How the new CFIUS laws can hit Indian tech firms

Source: Hindustan Times dated 28.01.2020

-- Benjamin Schwartz (Senior Director, Chertoff Group. He previously served as the India Director in the Office of the US secretary of Defence, and at the US-India Business Council)

Policies in tech, infra, data businesses will allow the US government to take action against ‘critical’ technologies.

The United States (US) department of treasury has released new rules, governing investment into the US that Indian executives, especially in the technology, infrastructure and data sectors, ought to study carefully. The US is India’s largest trading partner, and over the last decade, Indian businesses have more than doubled their investment into the US, with foreign direct investment approaching $10 billion annually. This increased investment comes with an increased need for businesses to be sensitive to the unique regulations of both countries, especially when those laws reflect a major change in policy.

Such a change will go into effect on February 13. In 2018, in a rare instance of bipartisanship, the Congress granted new powers in the form of expanded authority and increased resources to the Committee on Foreign Investment in the United States (CFIUS). This body is charged with repelling what’s seen as unprecedented threats to American technological leadership. For at least a decade, there has been growing evidence that America’s military competitors — most notably China — are directing investments into the US in a manner that could serve political and national security objectives rather than purely commercial ends. Unfortunately, this has brought into suspicion a broad range of transactions, including well-intentioned business deals that could inadvertently provide foreign adversaries tools to compromise US national security.

The new CFIUS regulations are a historic expansion of the authority, intention and capability of the US government to scrutinise foreign investment. It directs regulators to examine transactions that grant influence to foreign entities through board seats, access to non-public sensitive information, and management of technology deemed to be critical to US national security — a very broad set of parameters. For the first time, there is no minimum threshold of investment to define “foreign control” such that an investment of even less than 10% can trigger government action.

This is due, in large part, to the fact that long gone are the days when America’s cutting-edge technology is produced primarily in government-funded research centres. Today, technology is resident in private hands that are open to transactions that maximise profit. So, CFIUS will now scrutinise such transactions among businesses that produce, design, test, manufacture, fabricate, or develop technologies deemed to be “critical”; or own, operate, manufacture, supply, or service “critical” infrastructure; or maintain or collect personal data judged to be “sensitive” and a “threat to national security” by the US government.

These new regulations move money in a manner that can have a major financial impact on unprepared businesses. Consider the example of an average $500 million merger or acquisition by a foreign firm of a US health care IT company. Such a transaction would likely include:

• $1.5 million in legal fees (for the merger and acquisition, due diligence, and so on)

• $7 million in investment banking fees

• $2 million in C-suite executive and management time (at least)

• $1 million in miscellaneous expenses (accounting, tax, consultants, etc.)

So that’s $11.5 million just to get the deal closed. Now if this deal wasn’t structured with CFIUS compliance in mind, a company could face $1-2 million in legal and crisis management/public relations expenses to defend the unwinding and convince the public that there has been no wrongdoing.

Yet, while substantial, this cost would likely pale in comparison to the loss in enterprise value caused by business disruption. Assume the company has $50 million in profit and is valued at 10 times its profit with projected growth of 10%. Now, as a result of the disruption, negative press, and turnover from employee departures, the company loses 10% of its profit and growth slows to 8% causing its valuation to decline to say 9x instead of 10x. The business is now worth $405 million, instead of $500 million. A $100+ million has just vanished.

As more Indian companies look to conclude deals in the US in the technology, infrastructure or sensitive data business, there is good reason for executives from the C-suite down to pay attention to these new policies and structure transactions with CFIUS in mind. For good or ill, it’s going to be part of the price of doing business in America’s booming economy.

Kesavananda Bharti to Babri Masjid: Top SC verdicts

Source: Hindustan Times dated 28.01.2020

-- Murali Krishnan

The history of the Supreme Court of India is directly and inextricably linked to that of the Constitution. The latter came into effect on January 26, 1950. The apex court, which derives its independence and remit from the Constitution, came into being two days later, on January 28, 1950. It completes its seventieth year of existence today.

