Weekly Note Should Lawmakers Practice Law? by Shrikrishna Upadhyaya & Sukriti
Legislators are vested with the duty to make laws. Can they practice law in courts of law is the moot question. The Bar Council of India (‘BCI’) recently set-up a four member sub-committee to examine this issue following a complaint by advocate Mr. Ashwini Kumar Upadhyay who demanded that legislators ought to be barred from practicing law. The two primary grounds taken by Mr. Upadhyay were, first, that in the case of Dr Haniraj L. Chulani v Bar Council of Maharashtra & Goa, the Supreme Court had observed that “legal profession requires full time attention and would not countenance an advocate riding two horses or more at a time” which means that legislators who are serving the nation in their duties full-time cannot at the same time be arguing cases in courts, and secondly, that Rule 49 of BCI Rules prohibits legislators from practicing law. Rule 49 stipulates that advocates cannot be full-time salaried employees of any person or entity including the government as long as they are practicing. It has also been stated that legislators are failing in their constitutional duties by practicing as lawyers. However, the BCI sub-committee recommended in favour of legislators (with one member dissenting). It opined that there is neither a conflict of interest nor office of profit bar on legislators appearing as lawyers in courts. But due to the nature and importance of the issue, BCI has kept a final decision on the matter pending. Meanwhile, aggrieved by the actions of BCI the original complainant Mr. Upadhyay has approached the SC with a plea for banning legislators from practicing law on similar grounds. Alternatively, he has prayed for striking down Rule 49 making the way for all public servants to practice law. The sub-committee reasoned in the following manner. Regulated professions such as medicine and law are compatible with public services of lawmakers as the essence lies in service to the people. Services of legislators as lawyers too must be available to the general public which might be aggrieved by acts of the government as well as personally to legislators who might want to challenge governmental decisions like any other citizen. Thus, there is no conflict of interest. Whereas the observations in Dr Haniraj case pertained to practice of two professions (medicine and law) it does not have any application in the present case. It accused the complainant of taking the interpretation of SC’s observations on whole-hearted and full-time attention to the profession too far because it would mean that one cannot devote their time to anything apart from their profession, even if it were in the service to the nation. As far as Rule 49 is concerned, it reasoned that members of Parliament/ State legislature are not employees of the government despite them drawing salaries from the Consolidated Fund of India. Other elements of employment such as contract of employment with the employer, employer’s discretion in terminating their services, fixation of tenure of employment (which is done by the Constitution), employee’s accountability to employer etc. are missing in case of legislators. In that sense, legislators are only a special category of salaried persons who are performing their constitutional duties independently as per Constitution and law and do not fall within the class of full-time salaried employees under Rule 49. This petition before the SC has wide-ranging and interesting dimensions. Grounds like legislators failing in their duties as representatives of people due to their inability to devote enough time to their constituencies ought to be brushed aside. There is no reason why they will perform better if prohibited from practicing law. Moreover, it would also mean that legislators who are chartered accountants, doctors and other professionals will have to be barred from practice and it could be argued that even an entrepreneur must desist from doing business during her time as legislator. And finally it is the people who are ultimate judges of the performance of MPs and MLAs and not a regulatory body like BCI. Questions of conflict do arise if legislators are appearing for certain business-houses or operate or operate on corporate retainership. However, a well-functioning Ethics or Privilege Committee of Parliament and State legislatures can take care of the issue. Codes of Conduct of legislators already hold the field and also contain disclosure requirements and incompatibility provisions. Further, as explained by BCI sub-committee, Rule 49 is not an effective bar on legislators. Even if legislators have been deemed to be public servants under several laws, they are not covered by the traditional employment relationship. The question remains whether the SC will prefer to have a relook at Rule 49 itself which prohibits employed persons from practicing law. Until then the fate of over five hundred legislator-cum-practicing lawyers, including several big names, hangs in balance. ... See MoreSee Less
Weekly Note CORPORATE SOCIAL RESPONSIBILITY: THE NEED TO BUST CERTAIN MYTHS SURROUNDING THE PROVISION AND ITS IMPLICATIONS by Priya Garg
Recently, it was reported that the Ministry of Corporate Affairs ('MCA') has expressed its intention to take penal action against the companies which have violated the corporate social responsibility ('CSR') provision (S. 135) under the Companies Act, 2013 ('the Act'). This makes us wonder how this stance of the government could be reconciled with the widely known position of law that S. 135 does not make CSR mandatory for any company, because no penalty can be imposed for not undertaking CSR activities.
