The Law Review

Volume 10

2019
Government Law College, ‘A’ Road, Churchgate, Mumbai 400 020.
 PUBLISHED BY
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Government Law College
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Mumbai 400 020.
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 The Law Review
Editor-in-Chief
Hon’ble Dr. Justice D. Y. Chandrachud
Judge, Supreme Court of India

Editorial Board
Mr. Aspi Chinoy
Mr. Bahram Vakil
Mr. Shyam Divan
Mr. Shiraz Rustomjee
Dr. Menaka Guruswamy
Mr. Sumit Agrawal

Faculty Advisor
Prof. Kishu Daswani

The Law Review Committee

Aditya Thakore Prakriti Bhatt
Avirup Mandal Riddhima Kedia
Kajol Punjabi Sanaya Patel
Kavita Mohanty Sheona Shenoy
King Dungerwal Shivani Chimnani
Vidhi Shah
 Principal
Mrs. Suvarna K. Keole
 Acknowledgements
The Government Law College would like to thank the following
for their support.

Nishith Desai Associates

Veritas Legal

Wadia Ghandy & Co.

 CONTENTS

1. From the Principal’s Desk i

2. Foreword iii

ARTICLES

3. Whistle Blowing: A Hobson’s Choice? 1

Cherry-Picking Between State Authorities and
Third-Party Internet Platforms
Prakriti Bhatt

4. Unveiling Privacy for Women in India 37

Priyanshi Vakharia

5. Insolvency Procedures —
Investigating the Pre-Pack Paradigm in India 69
Sanjana Rao

6. Deconstructing the Dichotomy in 106

Cultural Property Law
Vedika Shah

7. Determining Disgorgement in Securities Law 138

Vidhi Shah

 FROM THE PRINCIPAL’S DESK

That there is nothing static about the law, is one of this

profession’s greatest charms. One practises the law by learning
its history and then reinventing it. Innovation finds expression
through academic writing, often adopted by lawmakers and
written into statutes. Within this symbiotic relationship between
theory and practice, lies academic writing. One must appreciate
how, today, law review articles and blogs are increasingly being
cited by courts and tribunals, and are starting to hold significant
jurisprudential value. Recent landmark judgments of the
Supreme Court of India show the increasing reliance placed by
the apex court on literary works of students in academia. These
articles are not merely token academic contributions, but play an
important role in redefining the contours of law and society. The
Law Review strives to be one such forum where undergraduate
law students can build inroads to important legal conversations.
It is heartening to have witnessed the reception of the ninth
edition of The Law Review. Appreciation and acclaim came in
from law schools across the country and overseas, and from
academicians, jurists and judges alike. The ninth edition also
paved the way for the electronic distribution of The Law Review
for the first time. All volumes of the publication have been
indexed on SCC Online, a prominent Indian legal search index.
Importantly, having each volume of The Law Review archived
at the Government Law College website ensures open access,
in line with a worldwide movement to democratise academic
resources. All these steps have been undertaken to provide
wider access to students and young practitioners in India and
overseas.
An inadvertent but noteworthy feature of Volume 10 is that all
the articles in The Law Review have been authored by women.
This is a watershed moment for the college, which while
admiring this fact of predominance, is proud to be a medium
for young women authors to convey their ideas and foster
discussion.
The publication process for this year began with the customary
orientation programme for prospective student-authors and the
new members of The Law Review Committee. The induction
was soon followed by a call for abstracts from potential authors.
From over thirty submissions received, five articles have been
selected for their content and clarity. Volume 10 of The Law
Review represents a spectrum of ideas and distinct styles of
writing. Apart from the student-editors, every article has been
reviewed by an expert. The Editorial Board is, therefore, an
amalgam of senior counsel and partners at law firms. The
culmination of combined efforts of the authors, committee
members and the editors is what the reader holds in their
hands: pages of useful, novel ideas.
Within these pages, one traverses separate fields of law,
diving into the details of current legislation, exploring future
possibilities, critiquing loopholes within the existing framework.
This edition carries a common thread through its articles – each
one addresses the law through its stakeholders. The articles aim
to bridge the gap between the theory of law and its functionality
within a complex, human society. That law and society are
inextricably bound to each other, is a reality well thought of,
by each author.
Volume 10 of The Law Review comprises an interesting
melange of articles covering several diverse heads such as
feminist jurisprudence and social justice, constitutional law,
public international law, as well as finance. These articles
advocate pressing research contentions and address questions
of contemporary relevance including those of addressing the
lacunae in the State mechanism set up for the protection of
whistle blowers under The Whistle Blowers Protection Act,
2014 and its Amendment Bill of 2015; viewing the concept of
privacy through a feminist lens and reviewing the impact of the
privacy judgment of the Supreme Court on the rights of women
in India today; giving a primer on the concept of cultural
property and pitting theories of cultural nationalism and cultural
internationalism against each other in varying contexts of periods
of colonialism, internal unrest, international armed conflict
and peacetime; extrapolating the western corporate rescue
mechanism of pre-packs and assessing its viability in the Indian
insolvency regime; and exploring the utility of disgorgement as
a remedial measure in instances of stock market frauds.
The Government Law College thrives from the unwavering
support it receives from a strong, benevolent matrix of judges
and lawyers, amongst others. I thank the Editor-in-Chief, the
Hon’ble Dr Justice DY Chandrachud, and each member of the
Editorial Board for their time and contribution to the growth of
The Law Review.
The tenth edition reaches the high standards of erudition
and excellence in line with the academic ideals and scholarly
values of the Government Law College. With contemporary
issues pertaining to law and society being tackled head-on,
the literature of The Law Review will establish a strong hold in
academic and legal jurisprudence and soon become a ready
reference for legal practitioners and law students worldwide.

Mrs. Suvarna K. Keole

District and Additional Sessions Judge
Principal, Government Law College
 FOREWORD
‘Judges and advocates may not relish the admission, but the
sobering truth is that leadership in the march of legal thought has
been passing in our day from the benches of the courts to the
chairs of univerisities…[T]he outstanding fact here is that academic
scholarship is charting the line of development and progress in the
untrodden regions of the law.’

- Benjamin N. Cardozo, 1931

The law is constantly developing and being redefined through

scholarship and research on various issues. The contributors of the
tenth volume of The Law Review of the Government Law College,
Mumbai have addressed several contemporary issues with remarkable
depth and understanding of the law. This edition of The Law Review
serves as an important platform for budding legal minds to hone their
writing and research skills while contributing to a growing repository
of legal scholarship in India.
1. In the article ‘Whistle Blowing: A Hobson’s Choice? Cherry-
Picking Between State Authorities and Third-Party Internet
Platforms’, Prakriti Bhatt draws attention to the lacunae in the
State mechanism set up for the protection of whistle blowers
under The Whistle Blowers Protection Act, 2014 and its
Amendment Bill of 2015. The author investigates the drawbacks
of the Act and examines reasons as to why a whistle blower
would be more inclined to choose a third-party internet platform
over an existing, legitimate State mechanism, particularly in
the context of making national security related revelations. The
author further provides recommendations on how confidence
and trust in the State mechanisms can be enhanced through an
examination of international best practices which have sought
to establish a fine balance between the conflicting interests of
Government transparency and national security.
2. Priyanshi Vakharia’s article ‘Unveiling Privacy for Women in
India’ explores the concept of privacy through a feminist lens.
The author reviews the impact of the Puttaswamy judgment of
the Supreme Court, which gave to the Indian people privacy as
a facet of the right to life under Article 21 of the Constitution,
 on the rights of women in India today. The article presents the
opinion of a certain class of today’s feminists: that privacy, in
its traditional sense, does more harm than good for women. It
then refutes this opinion by articulating the concept of privacy
as an individual right, as construed in the Puttaswamy judgment.
Through three pressing issues faced by Indian women: marital
rape, temple entry, and the stark absence of women in public
spaces, the article explains that privacy is no longer an abstract
idea as was regarded in the past. Privacy is, today, what enables
access to equality and liberty. The author argues that the right to
privacy is therefore a pathway, rather than a barrier, to a more
equal society for women.
3. Sanjana Rao’s article on ‘Insolvency Procedures — Investigating
the Pre-pack Paradigm in India’ introduces a well-established
method of corporate recue prevailing in the West into the
Indian insolvency regime. Given the high stakes involved in
insolvency proceedings and re-organisation of corporates, pre-
packs may play a significant role in bringing in expediency and
certainty in enabling effective insolvency resolution. The author
expounds on the viability of the pre pack regime in India and
opines: ‘Pre-packs could thus prove helpful in a scenario where
despite availability of umpteen corporate rescue modes, creditors
continue to face a situation where they are expected to make
high provision against the non-performing loan accounts and also
reconcile to facing huge haircuts … even though not a means
to rectify the non-performing assets problem, pre-packs may
provide a solution to maintain status-quo in the economy while
lenders seek recovery from big borrowers.’
4. Vedika Shah’s article on ‘Deconstructing the Dichotomy in
Cultural Property Law’ provides a primer on the concept of
cultural property and pits theories of cultural nationalism and
cultural internationalism against each other in varying contexts
including periods of colonialism, internal unrest, international
armed conflict and peacetime. The author vehemently advocates
the cause of cultural nationalism except in certain exceptional
cases. The author poignantly opines: ‘The debate surrounding
cultural property is often biased with each side inclined to favour
a predisposed ideological view. After analysing the two theories–
nationalism and internationalism–thoroughly, the question which
 arises is: are cultural internationalists justified in demanding
retention of cultural property? ... Cultural property is integral
to the identity of mankind and every effort must be expended
to protect it… It is only when one country respects the right
of sovereignty and integrity of another, such respect extending
to the ownership of its cultural property, and does not unjustly
enrich its self at the expense of the other, can parity between
the states be achieved in the truest sense.’
5. Vidhi Shah’s article titled ‘Determining Disgorgement in
Securities Law’ explores the utility of disgorgement as a remedial
measure. The article delves into understanding the nature and
context of its evolution, its various constituents and calculation
strategies by regulatory commissions in USA and India, thereby
aiming to lay down certain standards for the calculation of
disgorgement. The author explains, ‘The method of computation
or quantification of disgorgement differs not only among
different jurisdictions but also within the approaches developed
by a particular securities commission. There is no one method,
which can be described as ‘perfect’ or ‘apt’… the method is
likely to vary in view of the peculiar facts and circumstances of
every case and the distinct strategies adopted by the wrongdoers
to contravene securities law.’

This volume makes a significant contribution to legal scholarship

in the country which is made possible because of the conscientious
efforts of the editorial team of The Law Review. The articles have
additionally been reviewed by a pool of eminent professionals from
the legal fraternity. Professor Kishu Daswani, the faculty advisor,
continues to make sustained efforts to ensure that each edition of The
Law Review reaches scaling heights of erudition.

Hon’ble Dr. Justice D.Y. Chandrachud

Judge, Supreme Court of India
2019] Whistle Blowing: A Hobson’s Choice? 1

WHISTLE BLOWING: A HOBSON’S CHOICE?

CHERRY-PICKING BETWEEN STATE
AUTHORITIES AND THIRD-PARTY
INTERNET PLATFORMS†
Prakriti Bhatt *

‘A popular Government, without popular information, or the means

of acquiring it, is but a Prologue to a Farce or a Tragedy; or,
perhaps both. Knowledge will forever govern ignorance: And a
people who mean to be their own Governors, must arm themselves
with the power which knowledge gives.’

James Madison1

I. Introduction

The Hon’ble Supreme Court of India has consistently held that

disclosure of information in the functioning of the Government must
be the rule, and secrecy, an exception. 2 A good whistle blowers’
protection mechanism encourages transparency, accountability and
responsibility. However, it appears that the State has given scant
regard to the milieu of whistle blowers in India and the steps taken
for their protection too, have been subpar.

†
This article reflects the position of law as on 24 February 2019.
*
The author is a student of Government Law College, Mumbai and is presently
studying in the Third Year of the Three Year Law Course. She can be contacted at
[email protected].
1 James Madison, ‘To WT Barry’ in Gaillard Hunt (ed), The Writings of James Madison
(1st edn GP Putnam’s Sons New York 1900) vol. 9, 1910, para 2, available at http://
oll.libertyfund.org/titles/1940 (last visited 24 February 2019).
2 SP Gupta v. Union of India AIR 1982 SC 149, para 66.
See State of Uttar Pradesh v. Raj Narain AIR 1975 SC 865, para 74; Dinesh Trivedi
v. Union of India (1997) 4 SCC 306; and Vineet Narain v. Union of India AIR 1998
SC 889.
2 The Law Review, Government Law College [Vol. 10

Despite three reports by National Commissions,3 the passing of a

resolution by the Government of India4 as well as recurrent directions
from the Supreme Court, 5 the law establishing a mechanism to
receive whistle blower disclosures, to inquire into such disclosures
and to safeguard against the victimisation of whistle blowers6 is yet
to be implemented. The Whistle Blowers Protection Act, 2014 (WBP Act)
received the presidential assent on 9 May 2014, but has not yet come
into force.

Before the legislation could test the waters, The Whistle Blowers
Protection (Amendment) Bill, 2015 (Amendment Bill) was passed
by the Lok Sabha and it is currently pending consideration before
the Rajya Sabha. The Amendment Bill portends darker times for
whistle blowers as it results in not only diluting the provisions of the
WBP Act, but also undermines the overriding power of The Right to
Information Act, 2005 (RTI Act) as regards public interest. It would
not be a happy development if the message that this Amendment
Bill gives is that the WBP Act—enacted to promote public interest,
transparency and accountability, and to provide protection to whistle
blowers—is quite ironically also susceptible to being used for watering
down the campaign against corruption.

3 See National Commission to Review the Working of the Constitution, ‘Probity in

Governance’ (21 August 2001), clause 3.D, available at http://legalaffairs.gov.in/
volume-2-book-1 (last visited 24 February 2019); Law Commission of India, ‘The
Public Interest Disclosure and Protection of Informers’ (One Hundred and Seventy
Ninth Report December 2001), available at http://lawcommissionofindia.nic.in/
reports.htm (last visited 24 February 2019); and Second Administrative Reforms
Commission, ‘Ethics in Governance’ (Fourth Report January 2007), clause 3.6,
available at https://darpg.gov.in/arc-reports (last visited 24 February 2019).
4 The Government of India had issued Resolution No. 89 dated 21 April 2004
authorising the Central Vigilance Commission as the designated agency to receive
written complaints from whistle blowers. The Resolution also, inter alia, provides
for the protection of whistle blowers from harassment and keeping the identity of
whistle blowers concealed.
5 Parivartan & Ors. v. Union of India & Ors. Writ Petition (Civil) No. 93 of 2004
(Unreported 29 September 2006, 30 August 2013, 12 February 2015, 08 April 2015,
05 November 2015 and 13 January 2016), available at https://www.sci.gov.in/ (last
visited 24 February 2019).
6 See The Whistle Blowers Protection Act, 2014, Statement of Objects and Reasons.
2019] Whistle Blowing: A Hobson’s Choice? 3

Meanwhile, the Internet today provides a plethora of transnational

third-party whistle blowing platforms such as WikiLeaks, that not
only ease the process of whistle blowing but are also gag-proof and
provide better anonymity protections than our national legislation. 7
While a cursory glance may make this an attractive alternative to the
State mechanism, the devil lies in the details while considering the
consequences of such global disclosures on a State’s security, public
interest and individual privacy.

This article investigates the drawbacks of the WBP Act and examines
why a whistle blower would be inclined to choose a third-party
internet platform over an existing, legitimate State mechanism. Since
the online whistle blowing route also comes with a critical catch for
national security, the article contends that domestic legislation ought
to inevitably be strengthened to raise the levels of legitimacy and
trust in the State. The provisions of the WBP Act must provide for a
healthy and safe atmosphere for whistle blowers to fearlessly report
wrongdoing.

