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| Govt notifies defence FDI change |
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New Delhi, 26 August In some easing of investment rules for the defence sector, the government has apparently done away with the condition of 51 per cent equity ownership by a single Indian partner while raising the foreign investment cap to 49 per cent from 26 per cent. It has also lifted an earlier three- year lock- in period for foreign investment in this sector. Notifying on Tuesday the Cabinet's recent decision in foreign direct investment (FDI) policy, the department of industrial policy and promotion also lifted the prohibition on foreign portfolio investment ( FPI) in the defence sector but capped it at 24 per cent. The earlier FDI policy for the sector had a clause that the equity held by the largest Indian shareholder would have to be at least 51 per cent, excluding that held by public sector banks and public financial institutions. This, experts said, has been done away with. So, while foreign investment would be allowed till 49 per cent, more than one Indian entity could hold 51 per cent or more stake in the company. The Cabinet had recently raised foreign investment cap to 49 per cent from the earlier 26 per cent. This 49 per cent could be a combination of FDI, FPI, investment by non- resident Indians (NRIs) and by foreign venture capital investors ( FVCI). However, investment other than FDI — by FPI, NRIs and FVCI —has been allowed only up to 24 per cent. |
| Insurance firms face new consumer liability issue |
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Mumbai, 26 August If the Reserve Bank's proposed charter of customer rights takes effect, banks will be liable for the policies they sell on behalf of insurance companies. Under the current bancassurance norms, banks are not responsible for the policies sold as a corporate agent. RBIs charter proposes that a customer have a right to hold the financial services provider accountable for the products offered, And, to have a clear and easy way to have any valid grievance redressed. The regulator said the provider should also facilitate the redress of grievances stemming from its sale of third- party products. "Banks have been resisting becoming a broker for a long time since their officials would be held responsible for claims, grievances related to mis- selling and others. Now that the banking regulator has talked about liability for sale of third- party products, they would have to look into servicing all needs of customers," said the chief executive of a private life insurance company. At present, banks follow a corporate agent model, where they are allowed to tie- up with only one life, one non- life and one health insurer each. The finance ministry had in December 2013 sent a circular to the heads of public sector banks to also become insurance brokers. The idea was to boost insurance penetration by using banks branch networks. Later, the insurance regulator also floated a proposal for all banks being mandated to become such brokers. There had been discussion between the regulator and bankers on this issue. But several banks were against the proposal, since they would be liable for each policy sold. Bankers had earlier said that insurance was not a core competence of their personnel and, hence, they were not in a position to take liability for policies being sold through their network. Insurance executives said companies that have a bank partner through a corporate agency or joint venture agreement would be immediately impacted if this charter was made mandatory. "The insurance ombudsman services and Integrated Grievance Management System would have to be accessed by banks to record customer grievances and provide solutions to their concerns. They might incur additional costs, since automated systems will have to be set up to link their servers to the insurance networks," said the chief distribution officer of a large private general insurer. Around half of insurance sales are made through the bank network. Banks sell these products through their branch network and also offer these products as combination deals with core products like savings bank accounts and loans. Bankers had earlier said that insurance was not a core competence of their personnel and, hence, they were not in a position to take liability for policies being sold through their network |
| Committed and proud of it |
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The big fight over " committed judges" has revived in the context of the Judicial Appointments Bill. But the principle of impartiality is flouted persistently in the field of arbitration, despite the Supreme Court's call for a change in the standard form contracts. Normally, an independent arbitrator is appointed according to the terms of the agreement. But contracts offered by several government entities carry a condition that arbitration will be conducted by its own officers. This is an utterly unconscionable demand, but the lure of government contracts is so high that private firms sign on the dotted line. Only when disputes arise do they realise that officers of the government corporations are judges in their own cause. One more such case was decided last week by the Supreme Court where the government insisted that the arbitrators should be gazetted officers and any vacancy should be filled by yet another gazetted officer from the same department ( North Eastern Railway vs Tripple Engineering Works). In this case, the Railways terminated a works contract, starting prolonged litigation. The contractor failed in the Patna High Court and the Supreme Court, and then resorted to arbitration. However, the arbitrators appointed under the government's General Conditions of Contract were officers of the Railways. They get transferred, promoted or retire at crucial junctures of arbitration proceedings. All these can be managed at high levels to defeat the contractors' cause. In any case, these civil servants have to show loyalty to their institution to advance their careers, unless still higher considerations swing their minds. In this case, arbitrators were appointed in 1996 but they have not decided the dispute till now. The contractor, therefore, approached the Patna High Court. It appointed aformer chief justice as an arbitrator. The Railways appealed to the Supreme Court arguing that it was against the terms of the contract. According to the arbitration clause, only a panel consisting of three officers of the Railways can decide the issues. Moreover, the general manager can change the arbitrators midway. The Supreme Court dismissed the Railways' appeal and upheld the nomination of the judge as an arbitrator. In extraordinary circumstances like these, the court can dump the rule, it said. This is not the first time the court has taken such action. In one leading case, Union of India vs Singh Builders Syndicate, the court tossed the standard rule and appointed a retired judge as an arbitrator. The arbitration by officers had dragged on for over a decade, "making a mockery of the process". The judgment made some stinging remarks: " We find that a provision for serving officers of one party being appointed as arbitrators brings out considerable resistance from the other party. Having regard to the emphasis on independence and impartiality in the Arbitration and Conciliation Act, the government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration". Foreign firms might be surprised by such one- sided contracts persisting in this country. In a recent case, Bipromasz Bipron Trading SA vs Bharat Electronics Ltd ( BEL), the court appointed an arbitrator disregarding the contractual clauses. According to the agreement, the reference of disputes has to be made to the chairman and managing director (CMD) for arbitration. When disputes arose, the foreign firm wanted to nominate an independent arbitrator. BEL, the government corporation, objected to it pointing out the arbitration clause making its official the arbitrator. Noting the apprehension of the foreign firm the court said that " relevant facts would tend to indicate that the named arbitrator is not likely to be impartial." In another case, Denel (Proprietary) Ltd vs BEL, the court reiterated that the CMD of BEL, "which is a government company, was bound by the direction/ instruction issued by his superior authorities. The private company's case is that it is not in a position to settle the dues only because of the directions issued by the Ministry of Defence. It only shows that the CMD may not be in a position to independently decide the dispute". A few years ago, BSNL overplayed the card when it asked Motorola to sign a contract that read: " There will be no objection to any such appointment on the ground that the arbitrator is a government servant or that he has to deal with the matter to which the agreement relates or that in the course of his duties as a government servant he has expressed his views on all or any of the matters in dispute." The Supreme Court dismissed BSNL's appeal. Such unreasonable conditions could act as deterrents in contracting with the government. Officials are possessive about their right, and even flaunt it like PoohBah in the opera who acted as judge, executioner and many other things simultaneously. It is time to delete this unfair clause and offer a level playing field to private companies. How government officials act as arbiters in their own cause OUT OF COURT MJ ANTONY |
Company Secretary
Chennai
93810 11200
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