Esquire, Inc. ; Hogan v. A.S. Barnes & Co ; James Treece, Commercial Exploitation of Names, Likenesses, and Personal Histories, 51 Tex. L. Rev. 637, 647 (1973).
203

2013 CLCSLR

VOL.1 ISSUE 1

wish to be associated with the product so endorsed. Thus in Midler v. Ford Motor Co.61, when Ford Motor companys advertisement played the voice of an impersonator hired to imitate the vocal style of Bette Midler, the singer, who did not lend her voice or songs to advertisements for product endorsements as a matter of principle, sued for infringement of her right of publicity. The Court held in her favour, primarily because the use of the impersonators voice had misled the consumers into believing that she endorsed Fords products. American law allows some protection to celebrities against false endorsement under section 43(a) of the Lanham Act, which protects unregistered marks or trade names.62 A right of publicity based on trademark justifications can strengthen this protection afforded to the celebrities. On the other hand, this rationale fails in cases like Carson v. Heres Johnny Portable Toilets63, where the plaintiff claimed that his right of publicity had been violated when his tag line, Heeeeeeeeeres Johnny had been used for a portable toilet; or Vanna White v. Samsung Electronics America, Inc.64. In both cases, the advertisements of the defendants had been quite clear about the dissociation of the celebrities from their products. There was little scope for consumers to be misled into believing that the celebrities endorsed such products. In spite of this, the ruling in Vanna White v. Samsung Electronics America, Inc. allowed the standard for violation of right of publicity to be lowered from actual customer confusion to mere recognition because of the evocation of the celebritys personality in the advertisement. Such expansion of the right of publicity has often been justified on the ground that it finds an analogy in the overzealous judicially created trademark law doctrine of initial-interest confusion, which tests whether the defendant's use of the plaintiff's mark was done in a manner calculated to capture initial consumer attention

849 F.2d 460 (9th Cir. 1988) Landham v. Lewis Galoob Toys, Inc.; Waits v. Frito-Lay, Inc; Laura A. Heymann, The Birth of the Authornym: Authorship, Pseudonymity, and Tradema rk Law, 80 Notre Dame L. Rev. 1377, 1434-44 (2005) 63 849 F.2d 460 (9th Cir. 1988). 64 971 F.2d 1395, 1401 (9th Cir. 1992)
61 62

204

2013 CLCSLR

VOL.1 ISSUE 1

even though no actual sale is finally completed as a result of the confusion.65 However recent trends suggest discarding the initial-interest confusion doctrine66. 2. Trademark Dilution Even in the absence of consumer confusion, trademark law does prevent the use of a mark in some exceptional cases based on the doctrine of trademark dilution. This doctrine allows the owners of sufficiently famous marks to claim protection against other producers commercial exploitation of those trademarks for their own products, even if such products were unrelated.67 This doctrine is said to be targeted at reducing consumer search costs.68 Dilution can take place in two ways: first, the significance of a mark can be blurred by associating the mark with lots of different products; and second, by associating the mark with unwholesome products. This test intends to carve out a limited right for owners of famous marks. An instance of the first would be one where a unique mark, for example, Philips, which is associated with electronic household items, is being used to market completely unrelated products like pressure cookers69. Even if the consumers understand that the two Philips trademarks intend to market different products, an increase in the distribution of Philips marked products would make it difficult for the consumer to tell which producer is responsible for any particular product. Tarnishment occurs when the infringer uses the mark to sell goods which are either of poor quality or of offensive nature and consequently, take away from the goodwill that the famous trademark holder garnered with its customer base70. As a result of this, even if consumers acknowledge the
Dr. Seuss Entrs. v. Penguin Books (9th Cir. 1997) 109 F.3d 1394, 1405. Dwyer Instruments, Inc. v. Sensocon, Inc., 2012 WL 2049921; Lamparello v. Falwell; Bosley Med. Inst. v. Kremer; Eric Goldman, More Evidence That the Initial Interest Confusion Doctrine is Dying--Dwyer v. Sensocon, Technology and Marketing Law Blog, June 15, 2012, available at http://blog.ericgoldman.org/archives/2012/06/more_evidence_t.htm 67 Bolger v. Youngs Drug Prods. Corp. ; Va. Pharmacy Bd. v. Va. Citizens Consumer Council, Inc ; Hoffman v. Capital Cities/ABC, Inc. 68 Stacey Dogan and Mark A. Lemley, Supra n. 11, at 1198. 69 SC dismisses Kunj Aluminium plea over Philips trademark row, Financial Express,201203-12, available at http://www.techzone360.com/news/2012/03/12/6181638.htm 70Britt N. Lovejoy, Tarnishing the dilution by Tarnishment cause of action: Starbucks Corp. v. Wolfes Borough Coffee Inc. and Secret Catalogue Inc. v. Moseley compared http://btlj.org/data/articles/26_1/Web%20PDFs/623-654_Lovejoy_090811.pdf (Last visited March 18th, 2013).
65 66