In these 70 years, the court has delivered several important judgments. Here’s a subjective listing of a few:

AK Gopalan v State of Madras (May 19, 1950) : This was the first case which gave the court the opportunity to explore the right to life and liberty under Article 21 of the Constitution. The court ruled against communist leader Gopalan, who was detained in a Madras prison, holding that Article 21 contemplates only procedural fairness. Hence, life and liberty can be taken away by a law which has been passed by Parliament and the court cannot look into whether the law itself is fair or not.

Champakam Dorairajan v State of Madras (April 9, 1951) : The court held that a government order prescribing reservation in engineering and medical colleges in the state of madras was violative of Article 29 of the Constitution. Article 29 states that no citizen shall be denied admission into any educational institution maintained by the state or receiving aid out of state funds on grounds only of religion, race, caste, language or any of them. The fall out of this judgment was the first amendment to the Constitution. By way of this amendment, a new clause (Clause 4) was inserted in Article 15. This change protected laws made by government providing reservations to SC and ST communities in educational institutions.

Golaknath v. State of Punjab (February 27, 1967) : The court held that a constitutional amendment made by Parliament in exercise of its powers under Article 368 is a “law” within the definition of Article 13(2) of the Constitution. This effectively meant that parliament cannot amend the Constitution to take away or abridge Part III of the Constitution which lays down fundamental rights.

Kesavananda Bharati v. State of Kerala (April 24, 1973): This is arguably the most famous judgment delivered by the Supreme Court . A bench of the Supreme Court comprising all the 13 sitting judges by a wafer thin majority of 7-6 overruled its judgment in Golaknath and held that a constitutional amendment is not “law” within the meaning of Article 13(2). This meant that the parliament could amend any part of the Constitution including Part III which lays down fundamental rights.However, this power came with the rider that it should not impinge upon the “Basic Structure of the Constitution”. What would constitute Basic Structure was left open-ended for the court to interpret.

ADM Jabalpur v. SS Shukla (April 28, 1976): This is widely considered as black day in the history of Indian democracy as a Constitution Bench of the highest court of the land, by a majority of 4:1, upheld the detention of citizens and political leaders belonging to opposition parties. The court was considering a presidential proclamation which was issued during emergency. The presidential order said that during the emergency, the right of a person to move any court for enforcement of the rights conferred by article 14, article 21 and article 22 of the Constitution shall remain suspended. The court upheld the same and held that while a proclamation of emergency is in operation, the right to move High Courts under Article 226 for a writ of Habeas Corpus challenging illegal detention by state will stand suspended.Justice HR Khanna dissented holding that Article 21 cannot be the sole repository of all rights. He ruled that sanctity of life and liberty existed even before the Constitution. Justice HR Khanna’s dissenting judgment in which he appealed to “the brooding spirit of law” and “the intelligence of the future” earned him legendary status but he lost the post of CJI to justice MH Beg who superseded him.

Maneka Gandhi v. Union of India (January 25, 1978) : The Supreme Court overruled its 1950 decision in AK Gopalan and expanded the scope of Article 21 by holding that the “procedure established by law” under Article 21 must be “fair, just and reasonable, not fanciful, oppressive or arbitrary”.

Minerva Mills v. Union of India (July 31, 1980) : In this key judgment delivered after the emergency, the court struck down many constitutional amendments made by the Indira Gandhi government during emergency. It employed the “basic structure doctrine” to hold that Parliament’s power to make Constitutional amendments is limited and it cannot be used to weaken fundamental rights. The Court also held that fundamental rights under part III of the Constitution override “Directive Principles of State Policy”.

Indra Sawhney v. Union of India (November 16, 1992): This was one of the most important judgments on reservation. The court upheld the Mandal commission’s recommendations to provide reservation for other backward classes in government jobs but excluded the so-called “creamy layer” from availing such benefits. The court also ruled that total reservation for SC/STs, OBCs and others should not exceed 50%. Further, reservation for economically poor among forward castes was struck down by the court.

