Current Affairs 03 February 2023

CONTENT

1. Uniform civil code
2. Angel Tax
3. Puisne judge
4. Additional surveillance mechanism

 Uniform Civil Code

Context

No decision has been taken on implementing a uniform civil code in the country “as of now”, Union Law Minister told the Rajya Sabha.

Relevance:

GS II- Polity

Dimensions of the Article:

1. What is Uniform Civil Code (UCC)?
2. Positive aspects of Uniform Civil Code include
3. Challenges in Implementing Uniform Civil Code Include
4. Does India not already have a UCC for civil matters?
5. How does the idea of UCC relate to the Fundamental Right to religion?

What is Uniform Civil Code (UCC)?

• The Uniform Civil Code (UCC) in India proposes to replace the personal laws based on the scriptures and customs of each major religious community in the country with a common set governing every citizen.
• The constitution has a provision for Uniform Civil Code in Article 44 as a Directive Principle of State Policy which states that “The State shall endeavor to secure for the citizens a uniform civil code throughout the territory of India.”

Article 44 is one of the Directive Principles of State Policy. These, as defined in Article 37, are not justiciable (not enforceable by any court) but the principles laid down therein are fundamental in governance.

Fundamental Rights are enforceable in a court of law. While Article 44 uses the words “state shall endeavour”, other Articles in the ‘Directive Principles’ chapter use words such as “in particular strive”; “shall in particular direct its policy”; “shall be obligation of the state” etc.

Article 43 mentions “state shall endeavour by suitable legislation”, while the phrase “by suitable legislation” is absent in Article 44. All this implies that the duty of the state is greater in other directive principles than in Article 44.

Positive aspects of Uniform Civil Code include

• UCC will divest religion from social relations and personal laws and will ensure equality in terms of justice to both men and women regardless of the faith they practice.
• There will be uniform laws for all Indians with regard to marriage, inheritance, divorce etc.
• It will help in improving the condition of women in India as Indian society is mostly patriarchal
• Informal bodies like caste panchayats give judgements based on traditional laws. UCC will ensure that legal laws are followed rather than traditional laws.
• It can help in reducing instances of vote bank politics. If all religions are covered under same laws, politicians will have less to offer to communities in exchange of their vote.

Challenges in Implementing Uniform Civil Code Include

• Implementation of UCC might interfere with the principle of secularism, particularly with the provisions of Articles 25 and 26, which guarantee freedom relating to religious practices.
• Conservatism by religious groups, which resist such changes as it interferes with their religious practices.
• It is difficult for the government to come up with a uniform law that is accepted by all religious communities. All religious groups- whether majority or minority have to support the change in personal laws.
• Drafting of UCC is another obstacle. There is no consensus regarding whether it should be a blend of personal laws or should be a new law adhering to the constitutional mandate.

Does India not already have a uniform code in civil matters?

• Indian laws do follow a uniform code in most civil matters — Indian Contract Act, Civil Procedure Code, Sale of Goods Act, Transfer of Property Act, Partnership Act, Evidence Act, etc.
• States, however, have made hundreds of amendments and, therefore, in certain matters, there is diversity even under these secular civil laws. Recently, several states refused to be governed by the uniform Motor Vehicles Act, 2019.
• If the framers of the Constitution had intended to have a Uniform Civil Code, they would have given exclusive jurisdiction to Parliament in respect of personal laws, by including this subject in the Union List. But “personal laws” are mentioned in the Concurrent List.
• In 2020, the Law Commission concluded that a Uniform Civil Code is neither feasible nor desirable.

How does the idea of a Uniform Civil Code relate to the fundamental right to religion?

• Article 25 lays down an individual’s fundamental right to religion; Article 26(b) upholds the right of each religious denomination or any section thereof to “manage its own affairs in matters of religion”; Article 29 defines the right to conserve distinctive culture. An individual’s freedom of religion under Article 25 is subject to “public order, health, morality” and other provisions relating to fundamental rights, but a group’s freedom under Article 26 has not been subjected to other fundamental rights.
• In the Constituent Assembly, there was division on the issue of putting Uniform Civil Code in the fundamental rights chapter.
• The matter was settled by a vote. By a 5:4 majority, the fundamental rights sub-committee headed by Sardar Vallabhbhai Patel held that the provision was outside the scope of Fundamental Rights and therefore the Uniform Civil Code was made less important than freedom of religion.

-Source: The Hindu

Angel Tax

Context:

A recently proposed detail has Indian start-ups worried. These new age firms, that offer their shares to foreign investors, may have to pay ‘angel tax’, which was earlier only supposed to be paid for investments raised by resident Indian investors, as per a motion made in the Finance Bill, 2023.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Angel Tax
2. Proposed Change to Angel Tax
3. Why are start-ups concerned?

Angel Tax

• Angel Tax is a 30% tax levied on funding received by startups from external investors.
• The tax is imposed when startups receive angel funding at a valuation higher than its ‘fair market value’.
• It was introduced in 2012 under section 56(2)(vii b) to fight money laundering.

Why is Angel Tax Problematic?

• There is no definitive way to measure the ‘fair market value’ of a startup.
• Investors pay a premium for the idea and business potential, but tax officials seem to assess the value based on the net asset value at one point.
• Startups find it difficult to justify the higher valuation to tax officials.

CBDT Notification on Angel Tax

• In May 2018, the Central Board of Direct Taxes (CBDT) issued a notification exempting angel investors from the Angel Tax clause subject to certain terms and conditions specified by the Department of Industrial Policy and Promotion (DIPP) now renamed as the Department for Promotion of Industry and Internal Trade..
  • Despite the exemption notification, startups still face a host of challenges to get the exemption.