205

2013 CLCSLR

VOL.1 ISSUE 1

difference between the two marks, their subconscious associations of unwholesome products with the famous trademarks may tarnish the image of the famous trademark. . Thus, while it is possible for a big brand to bring a suit for tarnishment of trademark against the producer of pornographic material, it would not be possible for it to do the same against the producer of a t-shirt that shows a cartoon character urinating on it. This is because in the latter case, the t-shirt maker is continuing to reinforce the association between the trademark and the product it seeks to endorse, even if he is doing it in a way that the trademark holder may not agree with71. Thus, such cases would not fall within the ambit of the definition of trademark dilution. Similarly, a right of publicity claim on the basis of dilution cannot be made unless the claimant is able to establish that the infringer of the right is acting in a way as would dilute the association that the audience makes between the claimant and the public image of the claimant72. Based on this rationale, Vanna White would not have been able to claim a violation of the right of publicity because the robot modelled on her did nothing to dilute the association that the audience made between Vanna White and her public image. If anything, the robot reinforced it by the very act of evocation that Vanna White complained against. Hence, it is submitted that under both the rationales, i.e., likelihood of confusion and the trademark dilution, Vanna White should not have been able to sustain a violation of right of publicity claim. On the other hand, it would be pertinent to consider a case such as Elvis Presley Enterprises, Inc. v. Capece73. This case involved a claim for violation of the right of publicity of Elvis Presley by the Velvet Elvis bar. While this came up subsequent to Presleys death and consequently, does not satisfy either of the trademark law rationales; because there was no chance that patrons of the bar associated the bar with Elvis Presley, had he been alive, this would have been a fit case for a claim for violation of right of publicity on the ground of dilution of public image. It is emphasized that this rationale effectively defeats the call for a post mortem right of publicity74.75

71Stacey

L. Dogan & Mark A. Lemley, Trademarks and Consumer Search Costs on the Internet, 41 HOUS. L. REV. 777, 794 (2004) 72 Britt N. Lovejoy, Supra n. 70. 73 141 F.3d 188 (5th Cir. 1998). 74 Cairns v. Franklin Mint Co., ; Joseph J. Beard, Casting Call at Forest Lawn: The Digital Resurrection of Deceased Entertainers--A 21st Century Challenge for Intellectual Property Law, 8 High Tech. L.J. 101, 146-70 (1993). 75 Stacey L. Dogan & Mark A. Lemley, Supra n. 11, at 1196.
206