To this effect, Part II delves into the highly critiqued sections of

the WBP Act and the amendments proposed to these sections in
the Amendment Bill and explores why there is a permeating lack
of confidence in State authorities today. Part III then weighs the
incentives against the risks of whistle blowing to a third-party internet
platform and ascertains how this alternative can potentially do more
harm than good. Lastly, Part IV makes recommendations based on
international best practices to strengthen our whistle blower protection
legislation and to establish a fine balance between the conflicting
interests of Government transparency and national security.

7 Case in point: In 2009, when Barclay’s Bank obtained a gag-order from the Court
mandating The Guardian to remove leaked memos exposing a tax-avoidance scam,
WikiLeaks broadcasted the leaked information instantly thereafter, thus rendering
the order futile.
See David Leigh and Luke Harding, WikiLeaks: Inside Julian Assange’s War on
Secrecy (1st edn Guardian Books London 2011) 63.
4 The Law Review, Government Law College [Vol. 10

II. Whistle Blowers Protection in India:

a Safe Alternative to Silence?

For want of a strong whistle blower protection law, whistle blowers

in India continue to face major persecution for exposing corruption.
For instance, Ramon Magsaysay awardee Sanjiv Chaturvedi has faced
severe harassment for uncovering the Haryana Forestry and the All
India Institute of Medical Sciences (AIIMS) scams.8 Others, such as
Satyendra Dubey, Shanmugam Manjunath, Amit Jethwa and Shehla
Masood were allegedly murdered for exposing corruption, once their
identity became public. Reprehensibly, the ‘Hall of Shame’ statistics
maintained by the Commonwealth Human Rights Initiative record a
total of 431 attacks on RTI applicants from April 2006 till February
2019.9

The Supreme Court of India had been the only bastion of whistle
blowers’ rights till 2017. In 2004, in response to the petition filed after
Satyendra Dubey’s murder (Parivartan & Ors. v. Union of India & Ors.),
the Apex Court directed that suitable machinery be put in place for
acting on whistle blowers’ complaints till specific laws on the matter
were enacted. In 2016, with the WBP Act still pending in Parliament
and in the absence of any executive set-up, the then Bench said that
an ‘absolute vacuum’ could not be allowed to go on and directed the
Centre to put in place an administrative mechanism for whistle blower
protection. However, post the enactment of the WBP Act, in January
2017, the new Bench disposed of the 12-year old petition, dubbing
the issue ‘premature’, and granted liberty to the petitioner to come
back to Court after the Centre submitted that when the WBP Act was

8 See Gaurav Bhatnagar, ‘RTI Reveals Modi Called Health Minister to Discuss
Removal of AIIMS Whistleblower Sanjiv Chaturvedi’ (2018) The Wire, at https://
thewire.in/government/rti-reveals-modi-called-health-minister-discuss-removal-
aiims-whistleblower-sanjiv-chaturvedi (last visited 24 February 2019).
9 Commonwealth Human Rights Initiative, ‘Hall of Shame: Mapping Attacks on RTI
users’ (2019) Commonwealth Human Rights Initiative, at http://attacksonrtiusers.
org/ (last visited 24 February 2019).
2019] Whistle Blowing: A Hobson’s Choice? 5

examined by the Government it found certain deficiencies and conflict

between the provisions of the WBP Act and those of the RTI Act.10

The WBP Act by itself is far from perfect. For instance, it does not
explicitly clarify what constitutes a valid ‘public interest disclosure’
nor does it make allowance for anonymous disclosures. No provision
has been made for appeals to challenge an impugned order from a
designated Competent Authority. The safeguards provided against
victimisation are also feeble.

The Amendment Bill of 2015 was passed by the Lok Sabha sans
public consultation and is currently pending in the Rajya Sabha. The
Amendment Bill does nothing to remedy the shortcomings of the
WBP Act. Instead, it further impairs the fight for transparency by
requiring a finer sieve for public interest disclosures to pass through.
In 2015, an RTI application revealed a Cabinet Note on the proposed
amendments to the WBP Act stating that the present law gives an
‘absolute right to whistleblower to make a complaint’ and that ‘people
cannot have the absolute right to blow a whistle if they see wrong-
doing’, as reported by The Times of India.11

The proposed amendments have been modelled on sub-section (1)

of section 8 of the RTI Act which enumerates ten exemptions from
disclosure of information. The justification given for this move was to
strengthen the safeguards against disclosures which may prejudicially
affect the sovereignty and integrity of the country, security of the
State, friendly relations with foreign States, or lead to incitement of
an offence.12 In this respect, the Amendment Bill amends sections 4,
5 and 8 of the WBP Act by importing the ten exemptions from the
RTI Act.

10 Parivartan & Ors. v. Union of India & Ors. Writ Petition (Civil) No. 93 of 2004
(Unreported 29 September 2006, 30 August 2013, 12 February 2015, 08 April 2015,
05 November 2015, 13 January 2016 and 12 January 2017) available at https://www.
sci.gov.in/ (last visited 24 February 2019).

11 Himanshi Dhawan, ‘Centre Tries to Dilute Bill on Whistleblowers’ (2015) The Times
of India, at http://timesofindia.indiatimes.com/india/Centre-tries-to-dilute-bill-on-
whistleblowers/articleshow/48353499.cms (last visited 24 February 2019).
12 The Whistle Blowers Protection (Amendment) Bill, 2015, Statement of Objects and
Reasons, paras 1, 2(a) and 2(b).
6 The Law Review, Government Law College [Vol. 10

In light of these developments that do little to inspire confidence in a

potential whistle blower, it is interesting to see the intention of the the
WBP Act and its proposed Amendment Bill in sections 4, 5 and 8.

A. Section 4: Public Interest Disclosure

1. The Parent Act

Section 4 lays down the requirements of public interest disclosure.

The non-obstante clause under sub-section (1) 13 overrides the
provisions of the Official Secrets Act, 1923 (OS Act) and declares that
any public servant or any person including any non-governmental
organisation may make a public interest disclosure before the
Competent Authority.14

The WBP Act does not define ‘public interest’, but merely affirms that
‘any disclosure made under the Act shall be treated as public interest
disclosure’. The complaint must be made before the Competent
Authority. Such disclosure of information must be made in good
faith, and the whistle blower shall make a personal declaration of
his reasonable belief that the information disclosed and allegation
contained therein are substantially true.15
13 Section 4(1) of The Whistle Blowers Protection Act, 2014, provides:
‘Notwithstanding anything contained in the provisions of the Official Secrets Act, 1923
(19 of 1923), any public servant or any other person including any non-governmental
organisation, may make a public interest disclosure before the Competent Authority.’
14 Section 3(b) of The Whistle Blowers Protection Act, 2014, designates the following
Competent Authorities with regards to their respective jurisdictions: the Prime
Minister, the Chairman of the Council of States or the Speaker of the House of the
People, the Chief Minister, the Chairman of the Legislative Council or the Speaker
of the Legislative Assembly, the High Court, the Central Vigilance Commission, the
State Vigilance Commission, or any other authority having jurisdiction in respect
thereof.
15 Sub-sections (2) and (3) of section 4 of The Whistle Blowers Protection Act, 2014,
provide:
‘(2) Any disclosure made under this Act shall be treated as public interest disclosure
for the purposes of this Act and shall be made before the Competent Authority
and the complaint making the disclosure shall, on behalf of the Competent
Authority, be received by such authority as may be specified by regulations
made by the Competent Authority.
(3) Every disclosure shall be made in good faith and the person making disclosure shall
make a personal declaration stating that he reasonably believes that the information
disclosed by him and allegation contained therein is substantially true.’
2019] Whistle Blowing: A Hobson’s Choice? 7

The WBP Act mandates that on failure to disclose the identity of the
whistle blower, or if such identity is found to be false, no action will
be taken by the Competent Authority on the public interest disclosure
so made.16 Thus, anonymous disclosures are not entertained even
if they are meritorious and in public interest. This comes after the
Supreme Court legitimised anonymous whistle blowing in 2014 in
Centre for PIL & Ors. v. Union of India & Ors., also known as the ‘CBI
2G Scam Diarygate’ scandal.17

2. The Proposed Amendment

The Amendment Bill substitutes the existing section 4(1)18 with a

truncated version wherein the original non-obstante clause stands
deleted. It reverses the overriding authority and supremacy of the
WBP Act over the OS Act and renders the whistle blower at the risk
of being prosecuted under the latter.19

Further, it also proposes to insert section 4(1A) curtailing the

freedom of the whistle blower to report anything of public interest,
by importing the ten exemptions to public interest disclosures from

16 Section 4(6) of The Whistle Blowers Protection Act, 2014, provides:

‘No action shall be taken on public interest disclosure by the Competent Authority
if the disclosure does not indicate the identity of the complainant or public servant
making public interest disclosure or the identity of the complainant or public servant
is found incorrect or false.’
17 Centre for PIL & Ors. v. Union of India & Ors. Interim Applications Nos. 73 and
76 in Civil Appeal No. 10660 of 2010 (Decided on 20 November 2014) available at
https://www.sci.gov.in/ (last visited 24 February 2019).
18 Supra n. 13.
19 The Whistle Blowers Protection (Amendment) Bill, 2015, proposes that in the parent
Act, in section 4, for sub-section (1), the following sub-section shall be substituted—
‘Any public servant or any other person including a non-Governmental organisation
may make public interest disclosure before the Competent Authority.’
8 The Law Review, Government Law College [Vol. 10

section 8(1) of the RTI Act as is.20 These exemptions are under the
broad categories of matters relating to the economic, scientific interests
and the security of India and its relation with foreign States; information
which would constitute contempt of court, or a breach of the privilege
of the legislature or Cabinet proceedings; confidential commercial
information such as trade secret or intellectual property; information
available to a person in his fiduciary relationship, or that which would
endanger the life or personal safety of any person, or impede the process
of investigation or apprehension or prosecution of offenders; and personal
information which has no relationship to any public activity or interest or
which would cause invasion of the privacy of an individual.

20 Section 4(1A) of The Whistle Blowers Protection (Amendment) Bill, 2015, provides:
‘Notwithstanding anything contained in sub-section (1), no public interest disclosure
shall be made by any public servant or any other person including a non-Governmental
organisation under this Act, if such disclosure contains—
(a) information, the disclosure of which would prejudicially affect the sovereignty
and integrity of India, the security of the State, the strategic, scientific or
economic interests of the State, friendly relations with foreign States or lead to
incitement to an offence;
(b) information, which has been expressly forbidden to be published by any court
of law or tribunal, or the disclosure of which may constitute contempt of court;
(c) information, the disclosure of which would cause a breach of privilege of
Parliament or State Legislature;
(d) information relating to commercial confidence, trade secrets or intellectual
property, the disclosure of which would harm the competitive position of a third
party, unless such information has been disclosed to the complainant under the
provisions of the Right to Information Act, 2005;
(e) information which is available to a person in his fiduciary capacity or relationship,
unless such information has been disclosed to the complainant under the
provisions of the Right to Information Act, 2005;
(f) information received in confidence from a foreign Government;
(g) information, the disclosure of which would endanger the life or physical safety of
any person or identify the source of information or assistance given in confidence
for law enforcement or security purposes;
(h) information, which would impede the process of investigation or apprehension
or prosecution of offenders;
(i) cabinet papers including records of deliberations of the Council of Ministers,
Secretaries and other officers, except as otherwise provided under the Right to
Information Act, 2005;
(j) personal information, the disclosure of which has no relationship to any public
activity or interest, or which would cause unwarranted invasion of the privacy
of the individual, unless such information has been disclosed to the complainant
under the provisions of the Right to Information Act, 2005.’
2019] Whistle Blowing: A Hobson’s Choice? 9

Of these, six categories that are described in clauses (a), (b), (c),
(f), (g) and (h) of the section possess absolute immunity from being
disclosed. The WBP Act magnanimously allows disclosures of only
those documents that the whistle blower may have already obtained
through the RTI Act, such as cabinet papers and matters relating
to personal or private information, found in clauses (d), (e), (i) and
(j). This renders the premise of whistle blowing redundant since
information disclosed under the RTI Act is by its very nature deemed
to be in the public domain. It can be surmised that information
leaked by a whistle blower is much more than what is available to
an RTI applicant.
While both the RTI Act and the WB P Act seek to promote
transparency and accountability through public interest disclosures,
the ambit of both differ—in that, the former covers ‘public’ disclosures
which provide information to the people at large, whereas the latter
covers ‘protected’ disclosures made in confidence to a Competent
Authority. A blanket import of the exemptions that apply in the first
scenario into the second is an anomaly because it does not further
the purpose of making provisions for ‘protected’ disclosures. Thus,
while in a consistent legislative move it may appear rational to have
the same exemptions in both, the RTI Act and the WBP Act, in the
context of the latter such a broad sphere of exemptions amounts to
cherry-picking of what information the Government is comfortable
with being disclosed in ‘public interest’.
Moreover, while importing the ten exemptions under section 8(1)
of the RTI Act, the Amendment Bill completely discounts the
non-obstante clauses in the RTI Act which uphold public interest.
Sub-section (2) of section 8 21 read with section 22 22 of the RTI Act
provides that a public authority may allow the disclosure of the
21 Section 8(2) of The Right to Information Act, 2005, provides:
‘Notwithstanding anything in the Official Secrets Act, 1923 (19 of 1923) nor any of
the exemptions permissible in accordance with sub-section (1) of this Act, a public
authority may allow access to information, if public interest in disclosure outweighs
the harm to the protected interests.’
22 Section 22 of The Right to Information Act, 2005, provides:
‘The provisions of this Act shall have effect notwithstanding anything inconsistent
therewith contained in the Official Secrets Act, 1923 (19 of 1923), and any other law
for the time being in force or in any instrument having effect by virtue of any law
other than this Act.’
10 The Law Review, Government Law College [Vol. 10

information if the public interest in such disclosure outweighs the

harm to the protected interests—notwithstanding anything inconsistent
therewith contained in any of the ten exemptions of section 8(1) of
the RTI Act, or in the OS Act or in any other law for the time being
in force. This grants discretionary power to the public authority to
direct, in pursuance of public interest, disclosure of files classified
as ‘confidential’ under the OS Act, or of such information which
possesses immunity under any of the ten exemptions under section
8(1) of the RTI Act. 23 Thus, the legal effect of not including this
overriding safeguard provided under sections 8(2)24 and 22 25 of the
RTI Act is that the Amendment Bill virtually makes the WBP Act
subservient to the OS Act. Far from encouraging whistle blowers
to expose corruption, it muzzles them under the garb of ‘protecting
public interest’.

B. Section 5: Powers and Functions of Competent Authority

1. The Parent Act

Section 5 requires the Competent Authority to ascertain and conceal

the identity of the whistle blower, unless the whistle blower himself
has revealed it to any other authority while making the disclosure.26
The Competent Authority is not to reveal the whistle blower’s
identity while seeking any comments, explanations or report from the
authority in question. If the Competent Authority deems it necessary
to reveal the identity in confidence to the Head of the Department
(HoD) under inquiry, it may do so, provided that the whistle blower
consents to it in writing. The Competent Authority must also direct
the HoD to not reveal the whistle blower’s identity.
23 See Dr JN Barowalia, Commentary on the Right to Information Act (4th edn Universal
Law Publishing Delhi 2017) 436.
24 Supra n. 21.
25 Supra n. 22.
26 Section 5(1) of The Whistle Blowers Protection Act, 2014, provides:
‘Subject to the provisions of this Act, the Competent Authority shall, on receipt of a
public interest disclosure under section 4,—
(a) ascertain from the complainant or the public servant whether he was the person
or the public servant who made the disclosure or not;
(b) conceal the identity of the complainant unless the complainant himself has
revealed his identity to any other office or authority while making public interest
disclosure or in his complaint or otherwise.’
2019] Whistle Blowing: A Hobson’s Choice? 11

If the whistle blower does not agree to his name being revealed to the
HoD, he is required to make available all documentary evidence in
support of his complaint to the Competent Authority.27 This provision
negates the very purpose of the law. The central philosophy of any
whistle blower protection legislation is to keep the identity of the
person making the public interest disclosure confidential in order to
protect him from any consequent reprisals. Asking for every possible
evidence there is, places excessive onus on and is discouraging for a
whistle blower who has ample at stake with his initial disclosure of
confidential information itself. A fresh pursuit of more information
could also lead to inadvertently disclosing his identity.