Proposed Change to Angel Tax

• The Finance Bill, 2023 has proposed an amendment to Section 56(2) VII B of the Income Tax Act.
• The provision previously stated that an unlisted company (such as a startup) receiving equity investment from a resident that exceeds the face value of the shares, would be counted as income and subject to tax under “Income from other sources”.
• The proposed amendment extends this provision to include foreign investors, meaning that funding received by a startup from a foreign investor will now also be taxed as income.
• The tax applies if the fair market value of the start-up shares is higher than the amount offered to the investor.
  • For instance, if the fair market value of a start-up share is Rs 10 apiece, and in a subsequent funding round they offer it to an investor for Rs 20, then the difference of Rs 10 would be taxed as income.
• The angel tax was first introduced in 2012 with the intention to prevent the generation and use of unaccounted money through the subscription of shares in a closely held company.

Why are start-ups concerned?

• Funding Drop: According to a report by PwC India, funding for India’s start-ups dropped by 33% to $24 billion in 2022 compared to the previous year.
• Importance of Foreign Investors: Foreign investors are a crucial source of funding for start-ups and have helped increase their valuation. Notable investors like Tiger Global have invested in over a third of the start-ups that have achieved a unicorn status with a valuation of at least $1 billion.
• Impact on Non-Resident Investors: The proposed change includes foreign investors in the scope of the tax, which was previously not the case. This has raised concerns as it could impose additional tax liabilities on foreign investors for their investments in start-ups.
• Concerns about the Re-introduction: The re-introduction of the tax is seen as counter-intuitive to the efforts to attract startups back to India and could instead encourage start-ups to flip overseas.
• Lack of Clarity: There is confusion and concern among start-ups about the impact of the proposed change as they fear it could negatively affect the flow of funding from foreign investors.

-Source: Indian Express

Puisne Judge

Context:

While recommending two names for appointment as judges of the Supreme Court, the Collegium headed by Chief Justice of India said in a statement that the collegium had taken into “consideration the seniority of Chief Justices and senior puisne Judges.”

Relevance:

GS II: Polity and Governance

Dimensions of the Article:

1. What does puisne mean, and who are puisne judges?
2. Is a “puisne judge” in India the same as in the UK?

What does puisne mean, and who are puisne judges?

• According to the dictionary, the word puisne has French origins, which means “later born” or younger.
• Puisne is almost always used in the context of judges, and essentially denotes seniority of rank.
• The term puisne judge is used in common law countries to refer to judges who are ranked lower in seniority, i.e., any judge other than the Chief Justice of that court.
• Common law is the body of law that is created by judges through their written opinions, rather than through statutes or constitutions (statutory law). Common law, which is used interchangeably with ‘case law’, is based on judicial precedent.
• The United Kingdom (UK) and the Commonwealth countries, including India, are common law countries.

Is a “puisne judge” in India the same as in the UK?

United Kingdom:

• In the UK, puisne judges are judges other than those holding distinct titles.
• The Supreme Court of Judicature Act, 1877 defined a “puisne judge” as any judge of the High Court besides the Lord Chancellor, the Lord Chief Justice of England, and the Master of the Rolls.

India:

• In India, all judges have the same judicial powers.
• As the senior most judge of a court, the Chief Justice has an additional administrative role.
• In India, there is a reference to a puisne judge only while considering the order of seniority for appointments, elevations to High Courts, etc., but it does not have a bearing on the exercise of a judge’s judicial power.

-Source: Indian Express

Additional Surveillance Mechanism

Context:

Recently, The National Stock Exchange (NSE)  placed Adani Enterprises, Adani Ports, and Ambuja Cements under the additional surveillance mechanism (ASM), Reuters reported. This means trading in their shares will require a 100% margin, which is aimed at curbing speculation and shortselling.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Additional Surveillance Mechanism (ASM)
2. Reserve Bank of India (RBI) and Adani Group Companies

Additional Surveillance Mechanism (ASM)

• The ASM was introduced on March 26, 2018, to protect investors from market volatility and unusual changes in share price.
• It is a measure introduced by the Securities and Exchange Board of India (SEBI) and exchanges to address surveillance concerns in the market.

Purpose of ASM

• The ASM was introduced to complement the existing surveillance measures in place.
• The intention is to protect investors from unusual changes in share price and market volatility.

Shortlisting of Securities for ASM

• The shortlisting of securities for ASM is based on criteria decided jointly by SEBI and exchanges.
• The criteria include parameters such as price/volume variation, volatility, high/low variation, client concentration, PE, close-to-close price variation, market capitalization, volume variation, delivery percentage, and number of unique PANs.

Significance of ASM Shortlisting

• The shortlisting of securities under ASM signals to investors that the stocks have seen unusual activity.
• However, the shortlisting should not be construed as an adverse action against the concerned company/entity.

Note: SEBI has not announced any probe into the Adani shares crash as of yet.

Reserve Bank of India (RBI) and Adani Group Companies

• The RBI has sought details from banks about their exposure to Adani group companies.
• This was in response to the sustained fall in the shares of Adani group companies and the withdrawal of the follow-on public offer of INR 20,000 crore.

Action by Banks

• Credit Suisse has stopped accepting bonds of Adani Group companies as collateral for margin loans to its private banking clients.
• Citigroup’s wealth unit has also stopped extending margin loans to clients against securities of Adani group companies.

Possible Reason for RBI Intervention

• The RBI’s intervention might have been prompted by the actions of Credit Suisse and Citigroup.
• A banking source suggests that this might have prompted the regulator to step in.

-Source: Indian Express