2013 CLCSLR

VOL.1 ISSUE 1

3. Merchandising rights This theory of trademark law does not find basis in the reduction of customer search-costs. Instead, it is based on the trademark as property approach and is a manifestation of the assertion of the trademark holders control over the merchandise bearing a trademark.76 Merchandising cases thus view the trademarks as product features than as brands77. However, this has been a very shaky justification primarily because of the absence of an inherent right of the trademark holder to make money by trading on the value of a trademark78. In the absence of consumer confusion, the courts have often been hesitant to recognise the merchandising rights in themselves and have always attempted to validate the rights of the trademark holders on the basis of consumer expectation in the interest of competition.79 The right of publicity proponents would prefer this rationale because it allows them to control any use of their name or image, or for that matter, any aspect of their personality for profit, even where the desire of the alleged infringers was to show them in an artistic, parody or news format. Based on this rationale, Martin Luther King, Jr.s estate, claiming that the defendant was trading on the goodwill that ought to belong to Kings family prevented the sale of his busts80; the descendants of The Three Stooges prevented sales of t-shirts that portrayed their likenesses81; Arnold Schwarznegger filed a suit against the manufacturers of Schwarznegger bobble-head dolls82; and Jessica Simpson sued a company for marketing a ring that looked like her wedding ring83. The complaint in all these cases, much like in trademark cases with claims regarding violation of merchandising rights, has been that the defendants, while not having advertised something based on their names or
Ibid. at 1203. Id. 78 Saxlehner v. Wagner; Playboy Enters. v. Netscape Communications (Berzon, J., concurring); David J. Franklyn, Debunking Dilution Doctrine: Toward a Coherent Theory of the Anti-FreeRider Principle in American Trademark Law 56 Hastings L.J. 117 (2004); Mark A. Lemley, What's Different About Intellectual Property, 83 Tex. L. Rev. 1097 (2005); Wendy J. Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 Va. L. Rev. 149, 167 (1992) 79Stacey L. Dogan & Mark A. Lemley, Supra n. 11, at 1205. 80 Martin Luther King, Jr., Ctr. for Social Change, Inc. v. Am. Heritage Prods., 81 Comedy III Prods., Inc. v. Gary Saderup, Inc 82 John Broder, Schwarzenegger Files Suit Against Bobblehead Maker, N.Y. Times, May 18, 2004, at A16. 83 Simpson v. Inspired Silver, Inc., No. SACV 05-3 (DOC (ANx) (C.D. Cal. filed Jan. 3, 2005).
76 77

207

2013 CLCSLR

VOL.1 ISSUE 1

likenesses still made money using the famous name, which the plaintiffs claim to have exclusive control over84. Just like in trademark cases where merchandising rights are claimed to have been violated, in all of the aforementioned cases, the celebrities claim complete and exclusive control over their public image to the extent that any use of the same even for purposes such as artistic expression would require their consent. However, the use of the merchandising rights argument alone does not satisfy the two pronged test for establishing violation of right of publicity. One cannot rely entirely on the commercial exploitation of the public image of the celebrity alone in order to establish the right of publicity. It must also be established that such commercial exploitation takes away from the public image that the celebrity seeks to maintain for his/her audience. Hence it is suggested that the merchandising rights rationale be used only along with the likelihood of confusion rationale. Moreover, allowing such a right to exist would severely curtail artistic expression. For instance, if a T-shirt used an image of a celebrity to spoof the celebrity, it should not be considered to be violation of merchandising rights because the T-shirt does not seek to commercially exploit the popularity of the celebrity in any way. On the contrary, it quite evidently dispels any assumption that the celebrity may be endorsing such a T-shirt. Thus, the Court rightly rejected Tiger Woods claim that he owned the exclusive right to depict his image in ETW Corp. v. Jireh Publishing Inc.85 However, the rationale of the Court in this case which considered the competing interest of the artist who had made the painting at issue, which to the court, was art of sufficient quality that the Court could declare to be protectable expression in itself,86 is flawed. Such emphasis on transformative use similar to cases of copyright would lead to the conclusion that had the Tshirt at issue merely depicted a photograph of Tiger Woods, it would be considered to be a sufficient infringement of the right of publicity rights. The judiciary should avoid the adoption of such reasoning. As has already been discussed, a more appropriate reasoning would have been based on the idea of consumer confusion. It is quite possible for a section of the consumers to assume that Tiger Woods himself endorsed the T-shirt and that it was a part
Factors Etc., Inc. v. Pro Arts, Inc; Winterland Concessions Co. v. Sileo; Restatement (Third) of Unfair Competition 47 cmt. b (1995). 85 332 F.3d 915, 936-38 (6th Cir. 2003) 86 Ibid at 938.
84