In consonance with section 5 is section 13 of the WBP Act, which

also mandates the Competent Authority to conceal the identity of the
whistle blower and his disclosure, unless decided otherwise by the
Competent Authority, or if it has become necessary to reveal it by
virtue of the order of the court.28

27 Section 5(4) of The Whistle Blowers Protection Act, 2014, provides:

‘While seeking comments or explanations or report referred to in sub-section (3), the
Competent Authority shall not reveal the identity of the complainant or the public
servant and direct the Head of the Department of the organisation concerned or office
concerned not to reveal the identity of the complainant or public servant:
Provided that if the Competent Authority is of the opinion that it has, for the purpose
of seeking comments or explanation or report from them under sub-section (3) on
the public disclosure, become necessary to reveal the identity of the complainant or
public servant to the Head of the Department of the organisation or authority, board
or corporation concerned or office concerned, the Competent Authority may, with the
prior written consent of the complainant or public servant, reveal the identity of the
complainant or public servant to such Head of the Department of the organisation or
authority, board or corporation concerned or office concerned for the said purpose:
Provided further that in case the complainant or public servant does not agree to his
name being revealed to the Head of the Department, in that case, the complainant or
public servant, as the case may be, shall provide all documentary evidence in support
of his complaint to the Competent Authority.’
28 Section 13 of The Whistle Blowers Protection Act, 2014, provides:
‘The Competent Authority shall, notwithstanding any law for the time being in force,
conceal, as required under this Act, the identity of the complainant and the documents
or information furnished by him, for the purposes of enquiry under this Act, unless
so decided otherwise by the Competent Authority itself or it became necessary to
reveal or produce the same by virtue of the order of the court.’
12 The Law Review, Government Law College [Vol. 10

2. The Proposed Amendment

While the Amendment Bill does not reduce the burden of the
Competent Authority upon receipt of a disclosure, it inserts section
5(1A)29 constraining the powers of the Competent Authority. This
sub-section puts an absolute bar on inquiry into disclosures falling
under the previously mentioned ten exemptions of section 4(1A).30
As a result, the Competent Authority’s discretion to determine what
constitutes a valid public interest disclosure under the WBP Act is
severely curtailed.

This new provision also comes with a rider that once a disclosure is
received, the Competent Authority must first refer the disclosure to
an authority sanctioned by the Central or State Government under
section 8(1)31 of the WBP Act. Such authority must ascertain whether
the disclosure contains any information of the nature specified under
the previously mentioned ten exemptions, and the certificate given in
this regard by such authority is binding on the Competent Authority.

Thus, in the event of a disclosure against the Government, a

body authorised by the Government itself will certify whether
the disclosure warrants any investigation. Such certification being
conclusive and binding on the Competent Authority, any prospective
investigation into the same is thence effectively scuttled. This
bridles the administrative powers of the Central and State Vigilance
Commissions and derogates them to being token bodies set up for
whistle blower protection in the country.

29 Section 5(1A) of The Whistle Blowers Protection (Amendment) Bill, 2015, provides:
‘The Competent Authority shall not inquire into any public interest disclosure which
involves information of the nature specified in sub-section (1A) of section 4:
Provided that the Competent Authority shall, on receipt of any such public interest
disclosure, refer such disclosure to an authority authorised under sub-section (1) of
section 8 to ascertain whether the disclosure contains any information of the nature
specified in sub-section (1A) of section 4, and the certificate given in this regard by
such authority shall be binding on the Competent Authority.’
30 Supra n. 20.
31 Infra n. 35.
2019] Whistle Blowing: A Hobson’s Choice? 13

C. Section 8: Matters Exempt from Disclosure

1. The Parent Act

Section 8 deals with certain matters that are exempt from disclosure
and protects the authorities under inquiry. Sub-section (1) exempts
such authorities from furnishing any information or document, or
rendering any assistance involving any disclosure of the proceedings
of the Cabinet of the Union or State Government, if such inquiry is
likely to fall under the reasonable restrictions of article 19(2) of the
Constitution of India.32 Sub-section (2) puts a bar on any person on
giving of any evidence or producing of any document which he could
not be compelled to give or produce in proceedings before a court.33
These constitute the only exemptions to disclosure provided under
the WBP Act.

32 Section 8(1) of The Whistle Blowers Protection Act, 2014, provides:

‘No person shall be required or be authorised by virtue of provisions contained in
this Act to furnish any such information or answer any such question or produce any
document or information or render any other assistance in the inquiry under this Act if
such question or document or information is likely to prejudicially affect the interest
of the sovereignty and integrity of India, the security of the State, friendly relations
with foreign State, public order, decency or morality or in relation to contempt of
court, defamation or incitement to an offence,—
(a) as might involve the disclosure of proceedings of the Cabinet of the Union
Government or any Committee of the Cabinet;
(b) as might involve the disclosure of proceedings of the Cabinet of the State
Government or any Committee of that Cabinet,
and for the purpose of this sub-section, a certificate issued by the Secretary to the
Government of India or the Secretary to the State Government, as the case may be,
or, any authority so authorised by the Central or State Government certifying that
any information, answer or portion of a document is of the nature specified in clause
(a) or clause (b), shall be binding and conclusive.’
33 Section 8(2) of The Whistle Blowers Protection Act, 2014, provides:
‘Subject to the provisions of sub-section (1), no person shall be compelled for the
purposes of inquiry under this Act to give any evidence or produce any document
which he could not be compelled to give or produce in proceedings before a court.’
14 The Law Review, Government Law College [Vol. 10

2. The Proposed Amendment

The Amendment Bill seeks to substitute the original section 8(1)34 and
diminishes the scope of successfully making public interest disclosures
to a pinhole. The amended section 8(1)35 reinvigorates the blanket
ban under the ten exemptions,36 and further fortifies their grip over
public interest disclosures made under the WBP Act by granting it
overriding power.

It provides that no person is required under the WBP Act or under

any other law in force, to furnish any information or document, or
render any other assistance in any inquiry, if such information is in
the nature of any of the ten exemptions specified in section 4(1A).37 It
is clarified that this is pursuant to the certificate issued by an authority
authorised by the State or Central Government under the previously
mentioned section 5(1A).38

This amended sub-section, thus, undermines all other laws in force,

including the RTI Act and its protection of public interest. It is in
direct conflict with the contradictory overriding sections 8(2)39 and
22 40 of the RTI Act which mandate disclosure of information if the

34 Supra n. 32.
35 Section 8(1) of The Whistle Blowers Protection (Amendment) Bill, 2015, provides:
‘No person shall be required or authorised under this Act, or under any other law for
the time being in force, to furnish any information or answer any question or produce
any document or render any other assistance in an inquiry under this Act, if furnishing
of such information, or answering of question or the production of the document or
the rendering of assistance is likely to result in the disclosure of any information of
the nature specified in sub-section (1A) of section 4, and for this purpose, a certificate
issued by an authority, authorised in this behalf by the Central Government or the
State Government, as the case may be, certifying that such information, answer,
document or assistance is of the nature specified in sub-section (1A) of section 4,
shall be binding.’
36 Supra n. 20.
37 Supra n. 20.
38 Supra n. 29.
39 Supra n. 21.
40 Supra n. 22.
2019] Whistle Blowing: A Hobson’s Choice? 15

public interest in its disclosure outweighs the potential harm to the

protected interests. It also grants the authority under inquiry complete
exemption from providing the information that is sought, upon the
issuance of a binding and conclusive certificate to this effect by
another authority sanctioned by the Government.

Thus, in a nutshell, the proposed Amendment Bill does away with the
much needed safeguard against the provisions of the OS Act,41 and
heavily shields the ten exemptions under section 4(1A).42 It upholds
‘protected interests’ but makes no allowance for a balancing ‘public
interest’ to be considered in the equation. As a result, it leaves very
little room for blowing the whistle, let alone being a safe alternative
to silence for a whistle blower acting in public interest.

As the above analysis reveals, currently, deficient procedural justice

characterises this key legislation that governs the public’s right to
disclose Government information in public interest, as well as the
protection of such individuals who choose to blow the whistle.

III. Internet Whistle Blowing Platforms:

Saviours or Threats?

The procedural shortcomings of the WBP Act and its Amendment

Bill illustrated in Part II could persuade a potential whistle blower
to resort to gag-proof third-party internet whistle blowing platforms,
as demonstrated by the current worldwide trend of online national
security leaks such as those of Julian Assange, Chelsea Manning
and Edward Snowden. According to Professor Margaret Kwoka of
Denver Sturm College of Law, these leaks differ in significant ways
from traditional whistle blower leaks, and represent a new type of
leak that she terms ‘deluge leaks’.43 Kwoka reasons that unlike whistle

41 Supra n. 19.
42 Supra n. 20.
43 Margaret Kwoka, ‘Leaking and Legitimacy’ (2010) 48(4) UC Davis Law Review
1387, 1391, available at https://lawreview.law.ucdavis.edu/issues/48/4/ (last visited
24 February 2019).
16 The Law Review, Government Law College [Vol. 10

blower leaks which expose targeted Government policies about which

a knowledgeable leaker is concerned, ‘deluge leaks’ are characterised
by lower-level Government officials44 without policy-making authority,
leaking massive quantities of information on a wide range of subject
matter,45 largely out of a belief that the Government keeps too many
secrets.46

The worldwide reaction to such ‘deluge leaks’ has been extreme—the

leakers have been hailed as ‘transparency advocates’ by one segment
while being written off as ‘traitors’ by the other. Thus, this Part
examines the viability of the online route over the State mechanism
set up by the WBP Act.

A. The Internet: A Whistle Blower’s First Choice?

Advancements in technology have cleared considerable obstacles in

leaking confidential information. Whistle blowers no longer need
to spend time photocopying confidential records. Hard copies have
been digitised to easily saved, copied and shared soft copies stored

44 Chelsea Manning was a US Army Soldier ranking Private First Class. Edward
Snowden worked as a systems administrator for a National Security Agency (NSA)
contractor. Therefore, both occupied comparatively junior or lower-level ranks.
See —, ‘Chelsea Manning: Wikileaks Source and Her Turbulent Life’ (2017) British
Broadcasting Corporation, at http://www.bbc.com/news/world-us-canada-11874276
(last visited 24 February 2019) and John Broder and Scott Shane, ‘For Snowden, a
Life of Ambition, Despite the Drifting’ (2013) The New York Times, at http://www.
nytimes.com/2013/06/16/us/for-snowden-a-life-of-ambition-despite-the-drifting.
html (last visited 24 February 2019).
45 Over a very short period of time, Chelsea Manning, through Julian Assange and
WikiLeaks, released the Collateral Murder video, over 77,000 documents about
the war in Afghanistan, over 390,000 documents about the Iraq war, over 250,000
diplomatic cables between the U.S. State Department and U.S. embassies around
the world, and over 700 documents about individuals held at Guantanamo Bay.
Meanwhile, the full extent of Edward Snowden’s disclosures remains unclear, but
the NSA chief at one point estimated that he leaked up to 200,000 secret records. In
a subsequent hearing before Congress, intelligence officials reported that Snowden
accessed roughly 1.7 million files: Margaret Kwoka supra n. 43, 1400.
46 Ibid, 1394.
2019] Whistle Blowing: A Hobson’s Choice? 17

on the cloud. With rising digitisation and integration of Government

databanks, more low-level Government personnel and contractors
can log on to broad swaths of Government information,47 including
national security-related records. These digital records are also
simple to hack into and steal, even by individuals unrelated to the
organisation, if the website where they are stored uses substandard
security measures and is not encrypted, as was revealed in the
Aadhaar data theft case of August 2017.48

Keeping this in mind, the following aspect are where the Internet
easily topples the State mechanism as a more enticing prospect:

1. Cryptographic Anonymity

Tracing whistle blower leaks to their source has become near

impossible with stronger and easily accessible anonymity tools for
submission of information. This has made whistle blowing without
reprisals a reality. For anonymous submissions, WikiLeaks currently
offers sophisticated anonymity tools such as Tor, an encrypted
anonymising network that is touted to be vastly more secure than
any banking network;49 and Tails, an operating system launched from

47 For example, the grid Chelsea Manning accessed is reportedly accessible to

approximately 2.5 million military and civilian employees. As for Edward Snowden,
while there are no precise estimates as to the number of employees who could access
the network database, ‘details about virtually all of the NSA’s surveillance programs
were accessible to anyone, employee or contractor, private or general, who had top-
secret NSA clearance and access to an NSA computer’.
See — ‘Siprnet: Where the Leaked Cables Came From’ (2010) British Broadcasting
Corporation, at http://www.bbc.com/news/world-us-canada-11863618 (last visited
24 February 2019) and James Bamford, ‘Edward Snowden: The Untold Story’ (2014)
Wired, at https://www.wired.com/2014/08/edward-snowden/ (last visited 24 February
2019).
48 See Rajiv Kalkodi, ‘Absence of HTTPS from URL Helped Aadhaar Hacker’ (2017)
The Times of India, at http://timesofindia.indiatimes.com/city/bengaluru/absence-of-
https-from-url-helped-hacker/articleshow/59935428.cms (last visited 24 February
2019).
49 Rita Zajacz, ‘WikiLeaks and the Problem of Anonymity: A Network Control
Perspective’ (2013) 35(4) Media, Culture and Society 487, 497, available at https://
doi.org/10.1177/0163443713483793 (last visited 24 February 2019).
18 The Law Review, Government Law College [Vol. 10

a USB stick or a DVD, that leaves no traces when the computer is

shut down and automatically routes the internet traffic through Tor.50
‘We keep no records as to where you uploaded from, your time
zone, browser or even as to when your submission was made,’ claims
WikiLeaks on their Submissions webpage.51

2. Absence of Formalities

As seen in Part II, the WBP Act does not entertain anonymous
disclosures52 but operates through legally mandated confidentiality
between the whistle blower and the Competent Authority with the
former’s identity being kept secret at the discretion of the latter.53
In stark contrast, third-party internet whistle blowing platforms that
make possible untraceable anonymity, operate on the principle:
‘The best way to keep a secret is not to have it’.54 Again, while the
WBP Act requires extensive formalities to be followed by the whistle
blower while making the disclosure55 and by the Competent Authority
upon receipt of such disclosure, 56 these online platforms have no
such requirement—a mere submission of questionable confidential
documents is sufficient to blow the whistle.

These factors make the online platforms a more attractive and

practicable option for a potential whistle blower.

50 See WikiLeaks, ‘Submit Documents to Wikileaks’, WikiLeaks, at https://wikileaks.

org/#submit (last visited 24 February 2019) and WikiLeaks, ‘What is Tor?’, WikiLeaks,
at https://wikileaks.org/#submit_help_tor (last visited 24 February 2019).
51 WikiLeaks, ‘WikiLeaks: Submissions’, WikiLeaks, at https://wikileaks.org/wiki/
WikiLeaks:Submissions (last visited 24 February 2019).
52 Supra n. 16.
53 Supra nn. 26–28.
54 Marcela Gaviria and Martin Smith, ‘Julian Assange Interview Transcript’, PBS
Frontline, at http://www.pbs.org/wgbh/pages/frontline/wikileaks/etc/transcript.html
(last visited 24 February 2019).
55 Supra nn. 13, 15–16.
56 Supra nn. 26–28.
2019] Whistle Blowing: A Hobson’s Choice? 19

B. The Internet: A Responsible Citizen’s Choice?

While the incentives offered to whistle blowers by these platforms

outweigh those offered by the WBP Act, the question now is whether
the precariousness of these platforms also favour the viability of this
alternative. From all the disclosures that have been made online till
date, the following three areas are brightest blips on the risk radar of
publishing on these platforms, subject to the nature of the contents of
the information that is leaked. These risks inherently make it harder
for whistle blowers to minimise the harms and maximise the benefits
of their disclosures considering larger public interest. While most of
the observations below pertain mainly to WikiLeaks, they apply to
all third-party internet whistle blowing platforms mutatis mutandis. For
the purpose of this article, it is assumed that whistle blowers do not
intend extortion but are blowing the whistle only in public interest.