Supreme Court Advocate on Record Association & Anr. v. Union of India (October 6, 1993) : The current system of appointment of judges to the high court and Supreme Court through the collegium system was devised in this case popularly known as the Second Judges case. The top court ruled that the opinion of the Chief Justice of India will have primacy over the opinion of the executive with regard to the appointment of judges.

IR Coelho v. State of Tamil Nadu & Ors. (January 11, 2007): In this judgment, the Court expanded the scope of basic structure doctrine, holding that any law inserted in the Ninth Schedule on or after April 24, 1973 (date on which Kesavananda Bharati judgment was pronounced) can be subject to judicial review and will be struck down if it violates the basic structure doctrine.

National Legal Services Authority v. Union of India (April 15, 2014) : In a landmark judgment, the court held that transgender persons should be recognised as the third gender. They have all constitutional and legal rights as any other person in the country.

Justice KS Puttaswamy v Union of India (August 24, 2017) : A nine-judge bench ruled that right to privacy is a fundamental right under Article 21 of the Constitution.

M Siddiq v. Mahant Suresh Das (November 9, 2019): A five-judge bench of the court brought an end to the contentious Ayodhya dispute by awarding the 2.77-acre disputed land to Ram Lalla Virajman, the child deity while granting five acres of land to Muslims at an alternative site for construction of a new mosque. The court also asked the government to set up a trust to oversee construction of the temple and manage the disputed site.

The importance of an independent judiciary

Source: Hindustan Times dated 28.01.2020

-- Madan Lokur (Retired Supreme Court Judge)

The freedom of the judiciary, and the top court, has been sought to be compromised on several occasions in the past. But it has always bounced back.

In The Federalist No. 78 (14th June, 1788) Alexander Hamilton explained the rationale of the people of the United States (and now by extension, we the people of India) ordaining and establishing an independent judiciary in the Constitution. He said: “There is no position which depends on clearer principles, than that every act of delegated authority, contrary to the tenor of the commission under which it is exercised, is void. No legislative act, therefore, contrary to the Constitution, can be valid. To deny this, would be to affirm, that the deputy is greater than his principal; that the servant is above his master; that the representatives of the people are superior to the people themselves; that men acting by virtue of powers, may do, not only what their powers do not authorise, but what they forbid.” This passage is the key to understanding the role of an independent judiciary in a republican democracy.

The independence of the judiciary has been sought to be compromised on several occasions in the past. But it has always bounced back. Will it do so once again?

The first few years of our Republic saw the spectre of supersession in the appointment of the Chief Justice of India but the Supreme Court judges stood firm and the thought banished. Judgments were delivered declaring some laws as unconstitutional. Some of these declarations were nullified by Parliament by amending the Constitution to validate laws and regulations and, indeed, place some of them beyond judicial scrutiny by introducing the Ninth Schedule in the Constitution. The Supreme Court took this in its stride and continued to stand as a beacon of hope for many, particularly in matters relating to the recognition and enforcement of fundamental rights guaranteed by the Constitution.

The establishment believed, mistakenly, that by virtue of its powers, it could do not only what was not authorised but what was forbidden. The commitment of the Supreme Court to the Constitution led to the theory of committed judges. The establishment believed that the appointment of judges committed to its philosophy would be amenable to legislative changes. Matters came to a head in the early 1970s when the Supreme Court was called upon to decide whether the Constitution was plasticine in the hands of Parliament. Fortunately, the Supreme Court reminded the representatives of the people that they are not superior to the people themselves. This reminder was achieved through the judgment in Kesavananda Bharati’s case which enunciated what is now part of constitutional folklore -- the basic structure doctrine.

The high point of the independence of the judiciary was followed by the Emergency. During this period, the independence of the Supreme Court reached its nadir. Through its decision in the ADM Jabalpur case (Justice Khanna dissenting) the Supreme Court virtually suspended Article 32 of the Constitution, which guarantees the right to move the Supreme Court by appropriate proceedings for the enforcement of fundamental rights. BR Ambedkar described this article as the soul of the Constitution and the very heart of it. Ironically, many judges in the high courts saved the day for the independence of the judiciary -- perhaps, they were made of sterner stuff.