208

2013 CLCSLR

VOL.1 ISSUE 1

of official merchandise. Such use of the T-shirts actually confuses this section of consumers. On the other hand, the suit in Comedy III Prods., Inc. v. Gary Saderup, Inc was instituted subsequent to the death of the Three Stooges where there was no scope for consumer confusion. Hence, most courts deciding on trademark issues emphasize the need for consumer confusion to exist, rather than relying on the naked right to control the use of any mark.88 An example is the case of Rock and Roll Hall of Fame and Museum, Inc. v. Gentile Productions 89, where the plaintiff obtained trademark protection for its museum and sought to prevent the defendant, a photographer, from selling photographs that prominently featured the museum. The Court did not attempt to analyze whether or not the defendants photographs were sufficiently artistic. Instead, it relied on the case of Estate of Presley v. Russen90, which held that registering the use of one image of Elvis Presley did not justify trademark rights over every picture of Presley and held that the plaintiff had not made trademark use of the overall design of the museum to brand particular goods and therefore, they could not claim protection for the same.
87

This paper argues that much like merchandising rights, publicity rights seek to protect the public persona of the celebrities as the subject of protection. However, owing to obvious inconsistencies if they were protected as standalone rights, courts must couple them with the traditional justifications such as consumer confusion and dilution of the public persona of the celebrities. Thus, the emphasis should also be on the fact that the commercial exploitation of the celebritys public image has had an impact on the mental connection that the audience makes between the celebrity and his image. The protection under trademark can extend only to those particular images, poses, distinctive features that the trademark owner has sought protection for. However, the right of publicity is a broader right and encompasses the overall public persona of the celebrity. This paper attempts to define these boundaries.

21 P.3d 797 (Cal. 2001) Stacey L. Dogan & Mark A. Lemley, Supra n. 11, at 1207. 89 134 F.3d 749, 750-51 (6th Cir. 1998) 90 513 F. Supp. 1339, 1363-64 (D.N.J. 1981)
87 88

209

2013 CLCSLR

VOL.1 ISSUE 1

IV.

PUTTING PRIVACY BACK IN THE RIGHT OF PUBLICITY: USING PUBLICITY RIGHTS OF PUBLIC FIGURES TO PROTECT THEIR RIGHT TO PRIVACY