1. Threat to National Security

Protection of national security interests is a legitimate justification for

secrecy. For example, the reasonable restrictions to our fundamental
rights enumerated under article 19(2) of the Constitution of India
are vindicated because they are deemed to be in the larger public
interest. Publication of leaks containing information under those
heads on internet platforms that are accessible globally would have
serious repercussions on national security and diminish any benefit to
the public in its pursuit to increase Government accountability and
transparency.

This is not to eclipse the benefits of these online platforms that

have been accrued so far. For example, in the case of WikiLeaks,
the revelation of the Iraq and Afghanistan war logs pertaining to
the mistreatment of prisoners57 and thousands of unreported civilian

57 See Nick Davies, ‘Iraq War Logs: Secret Order That Let US Ignore Abuse’ (2010)
The Guardian, at https://www.theguardian.com/world/2010/oct/22/iraq-detainee-
abuse-torture-saddam (last visited 24 February 2019).
20 The Law Review, Government Law College [Vol. 10

deaths,58 and its contribution to the Arab Spring59 have been of great
public importance. On the other hand, regarding individual privacy
and the role of the National Security Agency in the USA,60 Edward
Snowden’s revelations led to the State surveillance being put under
the scanner by then President Obama.61

However, since these platforms leak documents in bulk, there have

also been gaffes wherein the data leaked has included sensitive
and private information of ordinary citizens—the leaks of which do
not have an iota of ‘public interest’, but are a danger to individual
privacy and national security.62 Take for example, the 30,000 ‘Erdogan
emails’ leak and the 19,252 emails in the ‘Hillary Leaks’. WikiLeaks,
along with these copious amounts of data also released databases that
contained private information of millions of ordinary people, including
a database of almost all adult women in Turkey in the case of the
former leak.63 In the case of the latter, apart from leaking personal
information of donors of the Democratic Party of the USA, such as

58 See David Leigh, ‘Iraq War Logs Reveal 15,000 Previously Unlisted Civilian Deaths’
(2010) The Guardian, at https://www.theguardian.com/world/2010/oct/22/true-
civilian-body-count-iraq (last visited 24 February 2019).

59 See Sami Ben Hassine, ‘Tunisia’s Youth Finally Has Revolution on Its Mind’, The
Guardian (13 January 2011), at https://www.theguardian.com/commentisfree/2011/
jan/13/tunisia-youth-revolution (last visited 24 February 2019).
60 See The Editorial Board, ‘Edward Snowden, Whistle-Blower’ (2014) The New York
Times, at https://www.nytimes.com/2014/01/02/opinion/edward-snowden-whistle-
blower.html (last visited 24 February 2019).
61 See David Sanger and Charlie Savage, ‘Obama Is Urged to Sharply Curb N.S.A.
Data Mining’ (2013) The New York Times, at http://www.nytimes.com/2013/12/19/
us/politics/report-on-nsa-surveillance-tactics.html (last visited 24 February 2019).
62 See Karl Vick, ‘WikiLeaks Is Getting Scarier Than the NSA’ (2016) Time, at http://
time.com/4450282/wikileaks-julian-assange-dnc-hack-criticism/ (last visited 24
February 2019).
63 See Zeynep Tufekci, ‘WikiLeaks Put Women in Turkey in Danger, for No Reason
(Update)’ (2016) The Huffington Post, at http://www.huffingtonpost.com/zeynep-
tufekci/wikileaks-erdogan-emails_b_11158792.html (last visited 24 February 2019).
2019] Whistle Blowing: A Hobson’s Choice? 21

credit card, passport and social security numbers,64 the ill-timed leak
also had ramifications for the 2016 presidential elections.65

2. Questionable Public Interest

Such reckless leaks have cast a doubt on whether WikiLeaks is

crossing the line between Government transparency and violation of
privacy of ordinary citizens. According to sociologist Zeynep Tufekci,
the problem lies in the fact that instead of curated whistle blower
leaks that take public interest into account, the leaks of 2016 have
demonstrated that mass-hacked emails are being dumped without
any consideration for the privacy of the people. 66 As ideal as it
would be for these platforms to have a vetting process and publish
only those disclosures or parts thereof that are in public interest, it
becomes difficult, if not impossible, to do so when they involve such
liberal amounts of data. Moreover, WikiLeaks does not seem to be
too keen to redact in the future either, as they declared in a tweet
dated 27 July 2016: ‘Our accuracy policy. We do not tamper with the
evidentiary value of important historical archives.’67

3. Unscrambling the Egg

Such rash leaking of confidential data that is against public interest

must definitely not go unpunished, but punishment after a leak has
occurred does not undo the damage caused by the leak—one cannot
unscramble an egg.

64 Andrea Peterson, ‘Wikileaks posts nearly 20,000 hacked DNC emails online’ (2016)
The Washington Post, at http://wapo.st/29U8y4Y (last visited 24 February 2019).

65 Mark Hosenball, ‘WikiLeaks Faces U.S. Probes into its 2016 Election Role and CIA
Leaks: Sources’ (2017) Reuters, at https://www.reuters.com/article/us-usa-trump-
russia-wikileaks/wikileaks-faces-u-s-probes-into-its-2016-election-role-and-cia-
leaks-sources-idUSKBN1E12J2 (last visited 24 February 2019).

66 Scott Simon, ‘WikiLeaks Dump Method: Sociologist Says Not All Leaked Passes
Public Interest Test’ (2016) NPR, at http://www.npr.org/2016/10/22/498954190/
wikileaks-dump-method-destroys-privacy-sociologist-says-not-all-leaked-pass-publ
(last visited 24 February 2019).

67 @wikileaks, ‘Our accuracy policy. We do not tamper with the evidentiary value
of important historical archives.’, 28 July 2016, at https://twitter.com/wikileaks/
status/758463256113676289 (last visited 24 February 2019).
22 The Law Review, Government Law College [Vol. 10

While it has certainly become impossible to trace the source of a

leak and nab the negligent whistle blower, the whistle blower is not
the only participant in the perpetuation of a reckless leak. Unlike the
mechanism set up by the WBP Act, wherein only the whistle blower,
the Competent Authority, and in certain cases the authority under
inquiry have access to the disclosed information,68 online platforms
involve three players in any disclosure and its subsequent distribution:
the leaker, the platform, and the media. When a whistle blower
leaks confidential files to an online platform, the online platform
publishes the information globally. This information is then reported
nationally or internationally by the media. Without such a wide range
of publication, such information, whose revelation would be against
public interest and national security, would pose little threat because
the chances of unwanted readers encountering the information would
be slim. Therefore, the media ends up playing an even greater role
than the leaker in the dissemination of the reckless leak. It was a
similar situation and a threat to our national security, when the
broadsheet, The Australian, published the story of 22,400 pages of
leaked secret documents marked ‘Restricted Scorpène India’ revealing
threadbare details of the Scorpène-class submarine project consisting
of technical literature, manuals and other operational details.69 As a
result, the existing batch of the French-designed submarines became
vulnerable even before they came into service, and India had to
shelve its plans to enlarge the order with the naval contractor.70

The common thread between the abovementioned risks is that they

are all associated with making the disclosure public on an easily
accessible global platform, in contrast to whistle blowing confidentially

68 Supra nn. 13, 15–16, 26–27.

69 Express News Service, ‘Scorpene Submarine Leak: Huge Setback for India as 22,000
Pages of Secret Data Leaked’ (2016) The Indian Express, at http://indianexpress.
com/article/india/india-news-india/scorpene-submarine-leak-huge-setback-india-
as-22000-pages-of-secret-data-leaked/ (last visited 24 February 2019).
70 Reuters, ‘Scorpene Leak: India Shelves Plan to Expand French Submarine Order
after Data Breach’ (2016) The Indian Express, at https://indianexpress.com/article/
india/india-news-india/india-shelves-plan-to-expand-french-submarine-order-after-
data-breach-3010839/ (last visited 24 February 2019).
2019] Whistle Blowing: A Hobson’s Choice? 23

to a State authority71 and preventing unwanted eyes from scrutinising

the exposé. The negative impact of online whistle blowing can be
mitigated only if the domestic mechanism is strengthened to overcome
its lacunae, become more whistle blower friendly, and regain faith in
its legitimacy.

IV. Saving the Canary in the Coalmine:

Recommendations and Concluding Remarks

Whistle blowing is an essential facet of a healthy democracy. But

where there are serious repercussions on national security, secrecy
can legitimately be claimed as it would then be in the larger public
interest that such matters are not disclosed or disseminated. 72 A
fine balance must be struck between the two conflicting interests
of Government transparency and national security. The purpose of
whistle blower protection legislation is to provide whistle blowers with
a safe alternative to silence, a security against reprisals, and to ensure
that the larger public interest prevails under all circumstances.

Not all is critiqued in the WBP Act and its Amendment Bill. For
one, what is remarkable is that while the term ‘whistle blower’,
conventionally and in most legislations,73 refers to an employee
operating within the Government or a corporation who exposes

71 Supra nn. 26–28.

72 It has been held in SP Gupta v. Union of India (AIR 1982 SC 149) by a seven-judge
Bench of the Supreme Court that the Court would allow an objection to disclosure
of document if it finds that the document relates to affairs of State and its disclosure
would be injurious to public interest, but on the other hand, if it reaches the conclusion
that the document does not relate to the affairs of the State or the public interest
does not compel its non-disclosure or that the public interest in the administration
of justice in a particular case overrides all other aspects of public interest, it will
overrule the objection and order the disclosure of the document. In balancing the
competing interests, it is the duty of the Court to see that there is public interest that
harm shall not be done to the nation or public service by disclosure of the document
and there is a public interest that the administration of justice shall not be frustrated
by withholding the document which must be produced if justice is to be done.

73 See for example, Kōeki Tsūhōsha Hogohō [Whistleblower Protection Act] (Law No.
122 of 2004) article 2, para 1 (Japan) and Public Interest Disclosure Act, 1998 c 23,
section 43A (UK).
24 The Law Review, Government Law College [Vol. 10

corruption or wrongdoings therein, the WBP Act broadens the scope

of this term to incorporate any public servant or any other person
including any non-governmental organisation to blow the whistle or
file a complaint against any public servant.74 Furthermore, whistle
blowers Satyendra Dubey’s and Sanjiv Chaturvedi’s prayers for
secrecy and protection after having made their respective disclosures75
would have had legal sanction76 had the WBP Act been in force
as was recommended by the National Commission to Review the
Working of the Constitution in 2001.77 The whistle blowers or their
families would then have had the option of enforcing their legally
mandated protections through courts, instead of being solitary
crusaders in their lonely fights against corruption.

Nonetheless, the WBP Act has several chinks in its armour which
make it less reinforcing and a more dispiriting legislation. Several
provisions including, inter alia, those pertaining to public interest
disclosures, victimisation, and appeals are not at par with international
standards. The Amendment Bill worsens the situation and offsets
whatever little progress is sought to be attained by the WBP Act with
greater setbacks.

74 Supra nn. 13, 19.

75 See Amitav Ranjan, ‘Whistleblower Said Don’t Name Me. Govt Did. He Was Shot
Dead’ (2003) The Indian Express, at http://archive.indianexpress.com/oldStory/36329
(last visited 24 February 2019) and Gaurav Bhatnagar supra n. 8.
76 Supra nn. 26–28.
Section 12 of The Whistle Blowers Protection Act, 2014, provides:
‘If the Competent Authority either on the application of the complainant, or witnesses,
or on the basis of information gathered, is of the opinion that either the complainant
or public servant or the witnesses or any person rendering assistance for inquiry under
this Act need protection, the Competent Authority shall issue appropriate directions to
the concerned Government authorities (including police) which shall take necessary
steps, through its agencies, to protect such complainant or public servant or persons
concerned.’
Section 16 of The Whistle Blowers Protection Act, 2014, provides:
‘Any person, who negligently or mala fidely reveals the identity of a complainant
shall, without prejudice to the other provisions of this Act, be punishable with
imprisonment for a term which may extend up to three years and also to fine which
may extend up to fifty thousand rupees.’
77 National Commission to Review the Working of the Constitution supra n. 3.
2019] Whistle Blowing: A Hobson’s Choice? 25

If the Amendment Bill were to be passed as is, the WBP Act would
stand emasculated further before it can even come into force.
Provisions of the WBP Act affording secrecy and protection to the
whistle blower would remain a far-fetched dream given that the
Amendment Bill is riddled with preconditions to be met for a public
interest disclosure to be considered valid under the WBP Act, acted
upon, and investigated into.78 Thus, while some provisions of the
WBP Act might appease a potential whistle blower, disclosing to a
State authority is still not an encouraging alternative.

It is therefore necessary for the State to accelerate the transition of

the WBP Act to a more effective and less symbolic legislation. To this
effect, the author has the following recommendations for the WBP Act
based on international best practices.

A. Recommendations

1. To insert the same non-obstante clause as is in the RTI Act.

As explained under Part II, the proposed Amendment Bill not only
makes the WBP Act subservient to the OS Act,79 but also undermines
the overriding authority of the RTI Act that advocates public
interest.80

It is thus recommended that the non-obstante clause under the

original section 4(1) of the WBP Act that overrode the provisions
of the OS Act be retained. 81 The Protected Disclosures Act 2000
(New Zealand) similarly provides immunity from civil and criminal
proceedings where a person has made a protected disclosure. This
protection applies despite any prohibition of or restriction on the
disclosure of information under any enactment, rule of law, contract,
oath or practice.82 It thus overrides any other law in the country that
deals with official secrets.

78 Supra nn. 13, 15–16, 26–28.

79 Supra n. 20.
80 Supra n. 35.
81 Supra n. 13.
82 Protected Disclosures Act 2000, section 18 (New Zealand).
26 The Law Review, Government Law College [Vol. 10

It is also recommended that sections 8(2)83 and 2284 of the RTI Act
be held supreme, as they uphold public interest and override all
exemptions to disclosures in force. Therefore, along with importing
the ten exemptions of section 8(1)85 from the RTI Act, the provisions
of section 8(2)86 of the RTI Act must also be imported. Additionally,
the proposed revision of section 8(1)87 in the Amendment Bill must
be disregarded, since it conflicts with the overriding power of section
2288 of the RTI Act.