Post the Emergency and two supersessions in the appointment of the Chief Justice, the Supreme Court rebounded with constitutional justice and human rights taking centre stage. Public interest litigation made the establishment accountable as never before and the people came to appreciate that they were the principals and masters, not the deputies or servants and that they were superior to their representatives. Elected governments in the States could no longer be overthrown by the establishment by merely invoking Article 356 of the Constitution and the political executive was made to appreciate that it was prohibited from doing not only what was not authorised by the Constitution, but what was forbidden. This allowed human rights to gain considerable importance; draconian preventive detention laws were interpreted with compassion so that continued detention without trial became a rarity. All this while, the Supreme Court endeavoured to maintain its independence from the establishment and I daresay it succeeded.

The second decade of the new millennium saw a renewed attempt to contain the independence of the judiciary with the passage of an amendment to the Constitution incorporating the National Judicial Appointments Commission for recommending the appointment of judges. This amendment was declared unconstitutional by a 4:1 majority by the Supreme Court on the ground of violation of the basic structure of the Constitution which recognized the independence of the judiciary. This effectively confirmed the collegium system of recommending the appointment of judges. That’s when the fire started.

Over the years, we are witness to the establishment rejecting, for slim and sometimes undisclosed reasons, the recommendations made by the collegium and sometimes sitting on them. We have also seen the collegium passing resolutions that are hard to believe, let alone rationalise. There is considerable criticism of the collegium system but no one has suggested a better alternative that ensures the independence of the judiciary or suggested returning to the pre-collegium days and handing back the power of recommending and appointing judges to the establishment in consultation (not concurrence) with the Chief Justice of India. The solution today is only to tweak and strengthen the collegium system through dialogue, and this is urgent.

We are also witnessing judgmental fluctuations by the Supreme Court, perceived by many as succumbing to the pressures of the establishment in its core function. What has happened to the independence of the judiciary, they ask? Is the sentinel on the qui vive surrendering its obligation to preserve and protect the rights of the people? Unfortunately, a few even recall ADM Jabalpur. Only time will tell but admittedly, recent trends are quite disturbing and the light at the end of the tunnel is getting dimmer. Unless these trends are arrested, law students of the future will be studying a different Constitution, with or without a Republic.

Safeguarding free speech from threats is important

Source: Hindustan Times dated 28.01.2020

-- Madhavi Goradia Divan (Additional Solicitor General of India)

REASONABLE RESTRICTIONS: The enumeration of specific subjects in Article 19(2), on which the freedom of speech could be restricted, kept a check on excessive inroads into the right

When early drafts of the fundamental right to freedom of speech were put before the Constituent Assembly, members protested that the right was “riddled with so many exceptions that the exceptions have eaten up the right altogether.”

The framers of the Constitution drew from the example of the Irish Constitution by providing specific subjects on which the state could make law to restrict the freedom of speech. This was markedly different from the US Constitution, under which the freedom of speech was not mottled with exceptions, and was “absolute”, at least on the face of it.

There was a lively debate before the Constituent Assembly on what the permissible exceptions should be. Eventually, when the Constitution came into force on January 26 ,1950, the only grounds on which the fundamental right to freedom of speech and expression could be restricted were “libel, slander, defamation, contempt of court or any other matter which offends against decency or morality or undermines the security of or tends to overthrow the state.” Notable exceptions which found themselves in earlier drafts but got dropped in the end, were “sedition”, “public order”, “class hatred” and “blasphemy”.

Only a few months into the republic, the newly minted fundamental right to freedom of speech and expression under Article 19(1)(a) was put to test. The restrictions under Article 19(2) were invoked by three state governments to clamp down on select publications.

In Bihar, the government cracked down on a provocative political pamphlet. The high court rejected the state’s contention and that view was upheld by the Supreme Court in State of Bihar v Shailabala Devi.