Celebrities, whether in India91 or abroad92, have often complained about the intrusive behaviour of paparazzi that go to great lengths to get candid photographs of them. In all these encounters, the paparazzi managed to get information that would have, at best, satiated the publics curiosity regarding celebrities private lives. It is doubtful that such
Big B back home, upset with paparazzis insensitivity India today, February 24, 2012, available online at http://indiatoday.intoday.in/story/amitabh-bachchan-discharged-fromhospital/1/175099.html (Last visited October 22, 2012); Paparazzi damages Preity Zinta's car at Winfrey's party Hindustan Times, January 17, 2012, available at http://www.hindustantimes.com/Entertainment/Tabloid/Paparazzi-damages-PreityZinta-s-car-at-Winfrey-s-party/Article1-798300.aspx (Last visited October 22, 2012); Preitys ankle twists in paparazzi assault, Times of India, September 5, 2012, available at http://articles.timesofindia.indiatimes.com/2012-09-05/newsinterviews/33582982_1_actress-preity-zinta-debut-production-flashes (Last visited on October 22, 2012). 92 Catriona Wightman, Mischa Barton slams paparazzi: It's stalking and beyond invasive Digital Spy, July 30, 2012, available at http://www.digitalspy.co.uk/showbiz/news/a396178/mischa-barton-slams-paparazzi-itsstalking-and-beyond-invasive.html (Last visited on October 22, 2012); Miley Cyrus lashes out at photographers sitting in front of her home Gossip Cop, July 15, 2012, available at http://www.gossipcop.com/miley-cyrus-attacks-paparazzi-twitter-photographers/ (Last visited on October 22, 2012); Donna Peerce, Rob Pattinson confronts invasive paparazzi: Stalking celebrities should be against the law, examiner.com, July 27, 2010, available at http://www.examiner.com/article/rob-pattinson-confronts-invasive-paparazzi-stalkingcelebrities-should-be-against-the-law (Last visited on October 22, 2012); Hilary Duffs run-in with invasive paparazzi celebrity-gossip.net, September 2, 2012, available at http://celebrity-gossip.net/hilary-duff/hilary-duffs-run-invasive-paparazzi719746?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Celebr ityScandalsTheGossipGirls+%28Celebrity+Scandals%3A+The+Gossip+Girls%29 (Last visited on October 22, 2012). 92 Pink penned an open letter dated June 22, 2011 condemning the intrusive tactics adopted by the paparazzi as they tried to take pictures of her baby: available at http://www.pinkspage.com/us/news/important-note-pnk (Last visited on October 22, 2012); Chris Tryhorn, Rowling wins the privacy trial, The Guardian, May 7, 2008, available at http://www.guardian.co.uk/media/2008/may/07/medialaw.pressand publishing; Jeffrey Scott Shapiro, Paparazzi, haven't you learned? Dont endanger Kate Middleton like Princess Diana, Fox News, September 15, 2012, available at http://www.foxnews.com/opinion/2012/09/15/paparazzi-havent-learned-dontendanger-kate-middleton-like-princess-diana/ (Last visited on October 22, 2012); Steven Baxter, The Kate Middleton topless photos are the grossest invasion of privacy New Statesman, September 14, 2012, available at http://www.newstatesman.com/blogs/media/2012/09/kate-middleton-topless-photosare-grossest-invasion-privacy (Last visited on October 22, 2012).
91

210

2013 CLCSLR

VOL.1 ISSUE 1

information was of any real significance to the public. In most of these examples, celebrities were caught in public places where celebrities, especially in the United States, have virtually lost their right to be left alone. While on one hand, the American laws support of the freedom of press is exemplary, its support of the right to privacy on the other has been shockingly meagre93. It does not come as a surprise then that it offers scarce protection to the privacy of individuals who have been photographed in public places94. This would endanger the right to privacy of individuals even further in public places. American media persons have often relied on the newsworthiness exception to the right to privacy to seek immunity from legal action even in the face of gross privacy violations on their part95. Legal experience indicates that so long as the name, photograph or picture used in the published article has a real relationship with the article96 and the article is not an advertisement in disguise,97 any published article about any subject of public interest has been considered to be newsworthy98. The newsworthiness exception has been otherwise defined very broadly to even include descriptions of actual events such as weddings99, of latest fashion trends100, guides to nude beaches101, etc. However, the repetitive display of callousness by the paparazzi has driven some states to enact anti-paparazzi legislations. California, for instance
Florida Star v. B.J.F, 491 U.S. 524 (1989) (in a shocking display of callousness, this judgment reversed an award of damages to a rape victim whose name had been published in a newspaper on the ground that the matter was on public significance the name had been reported in a police report). 94 Daly v. Viacom, Inc., 238 F. Supp. 2d 1118 (N.D. Cal. 2002); Wilkins v. Nat'l Broad. Co., Inc., 84 Cal. Rptr. 2d 329 (Cal. Ct. App. 1999); Gill v. Hearst Publishing Co., 253 P.2d 441, 444 (Cal. Sup. Ct. 1953). 95 Time, Inc. v. Hill, 385 U.S. 374 (1967); Sidis v. F-R Pubrg, 113 F.2d 806 (2nd Cir. 1940); Eastwood v. Super. Ct., 149 Cal. App. 3d 409 (Ct. App. 2nd Dist. 1984), superseded by statute, CAL. CIV. CODE3344 (1997); Carlisle v. Fawcett Publ'ns, Inc., 201 Cal. App. 2d 733 (Ct.App. 5th Dist. 1962) 96 Murray v. New York Magazine Co., 27 N.Y.2d 406, 409 (1971); Thompson v. Close-up, Inc., 98 N.Y.S.2d 300 (App. Div. 1950) 97 Murray v. New York Magazine Co ., 27 N.Y.2d 406, 409 (1971); Alina Raines, Case Comment: Messenger v. Gruner + Jahr Printing and Publishing, available at http://www.nyls.edu/user_files/1/3/4/17/49/v46n3-4p781-796.pdf 98 Beverly v. Choices Womens Med. Ctr., 78 N.Y.2d 745, 751(1991); Stephano v. News Group Publications, , 64N.Y.2d 174. 99 Freihofer v. Hearst Corp., 65 N.Y.2d 135 (1985) 100 Stephano v. News Group Publications, , 64N.Y.2d 174; Abdelrazig v. Essence Communications, 639 N.Y.S.2d 811 (N.Y. App. Div. 1996). 101 Creel v. Crown Publishers, Inc., 496 N.Y.S.2d 219 (App. Div. 1985).
93