2. To outline a ‘public interest test’.

As observed by the Supreme Court in May 2015, a whistle blower

cannot be penalised for disclosing confidential documents if he has
acted in ‘public interest’. 89 Currently, the WBP Act only defines
‘disclosure’90 and declares that any disclosure made thereunder shall
be treated as ‘public interest disclosure’.91

83 Supra n. 21.
84 Supra n. 22.
85 Supra n. 20.
86 Supra n. 21.
87 Supra n. 35.
88 Supra n. 22.
89 Common Cause and Ors. v. Union of India and Ors. Interim Application No. 13 of
2014 and Criminal Miscellaneous Petition No. 387 of 2015 in Writ Petition (Civil)
No. 463 of 2012 (Decided on 14 May 2015), para 42, available at https://www.sci.
gov.in/ (last visited 24 February 2019).
90 Section 3(d) of The Whistle Blowers Protection Act, 2014, provides:
‘‘disclosure’ means a complaint relating to–
(i) an attempt to commit or commission of an offence under the Prevention of
Corruption Act, 1988 (49 of 1988);
(ii) wilful misuse of power or wilful misuse of discretion by virtue of which
demonstrable loss is caused to the Government or demonstrable wrongful gain
accrues to the public servant or to any third party;
(iii) attempt to commit or commission of a criminal offence by a public servant,
made in writing or by electronic mail or electronic mail message, against the
public servant and includes public interest disclosure referred to in sub-section
(2) of section 4.’
91 Supra n. 15.
2019] Whistle Blowing: A Hobson’s Choice? 27

Legislation in India is silent on the definition of ‘public interest’. 92

A public interest test is necessary to ensure consistency in its
implementation and to avoid conflicting, subjective interpretations
thereof. The closest we have come to evolving a public interest test
are the factors and considerations laid down by the Supreme Court
in 199393 and the Gujarat High Court in 2007–2008.94 In contrast, the

92 The Supreme Court in Bihar Public Service Commission v. Saiyed Hussain Abbas
Rizwi & Another [(2012) 13 SCC 61, para 23] held: ‘In its common parlance, the
expression ‘public interest’, like ‘public purpose’, is not capable of any precise
definition. It does not have a rigid meaning, is elastic and takes its colour from the
statute in which it occurs, the concept varying with time and state of society and its
needs. [State of Bihar v. Kameshwar Singh (AIR 1952 SC 252)]. It also means the
general welfare of the public that warrants recommendation and protection; something
in which the public as a whole has a stake [Black’s Law Dictionary (Eighth Edition)].’
93 The Supreme Court in RK Jain v. Union of India and Ors. (AIR 1993 SC 1769, para
55) held: ‘The factors to decide the public interest immunity would include: (a)
where the contents of the documents are relied upon, the interests affected by their
disclosure; (b) where the class of documents is invoked, whether the public interest
immunity for the class is said to protect; (c) the extent to which the interests referred
to have become attenuated by the passage of time or the occurrence of intervening
events since the matters contained in the documents themselves came into existence;
(d) the seriousness of the issues in relation to which production is sought; (e) the
likelihood that production of the documents will affect the outcome of the case; (f)
the likelihood of injustice if the documents are not produced.’
94 The Gujarat High Court has answered the question of what is ‘larger public interest’
in the light of the RTI Act. According to the bench, in considering whether the public
interest in disclosure outweighs in importance any possible harm or injury to the
interest of such third party, the Public Information Officer will have to consider the
following: (i) the objections raised by the third party by claiming confidentiality in
respect of the information sought for; (ii) whether the information is being sought by
the applicant in larger public interest or to wreak vendetta against the third party and
in deciding that, the profile of the person seeking the information and his credentials
will have to be looked into and if the profile of the person seeking information, in the
light of other attending circumstances, leads to the construction that under the pretext
of serving public interest, such person is aiming to settle personal score against the
third party, it cannot be said that public interest warrants disclosure of the information
solicited; and (iii) the Public Information Officer, while dealing with the information
relating to or supplied by the third party, has to constantly bear in mind that the Act
does not become a tool in the hands of a busy body to settle a personal score.
See Reliance Industries Limited v. Gujarat State Information Commission AIR 2007
Guj 203 and High Court of Gujarat v. State Chief Information Commission AIR 2008
Guj 37.
28 The Law Review, Government Law College [Vol. 10

Government Information (Public Access) Act, 2009 (GIPA Act) (Australia)95

and the Ministry of Local Government and Community Development,
Jamaica96 have formulated comprehensive tests.

Keeping in mind the tests evolved by our courts and finding a

common ground between both the detailed tests of Australia and
Jamaica, a corresponding comprehensive test could be evolved for
India. Such a test could take into account the following considerations
in favour of, or against the disclosure, to aid in deciding whether
public interest in the disclosure outweighs the harm to the protected
interests:

• whether the disclosure informs the public about the operations

of agencies;
• whether the disclosure promotes and contributes to an open
discussion and an informed debate on public affairs and issues
of public importance;
• whether the disclosure enhances the scrutiny of the decision-
making process and contributes to greater Government
accountability and transparency;
• whether the disclosure contributes to the administration
of justice and enforcement of law or would prejudice the
prevention or detection of crime or the apprehension or
prosecution of offenders;
• whether the disclosure affects the economic interests of India
and ensures effective oversight of the expenditure of public
funds;
• whether the disclosure reveals any danger to public health,
safety or to the environment, or substantiates that an agency
or a member of an agency has engaged in misconduct or
negligent, improper or unlawful conduct;

95 Government Information (Public Access) Act 2009 (New South Wales), sections 12
and 14 (Australia).

96 Ministry of Local Government and Community Development, ‘Public Interest’,
Government of Jamaica, at http://www.localgovjamaica.gov.jm/ati.aspx?c=pi (last
visited 24 February 2019).
2019] Whistle Blowing: A Hobson’s Choice? 29

• whether the disclosure would prejudice the protection of an

individual’s right to privacy;

• whether the disclosure might cause substantial risk to public

interest and national security;

• whether the disclosure might cause embarrassment to, or loss

of confidence in, the Government or the agency;

• whether the disclosure carries the risk of misinterpretation by

any person.

Furthermore, the UK public interest test also upholds that a disclosure

concerned with an essentially personal complaint—whether individual
or collective—may also be believed to be in the public interest because
of some wider implications, or because addressing or exposing
wrongdoing may be believed to further the public interest.97

The considerations provided above, though not exhaustive, must be

utilised to weigh the competing interests and determine whether the
scale swings in favour of or against the disclosure. The Competent
Authority can then proceed with investigations into the disclosure if
that is where the larger public interest lies. Conversely, the Competent
Authority must also provide its reasons in writing if it declines to go
ahead with any investigation or inquiry.

3. To make allowance and provisions for nameless complaints.

The WBP Act excludes anonymous whistle blower disclosures and

provides that they will not be acted upon.98 Anonymity is not ideally
desired because it could make the whistle blower unaccountable and
attract querulents and vexatious complaints. But for a whistle blower
to reveal his identity while making the disclosure, the Competent

97 See Chesterton Global Ltd. v. Nurmohamed [2015] ICR 920 (EAT) and Jeremy Lewis
et al, Whistleblowing Law and Practice (4th edn Reprint Oxford University Press
New York USA), 4.93.

98 Supra n. 16.
30 The Law Review, Government Law College [Vol. 10

Authority must possess integrity and dependability in the eyes of the

people. Recommending a different Competent Authority is not the
panacea, since even blowing the whistle to the highest authority in
the country has proved that there could be many a slip between the
cup and the lip.

Thus, an absolute bar on anonymous disclosures would veer a whistle

blower to make the disclosure to an internet platform because of the
surety of the anonymity protection offered. The catch, however, is
that this would go against public interest if such disclosure contains
sensitive information potentially threatening to national security. While
it is very rare that legislation allows for and protects anonymous
disclosures, the Sarbanes-Oxley Act of 2002 (USA)99 and certain state
statutes of Australia do make provisions for the same.100

An ideal channel of communication for such anonymous disclosures

could be either taking a leaf out of WikiLeaks’ book and utilising
a network like Tor; or establishing hotlines, a practice that has
been followed in a number of G20 nations. Indonesia’s Corruption
Eradication Commission, for example, has established a designated
whistle blowing website.101 South Korea’s Anti-Corruption and Civil
Rights Commission has established a telephone hotline to receive
whistle blower reports.102 In certain states, Germany has implemented
an anonymous hotline which allows interactions with the whistle
blower while keeping the exchange anonymous.103

99 Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, § 301, 2002 USCCAN (116 Stat)
745 (USA).
100 Whistleblowers Protection Act 1994 (Queensland) section 27(1) (Australia); Public
Interest Disclosures Act 2002 (Tasmania), section 8 (Australia); and Whistleblowers
Protection Act 2001 (Victoria) section 7 (Australia).
101 Corruption Eradication Commission of Indonesia, Whistleblower System, at http://
www.kpk.go.id/ (last visited 24 February 2019).
102 The Organisation for Economic Cooperation and Development, ‘G20 Anti-Corruption
Action Plan: Protection of Whistleblowers’ (2011), 12, at https://www.oecd.org/g20/
topics/anti-corruption/ (last visited 24 February 2019).
103 Ibid, 21.
2019] Whistle Blowing: A Hobson’s Choice? 31

4. To make provision for appeals.

Currently, the WBP Act makes provision for appeals in relation to the
imposition of penalties under sections 14, 15, or 16 to the High Court
within a period of 60 days from the order appealed against.104 But
in the event that the Competent Authority declines to cause inquiry
and the whistle blower is not satisfied with the reasons cited by the
said Authority, the WBP Act does not provide for an independent,
quasi-judicial appellate body for such review. It is recommended that
a body for such purpose be constituted or designated. The GIPA Act
(Australia) offers the right to review such decision through either an
internal or an external review by the Information Commissioner or
the New South Wales Civil and Administrative Tribunal.105

5. To extend protection to the whistle blower acting in good faith.

The WBP Act offers protection for actions taken in good faith only
to the Competent Authority and not to the whistle blower.106 It is
recommended that such protection be extended to the whistle blower,
and his bona fide intentions should be established by the application
of a ‘reasonable belief test’. This test, as evolved in the UK, is a
corollary to the public interest test. It considers whether the whistle
blower held the view of ‘good faith’ and ‘public interest’, and whether
it was a view which could be reasonably held.107 However, motive
may be irrelevant when the information sought to be disclosed is

104 Section 20 of The Whistle Blowers Protection Act, 2014, provides:

‘Any person aggrieved by any order of the Competent Authority relating to imposition
of penalty under section 14 or section 15 or section 16 may prefer an appeal to the
High Court within a period of sixty days from the date of the order appealed against:
Provided that the High Court may entertain the appeal after the expiry of the said
period of sixty days, if it is satisfied that the appellant was prevented by sufficient
cause from preferring the appeal in time.’
105 Government Information (Public Access) Act 2009 (New South Wales), part 5

(Australia).
106 Section 24 of The Whistle Blowers Protection Act, 2014, provides:

‘No suit, prosecution or other legal proceedings shall lie against the Competent
Authority or against any officer, employees, agency or person acting on its behalf,
in respect of anything which is in good faith done or intended to be done under this
Act.’
107 See Jeremy Lewis et al supra n. 97.
32 The Law Review, Government Law College [Vol. 10

self-evidently in public interest by reason of its subject matter. Thus,

a reasonable belief test must be subservient to the public interest test.

6. To provide better safeguards against victimisation of the whistle

blower.

As regards ‘victimisation’, the WBP Act provides a next-to-nought

definition covering only ‘initiation of any proceedings or otherwise’
on the ground that a disclosure was made, or assistance was rendered
under the WB P Act.108 It also offers a generalised and vague
protection of directing ‘the concerned public servant or the public
authority to protect’ the victimised whistle blower109 and restoring the
whistle blower ‘to the status quo ante’.110

In contrast, the Protected Disclosures Act 2000 (South Africa) extensively

enlists the possible circumstances that may be recognised as
occupational detriment:

108 Section 11(1) of The Whistle Blowers Protection Act, 2014, provides:
‘The Central Government shall ensure that no person or a public servant who has
made a disclosure under this Act is victimised by initiation of any proceedings or
otherwise merely on the ground that such person or a public servant had made a
disclosure or rendered assistance in inquiry under this Act.’
109 Section 11(2) of The Whistle Blowers Protection Act, 2014, provides:

‘If any person is being victimised or likely to be victimised on the ground that he
had filed a complaint or made disclosure or rendered assistance in inquiry under
this Act, he may file an application before the Competent Authority seeking redress
in the matter, and such authority shall take such action, as deemed fit and may give
suitable directions to the concerned public servant or the public authority, as the case
may be, to protect such person from being victimised or avoid his victimisation:
Provided that the Competent Authority shall, before giving any such direction to the
public authority or public servant, give an opportunity of hearing to the complainant
and the public authority or public servant, as the case may be:
Provided further that in any such hearing, the burden of proof that the alleged action
on the part of the public authority is not victimisation, shall lie on the public authority.’
110 Section 11(4) of The Whistle Blowers Protection Act, 2014, provides:
‘Notwithstanding anything contained in any other law for the time being in force,
the power to give directions under sub-section (2), in relation to a public servant,
shall include the power to direct the restoration of the public servant making the
disclosure, to the status quo ante.’
2019] Whistle Blowing: A Hobson’s Choice? 33

(a) being subjected to any disciplinary action;

(b) being dismissed, suspended, demoted, harassed or intimidated;

(c) being transferred against his or her will;

(d) being refused transfer or promotion;

(e) being subjected to a term or condition of employment or

retirement which is altered or kept altered to his or her
disadvantage;

(f) being refused a reference or being provided with an adverse

reference from his or her employer;

(g) being denied appointment to any employment, profession or

office;

(h) being threatened with any of the actions referred to paragraphs

(a) to (g) above;

(i) being otherwise adversely affected in respect of his or her

employment, profession or office, including employment
opportunities and work security.111

It is recommended that a similar comprehensive definition be

included in the WBP Act and clarify the kind of victimisation that it
offers protection against.

Additionally, various other international legislations include the

following protections against victimisation, which could be provided
for under the WBP Act as well:

Protected Disclosures Act 26 of 2000 § 1 (South Africa).

111
34 The Law Review, Government Law College [Vol. 10

• Entitlement to transfer or relocate or reversal of transfer,

with terms and conditions not being less favourable than the
previous post or position that was held;112

• Immunity from prosecution;113

• Legal assistance;114

• Police protection for the whistle blower and his family;115

• Compensation.116

These protections must be offered to the whistle blower only if he

approaches the Competent Authority with the disclosure, and once
his bona fide intention and reasonable belief in the veracity of the
disclosure have been affirmed.

7. To make provision for incentives to whistle blowers.

Under section 17, the WBP Act provides for punishment in the case
of false and frivolous disclosures.117 Similarly, when the contents of a
disclosure are proven and requisite action is taken, the whistle blower
could be rewarded in the form of financial incentives.118 Such rewards

112 Public Interest Disclosure Act 1994 (Australian Capital Territory), sections 27 and 28
(Australia); Whistleblowers Protection Act 1994 (Queensland), section 46 (Australia);
Protected Disclosures Act 26 of 2000 § 4(2)–(3) (South Africa); and Whistleblower
Act, 2006 (No. 720 of 2006), section 14(3) (Ghana). A proposal for this safeguard
can also be found in the Law Commission of India’s One Hundredth and Seventy
Ninth Report of December 2001 on ‘The Public Interest Disclosure and Protection
of Informers’ supra n. 3.
113 The Australian Competition and Consumer Commission adopts a policy of ‘full
amnesty’ (immunity from prosecution) for the first person who blows the whistle on
cartel activity such as price fixing and market sharing.
114 Whistleblower Act 2006 (No. 720 of 2006), section 16 (Ghana).
115 Whistleblower Act 2006 (No. 720 of 2006), section 17 (Ghana).
116 Public Interest Disclosure Act, 1998 c 23, section 8 (UK).
117 Section 17 of The Whistle Blower Protection Act, 2014, provides:
‘Any person who makes any disclosure mala fidely and knowingly that it was incorrect
or false or misleading shall be punishable with imprisonment for a term which may
extend up to two years and also to fine which may extend up to thirty thousand rupees.’
118 This was also proposed in the National Commission to Review the Working of the
Constitution’s consultation paper on ‘Probity in Governance’, supra n. 3.
2019] Whistle Blowing: A Hobson’s Choice? 35

could be similar to the False Claims Act of 1863 in the USA which
contains a qui tam provision providing the whistle blower between
25 to 30 per cent of the total recovery, the percentage depending on
the extent to which the whistle blower took the action that enabled
the recovery.119 On similar lines, The Whistleblower Act, 2006 (Ghana)
establishes a full-fledged ‘Whistleblower Reward Fund’ and provides
for a reward to the whistle blower if the disclosure leads to the arrest
and conviction of the guilty.120

What should not be lost sight of is the possibility that these

financial incentives may be liable to be abused by persons out of
vindictiveness, or for claiming rewards. It must, however, be left to
the Competent Authority to determine firstly, whether the disclosure
is in the public interest, and secondly, if the informant is acting bona
fide or is actuated by malice.