In Madras, the state banned Crossroads, a communist weekly published by Romesh Thapar who was famously critical of many of Prime Minister Jawaharlal Nehru’s policies. The Supreme Court struck down the ban and the law under which it was issued, holding that nothing short of a threat to “overthrow the state” could justify a restriction on the freedom of speech under Article 19(1) (a). A breach of order of a purely local significance could not meet the test. This was followed in Brij Bhushan’s case, where the court struck down a pre-censorship order on the Organiser, a weekly run by the Rashtriya Swayamsevak Sangh.

Upset by the rulings, Nehru wrote to the then law minister BR Ambedkar, expressing a need to amend the Constitution to contain subversive activities. But on the floor of Parliament, Nehru justified the need for an amendment, not on a political ground but a “moral” one.

This was curious given that the occasion for the amendment was the three unfavourable rulings. Taking the moral high ground he said, “It has become a matter of the deepest distress to me to see from day to day some of these news sheets which are full of vulgarity and indecency and falsehood day after day not injuring me or this House much , but poisoning the mind of the younger generation, degrading their mental integrity and moral standards.”

In a speech which acquires special relevance in times of rampant and reckless fake news about seven decades later, he complained that “from the way untruth is bandied about and falsehood thrown about it has become quite impossible to distinguish what is true and what is false.”

The first amendment to the Constitution in 1951 expanded the exceptions to the freedom of speech to eight from what were originally four. Public order, security of the state, incitement to an offence and friendly relations with foreign states were the new insertions. One redeeming feature was that the subjects of restriction were prefixed with the word “reasonable”.

In 1963, a new ground was added: “in the interests of the sovereignty and integrity of India”. But despite the increased subjects of curtailment, seven decades of working the Constitution tell us that the enumeration of specific subjects in Article 19(2) on which the freedom of speech could be restricted, actually kept a check on excessive inroads into the freedom of speech. The addition of the word, “reasonable” helped to reign in the restrictions, even on the eight permissible grounds. Each restriction was required to meet the test of proportionality. The enumeration of restrictions, once condemned as eating up the right altogether, have emerged, somewhat paradoxically, as its protector.

In the landmark judgment Shreya Singhal v Union of India, comparing Article 19(1)(a) with its American counterpart, Justice Rohinton F Nariman held that while under the Indian Constitution, the right could be curtailed only on the eight grounds specified under Article 19(2), the American Constitution was not constrained by such limitations and the restrictions could travel beyond, so long as there was a “clear and present danger” to a competing right. The belief that the freedom of speech under the American Constitution was absolute was therefore, a misnomer.

Article 19(2) is organic enough to take care of challenges that might not have been envisaged so many years ago. At the forefront of civil liberties in recent times, is the right to privacy. Now recognised as a fundamental right, privacy concerns need to be balanced with the freedom of speech. Article 19(2) does not specifically mention privacy. But it does mention “decency and morality” as exceptions to free speech, and these exceptions are not limited to affording protection only against obscenity – they are broad enough to make space for privacy, an important “moral” value in any decent civilised society.

In Kaushal Kishor v Union of India, the Supreme Court, usually a staunch and steadfast guardian of the freedom of speech from the early days of the republic, decided to refer to a bench of five judges the question of whether the freedom of speech could be curtailed on grounds beyond those specified in Article 19(2), and whether Article 21, which has been stretched to include everything from the right to sleep to the right to a toilet can be invoked to introduce further curbs on the freedom of speech.

While the right to life and personal liberty under Article 21 in its many resplendent avatars, is vital, so is the freedom of speech and expression. We, in India chose to adopt the Irish template and consciously departed from the American one. The framers of our Constitution were careful to minimise the restrictions in Article 19(2), while seeking to ensure that all the social values which need to be protected from reckless speech found place in Article 19(2). Articles 19(1)(a) and 19(2) strike a good balance between protecting both free speech and other competing rights. There are grave dangers in opening a back door for inroads into Article 19(1)(a), particularly through a right as elastic as Article 21. Article 19(2) draws a Laxman Rekha and it is important, in the interests of free speech to stay well within that threshold.