211

2013 CLCSLR

VOL.1 ISSUE 1

has amended its Civil Code102 to control excessive prying of media-persons into the lives of celebrities. It is targeted at acts of picture-taking, sound recording and similar invasive techniques of reporting that the paparazzi may engage in, especially when the plaintiff is engaged in a personal or familial activity under circumstances in which the plaintiff had a reasonable expectation of privacy.103 Further, the court in Virgil v. Time, Inc.104 proposed a test to narrow down the scope of the newsworthiness exception and place reasonable limitations on the right to report105 by holding that an issue would not be considered newsworthy if a reasonable member of the public, with decent standards would recognise that he has no concern with the information being presented. It further clarified: [t]he fact that [people] engage in an activity in which the public can be said to have a general interest does not render every aspect of their lives subject to public disclosure. A federal court in Galella v. Onassis106 relied on the opinion of the Supreme Court in Time v. Hill107 that stated that the First Amendment would apply to all information which is needed or appropriate to enable members of society to cope with the exigencies of life. It held that information which was intended merely to satisfy the curiosity of the public regarding the lives of celebrities could not be considered newsworthy. Therefore, the reporting of the paparazzi which involved filming of practically every mundane detail of Onassis and her childrens lives could not be protected as being newsworthy108. It is proposed in this paper that the justification of dilution of the celebritys personality can be used to control prying and aggressive paparazzi. Having established in the previous sections that the right of a celebrity in his or her public image is similar to the right of a trademark holder in his or her mark, it can be argued that just like merchandising rights are based on the trademark as property approach and are a manifestation of the assertion of the trademark holders control over the merchandise bearing a trademark, publicity rights are based on the idea that the celebrity has a proprietary
CAL. CIV. CODE 1708.8 (West 2010). Ibid. 1708.8(a)-(b) 104 527 F.2d at 1129. 105 Keith D. Willis, Supra n. 108, at 188. 106 353 F.Supp. 196, 216 (S.D.N.Y. 1972) 107 385 U.S. 374, 388 (1967) (quoting Thomhill v. Alabama, 310 U.S. 88, 102 (1940). 108 Galella, 353 F.Supp. at 225
102 103