B. Concluding Remarks

As Lord Acton once said, ‘Everything secret degenerates, even the

administration of justice, nothing is safe that does not show how it
can bear discussion and publicity.’121

For a democracy such as ours to continue functioning optimally,

transparency and accountability are of utmost importance. In that,
the whistle blower is much like a canary in a coalmine serving as
a harbinger for toxic gases. He is not as much a threat to national
security as he is a key resource to uncovering systemic risks and
deficiencies. Turning a deaf ear and a blind eye to his disclosures or
failing to protect him from reprisals would be counterproductive in a
government of responsibility such as ours.

Academic research has highlighted that the plight of the whistle

blower is often intense and there may be a psychological cost to

119 False Claims Act 31 USC § 3730(d) (1863) (USA).

120 Whistleblower Act 2006 (No. 720 of 2006), sections 20-27 (Ghana).
121 Dr JN Barowalia supra n. 23, 409.
36 The Law Review, Government Law College [Vol. 10

putting one’s head above the parapet and blowing the whistle. Even
the strongest-willed individuals may find the burden of standing out
from the crowd unbearable over time.122 Therefore, it is only when
the whistle blower is reasonably satisfied that his fundamental right
to life and liberty will be strenuously protected by the State, will he
disclose to the State such information that would otherwise either
never see the light of day or be clandestinely exposed globally on a
third-party internet platform.

When it comes to disclosures on such online platforms, it is quite

clear that a responsible whistle blower would not want to pick the
ostensible incentives that they offer over the domestic State authority.
Even if the whistle blower does make this choice, it would not be
without compulsion or as a first preference.

Thus, a strong domestic legislation that inspires confidence in a

whistle blower is essential. It must conform to and be ensconced by
the stringent protection of article 21 of the Constitution of India. While
there are certainly some gambles inherent in the legislative measures
recommended in Part IV of this article, it is better to run these risks
than to leave the whistle blower to approach a third-party internet
platform that opens up a Pandora’s box for national security.

A precondition for effective whistle blower and national security

protection, therefore, is the rule of law. Whistle blowing should never
be a Hobson’s Choice—an in-house legislation ought to always prevail
over the dark areas of the Internet.

122 C Fred Alford, Professor of Government at the University of Maryland, discusses

the issue in his seminal work ‘Whistleblowers: Broken Lives and Organizational
Power’ (Cornell University Press Ithaca 2001), concluding that seniority offers
little protection, and that there is no difference whether concerns are raised within
or outside an organisation. Kate Kenny of Queens University Belfast in her article
‘Whistleblowing in the Finance Industry’ (2013) says that she was surprised by ‘the
amount of work that goes into being a whistleblower, meaning the constant reading
of documents, rebutting of arguments, exposing of lies and learning about the law,
all while struggling to hold your personality together; in short by the fact that it’s a
full time job which, usually without warning, takes over your life’: quoted and cited
in Jeremy Lewis et al supra n. 97, 1.10.
2019] Unveiling Privacy for Women in India 37

UNVEILING PRIVACY
FOR WOMEN IN INDIA†
Priyanshi Vakharia *

I. Introduction

On 24 August 2017, the Supreme Court of India, in the historic

judgment of Justice KS Puttaswamy v. Union of India (Puttaswamy),
affirmed the fundamental right to privacy as a right solely belonging
to the individual.1 This exposition of privacy rested on the two
components of consent and choice. A little over a year later, on 6
September 2018, the Supreme Court upheld the same principles of
choice and consent in Navtej Singh Johar v. Union of India.2 In doing
so, the Supreme Court held that individual autonomy which occupied
a significant space under privacy, encompassed self-determination,
which in turn included sexual orientation and the declaration of
sexual identity.3 The Court established the necessary, if somewhat
obvious, connection between the individualistic notion of privacy, and
the right to decide, by oneself, one’s sexual identity.

This connection is reflective of the leap of expansion privacy has

taken in India. Privacy exists as an umbrella protection for various
rights. At its center is the individual’s independence, based on the
twin tenets of consent and choice. Such independence extends to
self-determination and the power to independently make choices
pertaining to oneself. This connection can be applied to a variety
of contemporaneous issues which strike at the very core of the
constitutional morality of the country.

† This article reflects the position of law as on 24 February 2019.

* The author is a student of the Government Law College, Mumbai and is presently
studying in the Third Year of the Five Year Law Course. She can be contacted at
[email protected].
1 Justice KS Puttaswamy v. Union of India AIR (2017) 10 SCC 1.
2 Navtej Singh Johar v. Union of India (2018) 1 SCC 791.
3 Navtej Singh Johar v. Union of India (2018) 1 SCC 791, para 149.
38 The Law Review, Government Law College [Vol. 10

Women’s liberty, their enfranchisement or, indeed, any credible

empowerment, is meaningless without the shield of privacy. In
this regard, the marital rape exception found in Indian penal law,
the restriction on women’s entry into places of religious worship
mandated by personal or customary law, and the precarious position
of women in public spaces against the current societal backdrop, all
lend themselves as relevant contexts in which the privacy principle
can be tested.

The purpose of this article is to use the privacy lens, as laid down in
Puttaswamy, to read women’s rights not only in terms of movements
based on equality and liberty, but also as movements which can be
defended on the basis of privacy. This article defends the validity
of privacy against the counter arguments put forth by feminist legal
scholars, Catharine MacKinnon4 and Martha Nussbaum,5 in warning
against privacy rights for women. Both scholars argue that privacy as
a concept does more harm than good for women, although they differ
in their approaches to the same. MacKinnon uses equality as the basis
to determine gender-sensitive issues while Nussbaum proposes that
liberty is the constitutional mechanism of choice to address social and
legal concerns.6 Fundamentally, both believe that not only is privacy
unnecessary in bolstering women’s rights, but also it actively hampers
the progress of women’s rights. This article refutes arguments which
challenge the relevance of privacy to women’s rights. The author
proposes that if equality and liberty are rights that an individual must

4 Catherine MacKinnon is the Elizabeth A Long Professor of Law at the University of

Michigan Law School since 1990, and the James Barr Ames Visiting Scholar of Law
at Harvard Law School since 2009. She addresses issues of sex equality, women’s
rights, and gender crime, specifically sexual abuse and exploitation, and has authored
several books in this regard.
5 Martha Nussbaum is the current Ernst Freund Distinguished Service Professor of
Law and Ethics at the University of Chicago. Her work is heavily influenced by
the writings of Catharine MacKinnon and shows a cross-section between law, legal
philosophy and psychology.
6 Martha Nussbaum, ‘Is Privacy Bad For Women?’, (2000) Boston Review, available
at http://bostonreview.net/world/martha-c-nussbaum-privacy-bad-women (last visited
24 February 2019).
2019] Unveiling Privacy for Women in India 39

have access to, then privacy is the enabler through which she can
access those rights.

The article suggests that privacy is essential to women’s interests

when understood from an individualistic perspective and applied
accordingly. Part II addresses the primary assertion that privacy
protects perpetrators harming women in the context of marital
rape. Part III illustrates how privacy breaks down traditional power
structures, using the example of women’s restricted access to places
of religious worship. Part IV deviates from strict legal theory and
analyses social contexts to reiterate that the individual notion of
privacy is best realised in public spaces. Part V concludes the article
by promoting the idea that privacy is the necessary qualifier for the
realisation of women’s rights.

II. Privacy Protects Perpetrators and Disillusions Intimacy

in the Context of Marital Rape

A. Protecting Perpetrators and Disillusioning Intimacy

Catharine MacKinnon pits the idea of privacy against women’s

emancipation. The notion of marital privacy has long been a source
of oppression for women and has resulted in the subordination of
women within the family sphere.7 In the Indian context, MacKinnon’s
reflection seems apt, ‘… it is not the women’s privacy that is
being protected here, it is the man’s.’8 Given the rise of domestic
violence rates in the country, MacKinnon’s justification that ‘…
privacy provides a veneer for male domination’9 is a valid concern
as domestic violence and sexual inequality in marriages persist.

7 See Elizabeth Schneider, ‘The Violence of Privacy’ (Summer 1991) 23 Connecticut

Law Review, 973-999.
8 Catharine MacKinnon, ‘Toward a Feminist Theory of the State’ (1991) Harvard
University Press as quoted by Nussbaum, ‘Is Privacy Bad For Women?’, (2000)
Boston Review, available at http://bostonreview.net/world/martha-c-nussbaum-
privacy-bad-women (last visited 24 February 2019).
9 Ibid.
40 The Law Review, Government Law College [Vol. 10

MacKinnon’s concern arises from the more common conception of

privacy. Privacy is seen as spatial control which asserts the creation
of private spheres into which intrusion by State and statute is deemed
inappropriate.

The essence of MacKinnon’s argument is that privacy insulates

patriarchal domination. Marriage, in the purely traditional,
heterosexual sense of the word, enjoys spatial privacy. It is the privacy
granted to the marital home and the institution of marriage which
MacKinnon opposes. In 2016, the National Crime Records Bureau
found that cruelty by the husband and his family accounted for 32.6
per cent of all crimes committed against women and that such cruelty
formed the most sizeable bracket for crimes against women.10 Consider
this statistic before the application of privacy to a marriage, rather
than to the persons married. The blanket refusal to interfere in marital
relationships under the garb of privacy is problematic because when
the institution of a marriage is held above the choice and consent of
the partners in that marriage, unpleasant things start to happen.

B. Understanding Marital Rape

Section 375 of the Indian Penal Code, 1860 (IPC) does not recognise
rape as a crime within the confines of a marriage. This arises from
a colonial sense of subservience in which spousal consent in a
marriage is presumed. In many parts of the country, sexual privilege
is won from a marriage association by men who do not care for the
consent of the women they marry. This stems from the traditional,
patriarchal notion that sexual intercourse is a right that men receive
in a marriage. This characterisation, in itself, demeans a married
woman’s right to choose her sexual partner, and has been interpreted
as a violation of the right to equality and equal protection of the law
under article 14 of the Constitution of India, as well as the right to life
and personal liberty under article 21.11

10 National Crime Records Bureau, ‘Crime in India’ (2016) National Crime Records
Bureau, available at http://ncrb.gov.in/StatPublications/CII/CII2016/pdfs/NEWPDFs/
Crime%20in%20India%20-%202016%20Complete%20PDF%20291117.pdf (last
visited 24 February 2019).

11 T Sareetha v. T Venkata Subbaiah AIR 1983 AP 356 (T Sareetha).
2019] Unveiling Privacy for Women in India 41

The definition of rape as presented in section 375 requires that

sexual intercourse committed must either be against a woman’s will
or without her consent.12 The Supreme Court of India explained that
the phrase ‘against her will’ indicated that such intercourse was done
by a man to a woman despite her resistance and opposition, while
the phrase ‘without her consent’ implied an act of reason following
deliberation.13 Consent must be complete, active, and voluntary in
a relationship between a man and a woman. Section 90 of the IPC
states that consent given under the fear of injury or misconception
of fact is no consent at all.14 Consent for the purpose of section
375 requires voluntary participation not only after the exercise of
intelligence based on the knowledge of the significance and moral
quality of the act, but after having fully exercised the choice between
resistance and assent.15 This requirement of proactive consent is in
tandem with the recommendation found in the Verma Committee
Report, that the definition of rape should require the existence
of a lack of ‘unequivocal and voluntary agreement’, an approach
sanctioned by the United Nations Convention for the Elimination of all
Forms of Discrimination Against Women.16 The association of a marriage
cannot render void the very consent on which sexual relations are
based. The importance of consent has been long recognised by the
IPC. On a purely fundamental basis, then, the marital rape exception
clashes with the exposition of consent as described by the IPC. Thus,
even before the Puttaswamy judgment crystallised the individualistic
notion of privacy, courts have recognised the necessity of sexual
privacy.17

12
Justice Verma Committee, ‘Report of the Committee on Amendments to Criminal
Law’ (2013), available at http://www.prsindia.org/uploads/media/Justice%20
verma%20committee/js%20verma%20committe%20report.pdf (last visited 24
February 2019) (Verma Committee Report).
13 State of UP v. Chottey Lal (2011) 2 SCC 550, para 13.
14 The Indian Penal Code, 1860, section 90.
15 State of HP v. Mango Ram (2000) 7 SCC 224, para 12.
16 Verma Committee Report supra n. 12, 73, para 10.
17 See T Sareetha.
42 The Law Review, Government Law College [Vol. 10

Any challenge to the marital rape exception can be scrutinised in

two ways–as a violation of equality under articles 14 and 15, and as
a threat to life and personal liberty under article 21.

The marital rape exception is an infringement of the right to

equality and equal protection, and of the right to life and personal
liberty where the bizarre distinction between married and unmarried
women is used as a pre-qualifier for addressing rape. As a result the
challenge to marital rape can be put to test against the standards of
arbitrariness18 and unreasonableness.19 The classification of women
based on their marital status, acting as a prerequisite to qualify for
rape, is an unreasonable standard to hold. Rape does not depend on
a woman’s marital status. Consider the stringent standards to which
domestic violence is held, 20 consent plays no part there, for it is
irrational to believe that any woman would willingly concede to abuse
and violence. In the same vein, it is irrational to conclude that a
married woman would willingly consent to forced sexual intercourse.
Therefore, it is necessary that the marital rape exception be abolished.

A marital rape exception cowers behind the argument that a

marriage union is formed on the underlying principle of presumed
consent. However, there is no waiver of sexual rights that a woman
is conscripted to sign at the time of her wedding. The argument that

18 The doctrine of arbitrariness put forth in EP Royappa v. State of Tamil Nadu 1974 AIR
SC 555, suggests that from a positivistic point of view, arbitrariness is antithetical to
equality. When an act is arbitrary it is implicitly unequal according to both political
logic and constitutional law and so violates article 14. The marital rape exception is
shown to be inherently arbitrary, and therefore is unequal.

19 Unreasonableness can be tested via the doctrine of reasonable classification postulated
in State of West Bengal v. Anwar Ali Sarkar AIR 1952 SC 75. The doctrine of
reasonable classification finds that a legislative classification may be reasonable when
it is found on some intelligible differentia and when such differentia has a rational
relation to the object of the legislation. The marital rape exception differentiates
between rape survivors on the basis of their marital or non-marital status which bears
no rational relation to the aim of the State in progressive modern-day India.

20 The Protection of Women from Domestic Violence Act, 2005 contains significantly
deep provisions which offer protection to victims of violence within the family. The
Act outlines a detailed procedure in terms of judicial recourse and constitutional
remedies available to such victims in breaking the chain of violence.
2019] Unveiling Privacy for Women in India 43

the withholding of sexual consent by the wife would effectively lead

to the breakdown of a marriage union21 is an exaggerated extreme.
Consent is not and cannot be interpreted as a one-time waiving of
choice. If it is assumed to be so, as the marital rape exception does, it
is unerringly arbitrary and unreasonable. The marital rape exception
fails to provide a rational nexus between the horror married women
endure in terms of non-consensual sex, and the larger State concern
of corrupting the institution of marriage.