The first misunderstanding that needs to be cleared is that the penalty has not been slapped for non-undertaking of CSR activities as per S. 135. Instead, it has been imposed for non-adherence to S. 134 of the Act. S. 135 states that if a company fails to spend the prescribed CSR amount, the Board shall, in its report made under S. 134(3)(o) of the Act, specify the reasons for it. S. 134(3)(o) resultantly states that there will be disclosure of the details about the policy developed and implemented by the company on CSR initiatives taken during the year. S. 134(8) provides that contravention of the disclosure provisions laid under S. 134 will make the company liable for monetary penalty within a prescribed range, and imprisonment and fine for its officers who are in default. Therefore, when the news reports suggest the imposition of penalties, they have not been imposed by the virtue of S. 135; instead they have been imposed for the contravention of S. 134 (i.e. disclosure provision). Hence, S. 135 on its own continues to remain unjusticiable.
There are a few other interesting observations which can be made about S. 135 of the Act. S. 135 requires mere disclosure and not a justification or an explanation in case a company fails to dedicate its funds for CSR activities. Hence, S. 135 is merely a ‘comply or disclose’ and not a ‘comply or explain’ provision. This has certain important implications.
General Circular No. 21/2014 dated January 18, 2014 of MCA clarified that the CSR provisions mandatorily require that the activities or areas where CSR amount can be spent by companies are those which are mentioned under Schedule VII of the Act. However, since S. 135 is only a 'comply or disclose' provision, a company can practically allocate its CSR activities towards endeavours falling outside the ambit of Schedule VII and can thereafter disclose in its annual report about its non-compliance with S. 135 stating the reason that under its policy it chose to dedicate its CSR funds to activities falling outside Schedule VII. As per one circular of MCA, ‘social business project’ has been excluded from the list of CSR activities stated under Schedule VII. Additionally, it has been clarified that a one-off social event such as sponsoring a sports or cultural event or an act of donation for social causes will not qualify as CSR under S. 135. However, a company can choose to spend its CSR expenditure on 'social business project' or the one-off expenditure and can thereafter disclose in its report under S. 134 that it has not complied with S. 135 of the Act.
Similarly, a FAQ of ICSI clarifies that though as per S. 135, 2% of the net profits are required to be allocated to CSR activities annually, it does not mean that if in any year a company spends more than the 2% amount on CSR endeavours the excess amount will be carried forward to the subsequent years. However, a company may carry forward and disclose the same in its report under S. 134.
Lastly, I would like to offer some clarity regarding the CSR provision under the Act. Today, green financing i.e. raising funds for green/eco-friendly projects is gaining momentum in India. For instance, SEBI has also decided to give a boost to the country’s green bonds market wherein green bonds are treated like any other bond/debenture except that these are issued for funding green projects. Since green bonds are used to raise money to finance green projects and assets, confusion may arise if the expenditure incurred on raising money through green bonds, including by way of interest, cost of hiring experts or third party reviewers, disclosure costs, etc., could be counted as CSR expenditure under S. 135. In my opinion, the answer should be in the negative.
This is because the first situation where money can be raised by issuing green bonds is when a company raises funds for its green projects or assets as a part of its ordinary business operations. Since the CSR Rules, 2014 state that the projects falling under a company’s ordinary course of business cannot be a part of CSR, expenditure incurred on raising money for such projects by issuing green bonds cannot count as CSR expenditure.
The second situation is when a company issues green bonds to raise money to finance green projects outside its ordinary business operations. The expenditure on such green projects will count as CSR activity as per Schedule VII of the Act. However, the expenditure incurred on raising money for these projects should not count as CSR expenditure. Spending on CSR activities is required of a company. It is a company's discretionary power if it chooses to spend on a CSR (green) activity after raising money through a loan. Therefore, any additional expenditure incurred by a company, on raising money by way of debts, including by way of issuance of green bonds, should not be counted as CSR expenditure. Such additional expenditure is purely a consequence of the business strategy of the company, which is that instead of spending on its CSR activities out of its profits, the company wishes to raise this money by way of debts. ... See MoreSee Less