212

2013 CLCSLR

VOL.1 ISSUE 1

interest in his or her public image and is entitled to assert exclusive control over the same. However, as has already been discussed the merchandising rights test needs to be accompanied by the test of consumer confusion. The celebrity can also argue that the significance of his or her public image is being blurred by associating the mark with lots of different products. The obvious exceptions to this would be where the celebrity makes appearances at events where he or she expects the paparazzi to be present or where the uninvited intrusion into aspects of the celebritys life are justified on the ground of newsworthiness as defined and limited in the Virgil and Onassis judgments. For instance, if the celebrity is indulging in illegal activities like embezzlement of money, then he or she, just like any ordinary being loses protection against media probing. However, he or she would be justified in not allowing pictures of his or her family or residence being taken surreptitiously on the ground that such media focus would dilute his or her public image. The test of reasonable expectation of privacy as laid down in the California Civil Code109 can be applied in order to determine what the celebrity could view as being outside of his public image. The propositions put forward in this section can be summarized as follows: A celebrity has a proprietary right in his or her public image, which disallows only such use of the image that is likely to adversely affect the mental connection that the celebrity would like the audience to establish between the celebrity and his or her image. Any kind of reporting that adversely affects this mental association would only survive if it satisfies the test of newsworthiness. The newsworthiness exception can be satisfied only if two requirements are met: first, the information that is sought to be provided is needed or appropriate to enable members of society to cope with the exigencies of life; and second, that it respects the reasonable expectation of privacy that any person may have if he or she is performing activities that a reasonable person may consider to be private. This test of the right of publicity would be able to protect the privacy of a celebrity, while allowing the press enough freedom to crackdown on instances where celebrities may actually be indulging in activities that might adversely affect the interests of the public.

109

Supra n. 119.
213

2013 CLCSLR

VOL.1 ISSUE 1

V. CONCLUSION: DEVELOPING THE RIGHT OF PUBLICITY IN INDIA While publicity rights have been acknowledged by the Indian judiciary,110 the jurisprudence on this subject is quite limited. The first case to acknowledge character merchandising in India was Star India Private Limited v Leo Burnett India (Pvt.) Ltd111. However, that case primarily dealt with the public image and the goodwill generated by the characters of the popular television soap opera, Kyunki Saas Bhi Kabhi Bahu Thhi, whose producers accused the defendants of appropriating the public images of the characters of the soap in their commercial advertisement for Tide detergent. The Delhi High Court in ICC Development (International) Limited v Arvee Enterprises112 held that publicity rights are also a species of privacy rights whose violation would attract Articles 19 and 21 of the Constitution. However, it took a more evolved stance in DM Entertainment Pvt. Ltd. v. Baby Gift House113, which relied on Ali v. Playgirl Inc114s focus on a performers proprietary interest in the profitability of his public reputation or persona to hold that the right of publicity protects against the unauthorized appropriation of an individuals very persona which would result in unearned commercial gain to another115. While DM Entertainment did use trademark jurisprudence, it was largely because the plaintiff company was incorporated with the object of managing Daler Mehndis advancing career and the artist had assigned all his rights, title and interest in his personality inherent in his rights of publicity along with the trademark DALER MEHNDI as well as the goodwill vested therein in the plaintiff company. However, the DM Entertainment case remains the only case where a serious attempt was made to recognise the right of publicity. While there is scope for development of the right of publicity in India and the jurisprudence used to define the same has largely been imported from the United States of America, it is important to have a sound justification for the right in India before importing the same into Indian
110DM

Entertainment Pvt Ltd v Baby Gift House, MANU/DE/2043/2010; ICC Development (International) Limited v Arvee Enterprises, 2003 (26) PTC 245 (Del); Star India Private Limited v Leo Bunett India (Pvt.) Ltd., (2003) 2 B.C.R. 655 111 (2003) 2 B.C.R. 655 112 2003 (26) PTC 245 (Del). 113 MANU/DE/2043/2010 114 447 F Supp 723 115 DM Entertainment Pvt. Ltd. v. Baby Gift House, Supra n. 54, 13.
214

2013 CLCSLR

VOL.1 ISSUE 1

jurisprudence. An analysis of the sparse case law on the subject reveals that the Indian judiciary has not engaged in such an exercise. In light of the aforementioned, India should develop a right of publicity with a justification that is analogous to trademark justifications. It would in all probability, give Indian celebrities a stronger crutch than the right to privacy to avoid having pictures of themselves or their family members been taken by the paparazzi against their will in spheres they consider private.

215