The second way of addressing a challenge to the marital rape

exception is solely viewing it as a challenge to the right to personal
life and liberty under article 21 of the Constitution. According to the
majority opinion in Puttaswamy, violations of privacy under article
21 must satisfy the proportionality standard. 22 The Supreme Court
opined: ‘An invasion of life or personal liberty must meet the three-
fold requirement of (i) legality, which postulates the existence of
law; (ii) need, defined in terms of a legitimate state aim; and (iii)
proportionality which ensures a rational nexus between the objects
and the means adopted to achieve them.’23 The Court further held:

‘The concerns expressed on behalf of the Petitioners

arising from the possibility of the State infringing the
right to privacy can be met by the test suggested for
limiting the discretion of the State: (i) The action must
be sanctioned by law; (ii) The proposed action must
be necessary in a democratic society for a legitimate
aim; (iii) The extent of such interference must be
proportionate to the need for such interference; (iv)
There must be procedural guarantees against abuse of
such interference.’24

21 PTI, ‘Criminalising Marital Rape Will Threaten the Institution of Marriage, Centre
Tells Delhi HC’ (2017) The Wire, at https://thewire.in/gender/criminalising-marital-
rape-will-threaten-institution-marriage-centre-tells-delhi-hc (last visited 24 February
2019).

22 The proportionality standard arose from the Wednesbury principle of reasonableness
in English law. The proportionality standard is a common test of review to keep
State infringement of individual rights under check. It requires that the measure to
be enacted via legislation or executive action is likely to achieve its ends and cause
as little harm as possible.

23 Puttaswamy (Dr DY Chandrachud, J), para 3(H), in section T. Conclusions.

24 Puttaswamy (Sanjay Kishan Kaul, J), para 71.
44 The Law Review, Government Law College [Vol. 10

Of the three requirements of the proportionality standard, it may be

construed that the State has its evidence for legality–there certainly is
the existence of a law, ie exception 2 of section 375 of the IPC which
sanctions the idea that marital rape in not punishable. The question
that arises is with regard to the other two prongs: necessity and
proportionality. The legitimate State aim, so to speak, is to safeguard
the sanctity of the marital institution. 25 In democratic 21st century
India, there is little, if nothing, to justify such an absurdly outdated
State aim. Further, the preservation of the institution of marriage
cannot come at the cost of the safety and autonomy of the individuals
in a marriage. The proportionality standard applied in this context
does not draw a rational nexus between the object of protecting
marital relationships and the method adopted of dismissing marital
rape as a private affair which is above constitutional questioning.

In order to substantiate a privacy claim under article 21, it is

important to consider the origins of the marital rape exception.
Exception 2 of section 375 arose as a product of the coverture rules
that originated in 18th century English law, which followed the legal
doctrine of yesteryears, marking husband and wife as one entity. The
legal, political, sexual and economic rights of the wife were subsumed
by those of her husband to the extent that the wife was considered a
‘dependent’, incapable of independent existence.26 In this respect, the
presumption of consent was effectively invalid for women. In that pre-
suffragette political climate where men and women fell into two very
distinct categories with unimpeachable boundaries, the State felt itself
justified in withholding from the domestic, house-bound and family-
oriented women of the time, political, social and economic rights

25 Maanvi, ‘Here’s Why Our Govt Thinks Marital Rape Shouldn’t Be a Crime’, (2017)
The Quint, at https://www.thequint.com/voices/women/marital-rape-delhi-high-court-
government-submission (last visited 24 February 2019).

26 Sir William Blackstone, Commentaries on the Laws of England (Oxford, England
Clarendon Press 1765–1769) Book 1, Chapter 15: Of Husband and Wife, available
at https://lonang.com/library/reference/blackstone-commentaries-law-england/bla-
115/ (last visited 24 February 2019).
2019] Unveiling Privacy for Women in India 45

that concerned daily functioning in the outside world. In 18th century

England, because women were confined to the domestic sphere, it was
the legitimate aim of the State to ensure their dependency on their
male counterparts. This umbrella protection of the coverture rules
may have rendered the State aim of 18th century England legitimate,
however, it is strange to presume that this can possibly be applicable
to modern day India. Having adopted the constitutional ideals of
equality and liberty, women have become independent and capable
of giving consent. In 21st century India, any extension of the coverture
rules is hard to justify. Women are no longer ‘dependants’. They are
independent (if not always equal) citizens under law.

To effectively address MacKinnon’s concern that privacy is not in the

best interests of women, duly imported to the instance of the marital
rape exception, it is important to reassert the individualistic notion of
privacy that the Puttaswamy judgment propounds. Spatial control is
defined in the judgment as, ‘… the creation of private spaces.’27 The
Court held that in creating a private sphere for oneself, one chose the
space surrounding oneself and actively controlled it enough to warrant
safeguard from unwanted intrusion. This effectively earmarks privacy
as attributable to the individual; it is at the individual’s discretion to
create a space of solitude for herself in a way that she sees fit. Such
an individualistic notion of privacy cannot be used to the detriment
of women in a marriage.

Even before the Puttaswamy judgment crystallised the individualistic

notion of privacy, courts have recognised the necessity of sexual
privacy. The High Court of Andhra Pradesh first broke open this
shell of spatial privacy in its powerful judgment in T Sareetha where
the Court held that section 9 (restitution of conjugal rights) of The
Hindu Marriage Act, 195528 unfairly and grossly vitiated the privacy

27 Puttaswamy (Dr DY Chandrachud, J), para 141.

28 The Hindu Marriage Act, 1955, section 9.
46 The Law Review, Government Law College [Vol. 10

of a woman by compelling her to reciprocate marital obligations

against her express consent. Holding that sexual intercourse, like
marital cohabitation, was a choice that was to be actively and
deliberately exercised by a woman throughout her marriage, the Court
acknowledged that any compulsion to the same was an infringement
of a woman’s right to privacy.29

An extension of the arguments that confront the restitution of conjugal

rights finds footing in a more expansive movement concerning the
marital rape exception.30 When section 375 refuses to recognise non-
consensual sex between a married pair (where the wife is not a minor
and above the age of 18) as rape, the reasoning ultimately stems from
the presumption that it is the marital home that merits non-intrusion.
This is evidenced by the written submissions of the Union of India
in the marital rape exception proceedings underway before the High
Court of Delhi.31 The State argued that the introduction of a marital
rape exception throws into question the institution of marriage as a
whole.32

This preservation of the marital sphere is echoed from the verdict

of the High Court of Delhi in Harvinder Kaur v. Harmandar Singh
Choudhry (Harvinder Kaur), which protected the spatial construct of
marital privacy when it likened the introduction of constitutional law
in the home to letting loose a bull in a china shop, to the detriment
of the institution of marriage and all that it stood for.33 The apex
court eventually confirmed the judgment of the Delhi High Court,
effectively overruling the decision in T Sareetha.34

29 T Sareetha, para 31.

30 RIT Foundation v. Union of India Writ Petition (Civil) 284 of 2015 is a petition filed
in the High Court of Delhi which challenges the validity of the marital rape exception
in the IPC.
31 Maanvi supra n. 25.

32 Maanvi supra n. 25.

33 Harvinder Kaur v. Harmandar Singh Choudhry AIR 1984 Delhi 66, para 34.
34 Smt Saroj Rani v. Sudarshan Kumar Chadha AIR 1984 SC 1562.
2019] Unveiling Privacy for Women in India 47

This prima facie categorisation of marriage as a sphere that must be

so preciously protected, is untenable when the Puttaswamy judgment
determines that privacy is a right that must be afforded to the
individual, not to her marital association.

C. Privacy, Marital Rape and Beyond

The primary argument of the State in defending the marital rape

exception is the destabilisation of the institution of marriage that
is likely to ensue if marital privacy were to be acknowledged.35
The State asserts that women’s rights are protected well enough by
existing legislation. The argument that existing legislation does not
necessitate the removal of the marital rape exception simply because
it risks upsetting the institution of marriage carries down from the
same rationale used in Harvinder Kaur. The definition of privacy is
no longer the preservation of a physical sphere. Privacy exclusively
belongs to the individual. Ultimately, because individuals stand
independent of the associations they may form, the privacy they exert
must also be independent.

The petition against the marital rape exception, currently sub judice
before the High Court of Delhi, effectively objects to the lack of
individual privacy in a marital association. 36 The petition raised
objections to the ‘legal rape’ that the exception to section 375 permits,
while pointing out the unconstitutionality of the categorisation of rape
victims. Rape victims who share no marital relationships with their
assailants are afforded full protection under sections 375 and 376 of
the IPC. The privacy of their bodies and identity is upheld to the

Maanvi supra n. 25.

35

The written submissions of the Petitioner in RIT Foundation v. Union of India Writ
36

Petition (Civil) 284 of 2015 can be found at: Akanksha Jain, ‘Marital Rape: Married,
Married But Separated, & Unmarried-Classifying Rape Victims Is Unconstitutional:
Petitioners Submit Before Delhi HC [Read Written Submissions]’, (2018) LiveLaw,
at http://www.livelaw.in/marital-rape-married-married-separated-unmarried-
classifying-rape-victims-unconstitutional-petitioners-submit-delhi-hc-read-written-
submissions/ (last visited 24 February 2019).
48 The Law Review, Government Law College [Vol. 10

fullest. Rape victims who may be the judicially separated wives of

their assailant husbands can hold their rapists accountable, with a
prison sentence ranging from two to seven years if the conviction
is upheld. 37 The criminalisation of rape cannot come with the
categorisation of classes of rape victims because this reiterates the
non-individualistic idea of privacy. The rationale is that unmarried
or married but separated women are not part of a functional marital
relationship so they do not attract the privacy that is traditionally
afforded to the institution of marriage.

The petitioners before the High Court of Delhi take MacKinnon’s

primary concern and repackage it in a slightly different, but
significantly more alarming way: the provision of a marital rape
exception protects men against misuse of the law by their wives.38
The petitioners contend that such an object effectively disentitles the
vast majority of women, who face marital rape at the hands of their
husbands, from proper legal recourse.39 The bodily integrity of one
partner in a marriage cannot suffer at the potential cost of misuse to
the other partner. This anomaly in the law exists to the disadvantage
of women in marriages. The High Court of Gujarat has observed that
it is time to jettison the idea of ‘implied consent’ in a marriage as all
women, irrespective of marital status, must have bodily autonomy.
However, the Court simultaneously held that since a wife cannot
initiate proceedings against her lawfully wedded husband under
section 376 of the IPC, marital rape cannot be punishable.40

Given that the Puttaswamy judgment outlines the contours of privacy

in terms of consent and choice, from this particular lens alone, the
continuation of a marital rape exception in Indian jurisprudence is
alarming. A marital rape exception absurdly denies a married woman
agency over her own body precisely because she has entered into a

37 The Indian Penal Code,1860, section 376A.

38 Jain supra n. 36.
39 Jain supra n. 36.

40 Nimeshbhai Bharatbhai Desai v. State of Gujarat 2018 SCC OnLine Guj 732.
2019] Unveiling Privacy for Women in India 49

marital association. Unlike MacKinnon’s and Nussbaum’s concerns,

privacy will not be a bar to women’s welfare, when the right to
privacy is accorded to each individual woman.

III. Privacy Restores Traditional Power Structures

in the Context of Women’s Restricted Entry
in Places of Religious Worship

A. Privacy Restores Traditional Power Structures

MacKinnon’s concern with privacy is ‘… the problem with anything

private is getting it perceived as coercive’.41 She expands her objection
to male domination of women to a more generalised inference of
a direct clash between the personal and the political. 42 She argues
that because of the distinction in the public and private spheres of
privacy, the personal or private sphere is given a sort of sanctity or
protection which others are unwilling to invade.43 Nussbaum illustrates
MacKinnon’s claim with parallels to early contraceptive use and
homosexual sodomy.44 Contraceptive use in the privacy of the home
was protected but distributing contraceptives on the street among
students and young people was not, until an American court ruled
otherwise.45 Similarly, homosexual sodomy was protected between
gay couples in the privacy of their homes, but didn’t enjoy the same
protection in clubs, or bars, or places of public interaction where gay
people might meet and engage with one another.46

The point is simple–privacy strengthens traditional hierarchies

by protecting higher ups from accountability with regard to their

41 Catharine MacKinnon, Feminism Unmodified: Discourses on Life and Law

Cambridge, Massachusetts, and London, England Harvard University Press 1987,
100, available at https://www.feministes-radicales.org/wp-content/uploads/2010/11/
Catharine-MacKinnon-Feminism-Unmodified.-Discourses-on-life-and-law.pdf (last
visited 24 February 2019).
42 Infra n. 47.
43 MacKinnon supra n. 41.
44 Nussbaum supra n. 6.
45 Eisenstadt v. Baird 405 US 438 (1972) (United States).
46 Nussbaum supra n. 6.
50 The Law Review, Government Law College [Vol. 10

treatment of the individuals lower down the chain of power.

MacKinnon’s argument is that the personal is political and ultimately
cannot hide behind a privacy shield.47

Consider MacKinnon’s argument in the context of the controversy

surrounding the entry of women into the precincts of religious places
of worship. For centuries, custom has dictated that it is ‘unholy’ for
women to enter the sanctum sanctorum of temples, havelis, mosques
or dargahs because of the perceived notion of impurity that a
menstruating woman brings with her.48 Limiting women and their
choice to worship is not only a direct infringement of their right to
practise their respective religions, but also disregards any decisional
autonomy they may have. Religion, like contraceptive use or
homosexual sodomy, is a self-regarding act despite the collectivistic
culture it has in India. Religion is often as personal as a self-regarding
act can be, and yet it is corrupted into a treacherous, hierarchical
order that demeans women.

MacKinnon’s argument, when applied to the present facts, is that the

privacy apparently afforded to religion and its practice shores up a
hierarchy that is disadvantageous to women. This hierarchy serves
to exclude women from entering religious spaces while they are
menstruating. However, in light of the Puttaswamy judgment, privacy
weakens such a power structure. The idea of bodily privacy assails
the very presumption on which religious fanatics base their case:
menstruation makes women impure. Upholding menstruation as an
unquestionable aspect of a woman’s bodily privacy puts it beyond the
purview of the hierarchical culture of a religious organisation.

47 MacKinnon shapes this argument around the popular slogan which was used as a
rallying feminist cry in the 1970s. The concept ‘the personal is political’ seems to
have its origins in Carol Hanisch’s 1970 essay, The Personal is Political.

48 See the written submissions of the Petitioners in Indian Young Lawyers Association
& Anr. v. State of Kerala & Ors. Writ Petition (Civil) No. 373 of 2006 in Mehal Jain,
‘Sabarimala Women’s Entry [Day-1] Restrictions On Entry Of Women Nowhere
Connected With Religious Practices In The Temple, Submits Petitioner [Read Written
Submissions]’, (2018) LiveLaw, at http://www.livelaw.in/sabarimala-womens-entry-
day-1-restrictions-on-entry-of-women-nowhere-connected-with-religious-practices-
in-the-temple-submits-petitioner-read-written-submissions/ (last visited on 24
February 2019).
2019] Unveiling Privacy for Women in India 51

B. The Courts on Temple Entry

The issue of restricting women’s right to access the inner sanctums

of religious places of worship is intersectional. It encompasses the
personal laws of the respective religions it stems from and also
involves constitutional law. Finally, it includes the question of how
these laws affect women and the exercise of the right to religion.
The privacy standard is a nuanced argument in the entire spectrum
of issues related to temple entry. The privacy standard focuses on
whether, and if so, where, religious obligations impinge upon the
individual rights of women. Indian jurisprudence with regard to
the temple entry ban rests largely on the decisions of courts in Dr
Noorjehan Safia Niaz & Anr. v. State of Maharashtra & Ors. (Haji Ali
Dargah),49 Smt Vidya Bal & Anr. v. State of Maharashtra & Ors. (Shani
Shingnapur Temple)50 and Indian Young Lawyers Association & Ors. v. State
of Kerala & Ors. (Sabarimala Temple).51 The issue of denial of women’s
access to places of religious worship necessitates the fulfilment of
the privacy requirement as postulated by the Puttaswamy judgment.
However, there are two more criteria to be considered. First, is the
public character of religious institutions. Second, is the enforcement
of fundamental rights against the State.52 The horizontal protection
that the State offers to women is crucial in opposing hierarchical
structures that have stood for centuries. Religion is one such all too
common hierarchical structure. Bodily integrity is an unimpeachable
right belonging to the individual woman. It outweighs the power

49 Dr Noorjehan Safia Niaz & Anr. v. State of Maharashtra & Ors. (2016) 5 AIR Bom
R 660.

50 Smt Vidya Bal & Anr. v. State of Maharashtra & Ors. Public Interest Litigation No.
55 of 2016 (High Court of Bombay).

51 Indian Young Lawyers Association & Ors. v. State of Kerala & Ors. 2018 (13) SCALE
75.

52 Gautam Bhatia, ‘Haji Ali Dargah: Bombay High Court Upholds Women’s Right
to Access the Inner Sanctum’, (2016) Indian Constitutional Law and Philosophy,
at https://indconlawphil.wordpress.com/2016/08/26/haji-ali-dargah-bombay-high-
court-upholds-womens-right-to-access-the-inner-sanctum/ (last visited 24 February
2019).
52 The Law Review, Government Law College [Vol. 10

structure that religion may defend. In this regard, the horizontal

effect of fundamental rights ensures that hierarchical structures do
not impinge upon the bodily integrity of women by determining their
days of worship based on their menstrual cycles.

The High Court of Bombay held:

‘Once a public character is attached to a place of

worship, all the rigors of articles 14, 15 and 25
would come into play and [the Trust] has no right to
discriminate entry of women into a public place of
worship under the guise of ‘managing the affairs of
religion’ under article 26…’53

The public character of the dargah does not merit the protection of
article 26(b) of the Constitution. To the contrary, it requires that the
fundamental rights enshrined in articles 14, 15 and 25 are actively
upheld. 54 Moreover, the Court found that these rights cannot be
enforced against religious institutions (in this case, the Dargah Trust),
unless the State is also impleaded in the infringement of fundamental
rights.55

‘… It [is] the Constitutional responsibility of the State

to ensure that the principles enshrined in the articles 14
and 15 of the Constitution are upheld. The State would
then be under a constitutional obligation to extend
equal protection of law to the petitioners to the extent
that it will have to ensure that there is no gender
discrimination.’56

Consider the issue of restriction of women’s right of entry to places

of public religious worship from a claim that it infringes the right to
privacy under article 21.57 This merits the compelling State interest–

53 Haji Ali Dargah, para 50.

54 Haji Ali Dargah, para 51.
55 Haji Ali Dargah, para 51.
56 Haji Ali Dargah, para 20.
57 The standard of strict scrutiny comprises two parts: one, the compelling State interest
which is required for any legislation or executive action curtailing the exercise of a
fundamental right and two, the narrow tailoring of the law, which ensures that the
legislation in question is construed in the strictest terms.
2019] Unveiling Privacy for Women in India 53

narrow tailoring standard, put forth for assessing claims under article
21. In an attempt to prove the existence of a law under article 13
of the Constitution, the Dargah Trust failed to provide substantial
examples to support their claim that the proximity of women to the
grave of a male saint was considered a sin in Sharia law.58

Similarly, the High Court of Bombay in the Shani Shingnapur Temple

case held that the fundamental right of women to enter places of
worship could not be encroached upon by any authority or individual.
The Court affirmed that the Maharashtra Hindu Places of Public Worship
(Entry Authorization) Act, 1956, which prescribes a six month prison
term for those restricting the entry of women into a temple, must
be upheld.59 The State of Maharashtra assured the Court that the
government was duty bound to prevent any discrimination against
women in this respect and to take proactive steps to ensure the
fundamental rights of women were protected.60 Two years after the
delivery of the verdict, the State of Maharashtra approved a proposal
to take control of the management of the Shani Shingnapur temple
and to take it upon themselves to frame an Act for the same.61

Given the delicate socio-cultural climate in India, religious

denominations are treated with special care under article 25 of
the Constitution. However, this care cannot outweigh the individual
integrity of women who are a part of these denominations. Article
25(1) of the Constitution provides: all persons are equally entitled to
freedom of conscience and the right to freely profess, practice and
propagate religion. 62 In the Sabarimala Temple case, 63 menstruating
women were prohibited from entering the Sabarimala Temple

58 Haji Ali Dargah, para 30.

59 See Shani Shingnapur Temple.
60 See Shani Shingnapur Temple.
61 TNN, ‘Maharashtra govt to take control of Shani Shingnapur temple’, (2018) The
Times of India, available at https://timesofindia.indiatimes.com/city/mumbai/
maharashtra-govt-to-take-control-of-shani-shingnapur-temple/articleshow/64673350.
cms (last visited 24 February 2019).
62 The Constitution of India, article 25(1).
63 See Sabarimala Temple.
54 The Law Review, Government Law College [Vol. 10

under the sanction of section 3 of the Kerala Hindu Places of Worship

(Authorization of Entry) Act, 1965, which allows the restriction of entry
in accordance with prior usage or custom. Rule 3(b) of the Kerala
Hindu Places of Public Worship (Authorization of Entry) Rules, 1965
allowed the exclusion of women ‘at such time during which they are
not by custom and usage allowed to enter a place of public worship.’
The Travancore Devaswom Board, which manages the affairs of the
temple, therefore prohibited women from entering the temple on the
basis of over eight centuries of custom which allegedly prohibited
menstruating women from polluting the sanctum in which Lord
Ayappa, a ‘bachelor’, is worshipped.64 Instances from the Garuda
Purana (ch. 231), ‘A Brahmana having touched a dog, a Sudra, or
any other beast, or a woman in her menses, before washing his face
after a meal, shall regain his purity by fasting for a day, and by
taking Panchgavyam.’ and the Markandeya Purana 35.26-28, ‘…After
touching a menstruous woman, a horse, a jackal, and other animals,
or a woman recently delivered of a child, or people of low caste, one
should bathe for the sake of purification…’ indicate the origins of
this stigma associated with menstruation.65 This very characterisation
presents two problems. The first is, of course, the unfairness of
placing the word of a religious text over the letter and spirit of the
Constitution. The second is the lack of understanding that religion and
religious worship are choices an individual makes, by extension of
which women, as individuals, cannot be excluded from the access
to those choices. The Supreme Court, in defending the fundamental
nature of a right to privacy, has previously declared, ‘the purpose of
elevating certain rights to the stature of guaranteed fundamental rights
is to insulate their exercise from the disdain of the majorities, whether
legislative or popular.’66

64 As cited in Jain supra n. 48.

65 As cited in Jain supra n. 48.
66 Puttaswamy (Dr DY Chandrachud, J), para 126.
2019] Unveiling Privacy for Women in India 55

In Sabarimala Temple, one of the primary issues which arose for the
consideration was whether the restriction of menstruating women
constituted an essential religious practice under article 25 of the
Constitution and whether a religious institution could impose any
restrictions under its right to manage its own religious affairs under
article 26(b).67 On 3 October 2018, the Supreme Court held, by a 4-1
majority, that the practice of prohibiting the entry of menstruating
women into the Sabarimala temple was unconstitutional. Justice
Malhotra, in her dissenting opinion, noted that the question of
whether women’s entry was an essential religious practice or not,
was a determination which only the religious denomination under
consideration could make. 68 It is to be noted that neither Justice
Malhotra in her dissent nor her fellow judges in their exposition of
the majority, analysed the privacy aspect associated with the female
devotees of the temple.

The decision in Sabarimala Temple received backlash and resulted in a

state wide protest by devotees who believed the Court was interfering
in their religious affairs. The Court heard 65 petitions—56 review
petitions and four fresh writ petitions—against its decision. The case is
closed for orders.69

From a purely privacy related perspective, women are entitled to

their worship without being scrutinised for a perceived notion of
impurity associated with their menstrual cycles. In this regard, the
Supreme Court observed that the menstrual status of a woman was
deeply personal and an intrinsic part of her privacy.70 A woman’s
menstrual status ‘must be treated by the Constitution as a feature on

67 The Constitution Bench hearing the Sabarimala Temple case framed five issues vide
their order dated 13 October 2017 available at https://www.supremecourt.gov.in/
supremecourt/2006/18956/18956_2006_Judgement_13-Oct-2017.pdf (last visited
24 February 2019).
68 Sabarimala Temple (Malhotra, J), para 10.
69 All India, ‘Sabarimala Temple Highlights: Supreme Court Reserves Verdict’, (2019)
NDTV, available at https://www.ndtv.com/india-news/supreme-court-to-hear-
sabarimala-review-petitions-today-live-updates-1989011 (last visited 24 February
2019).
70 Sabarimala Temple (Dr DY Chandrachud, J), para 57.
56 The Law Review, Government Law College [Vol. 10

the basis of which no exclusion can be practised and no denial can be

perpetrated.’71 The Court also recognised the arguments put forth by
the amicus curiae that such an exclusionary practice violated women’s
right to privacy under article 21 as it compelled them to disclose both
their age and menstrual status.72

Although there was no deeper analysis from the privacy perspective,

the Court placed ‘those who were denuded of their human rights
before the advent of the Constitution – whether in the veneer of caste,
patriarchy or otherwise – … in control of their own destinies by the
assurance of the equal protection of law.’73 The Court observed that
discrimination as a social institution is not merely perpetrated by the
State, but can also be individualistic and societal. The Court further
noted that article 17 of the Constitution must have an overarching
reach: ‘… as an expression of the anti-exclusion principle, it cannot
be read to exclude women against whom social exclusion of the worst
kind has been practiced and legitimized on notions of purity and
pollution.’74

In Sabarimala Temple, the Supreme Court upheld the individual to be

the basic unit of the Constitution, as a result of which all customary
practices and traditions which reduce human dignity must pass
constitutional scrutiny.75 The missing aspect of privacy becomes stark,
because of the Supreme Court’s observation of human dignity taking
centre stage, as the individual is the basic unit of the Constitution.
This observation is analogous to the reasoning used in Puttaswamy
for privacy. There is a further extension of how notions of impurity
affect women’s right to worship, in that ‘these beliefs have been used
to shackle women, to deny them equal entitlements and subject them
to the dictates of a patriarchal order.’76 The Court observed that
the stigma of menstruation has been used to relegate women to the

71 Sabarimala Temple (Dr DY Chandrachud, J), para 57.

72 Sabarimala Temple (Misra, J and Khanwilkar, J), para 72.
73 Sabarimala Temple (Dr DY Chandrachud, J), para 2.
74 Sabarimala Temple (Dr DY Chandrachud, J), para 75.
75 Sabarimala Temple (Dr DY Chandrachud, J), para 100.
76 Sabarimala Temple (Dr DY Chandrachud, J), para 57.
2019] Unveiling Privacy for Women in India 57

confines of a social order that does not respect aspects of individual

autonomy. Privacy, though not deeply analysed in the Sabarimala
Temple judgment, forms one of these aspects.

The exclusivity of temple entry has long been a tool in the hands of
the upper echelons of societal hierarchies. It was originally used to
restrict Dalits entering places of religious worship on the grounds of
their perceived untouchability. There is little to support a legitimate
State aim in banning women from entering the inner sanctums of
religious places of worship. The idea of impurity associated with
menstruation discriminates against women who are therefore restricted
from entry by virtue of the biological differences of their sex. Under
the guise of the ‘impiety of menstruation’ argument, male-dominated
trusts demonise menstruating women from the rest of the worshippers
by creating a precariously poised ‘us versus them’ phenomenon. Here,
‘us’ refers to the non-menstruating worshippers who are better off and
more deserving than menstruating women of the right to access such
institutions.

C. Privacy and Piety

The idea of privacy discernibly influences contemporary jurisprudence

in determining women’s rights in entering religious places of worship.
The Supreme Court referred to a fundamental exposition of nine
primary types of privacy which fall broadly under two aspects of
freedom: the freedom to be left alone and the freedom for self-
development.77

The very first type of privacy, which is relevant to the entry of

women in religious places of worship, is bodily privacy. Bodily
privacy reflects the privacy of the physical body and emphasises the
negative freedom of preventing others from violating one’s body or
from restraining the freedom of bodily movement.78 From the privacy
lens alone, any bar to women’s entry in religious places based on

77 Puttaswamy (Dr DY Chandrachud, J), para 142.

78 Bert-Jaap Koops et al, ‘A Typology of Privacy’, (2016) 38(2) University of
Pennsylvania Journal of International Law 483, 567, available at https://ssrn.com/
abstract=2754043 (last visited 24 February 2019).
58 The Law Review, Government Law College [Vol. 10

their menstrual cycles is a violation of bodily privacy as it constitutes

unwarranted restraint on the freedom of bodily movement. The
Court declared that the concern for bodily integrity implied freedom
from any unwarranted stimuli. 79 The exclusion of women from
religious places on the basis of a perception of impurity works like
an unwarranted stimulus. This stimulus ensures that they behave in
a manner in which they would have ordinarily not behaved in, had
it not been for the social and moral compunctions, compelling them
to conform. Admittedly, the Court extrapolated its declaration with
instances of corporeal punishment and forced feeding, and applied the
idea of a violation of bodily privacy in the primary instance to State
surveillance,80 but the principles can also be applied to the present
facts.

The second type of privacy relevant to the entry of women in

religious places of worship is behavioural privacy which is typified by
the privacy interests a person has while conducting publicly visible
activities.81 The Court opined that behavioural privacy postulates
that even when access is granted to others, the individual is entitled
to control the extent of access and preserve to herself a measure of
freedom from unwanted intrusion.82 Although religious worship is
primarily a self-regarding act, it is almost always conducted in the
public eye with members of a community and often with a certifiably
public spirit. Thus, it provides the perfect instance of where privacy
interests are necessary while conducting publicly visible acts. The
access to places of religious worship should be granted to women
in two respects. First, their right to entry inheres in their being
devotees of a particular faith or members of a certain denomination.
Women merit the right to entry under the universality of article 25(1).
Secondly, any restriction to such entry is a violation of behavioural
privacy under article 21 of the Constitution. The individual woman is

79 Puttaswamy (Chelameswar, J), para 36.

80 Puttaswamy (Chelameswar, J), para 38.
81 Bert-Jaap Koops et al supra n. 77, 568.
82 Puttaswamy (Dr DY Chandrachud, J), para 142.
2019] Unveiling Privacy for Women in India 59

not considered fit to determine the extent of her access to religious

places; it is handed down to her on the basis of purely biological
distinctions. There is a clear and deliberate intrusion into aspects of
her behavioural privacy.

Here too, the three-pronged requirement of legality, necessity

and proportionality put forth in Puttaswamy comes into play in
assessing violations of the right to privacy under article 21. 83 In
Sabarimala Temple, the Travancore Devaswom Board contended the
existence of a law, that is section 3 the Kerala Hindu Places of Worship
(Authorization of Entry Act) of 1965, which allows the restriction of
entry in accordance with prior usage or custom. This law allowed
the Travancore Devaswom Board to bar women from entering the
temple.84 The dubiety is with respect to the need for a legitimate State
interest and proportionality in restricting women’s access to temples.
In fact, in Haji Ali Dargah and Sabarimala Temple, the State had a
positive obligation to prevent the infringement of fundamental rights
of one private party (the women) by another (the Dargah Trust and
the Travancore Devaswom Board, respectively). Assuming instead of
action which lead to infringement of such rights, that it was the State
that enacted discriminatory legislation to the same effect, it would
have undoubtedly been struck down. In cases where the State must
prevent infringement at the hands of another, especially when that
religious institution has acquired public character, the same standards
of unconstitutionality apply.

Considering the proportionality standard specifically, religious

institutions, and by extension the State, must prove that there exists
a rationale in excluding menstruating women from entering inner
sanctums of public places of worship. The arguments of impurity and
sexuality that are associated with women, especially menstruating
women, are sweeping stereotypical generalisations that should not be
treated as valid defences if individual autonomy and the principle

83 Puttaswamy (Dr DY Chandrachud, J), para 180.

84 Suhrith Parthasarthy, ‘The Sabrimala Singularity’, (2018) The Hindu, available at
https://www.thehindu.com/opinion/lead/the-sabarimala-singularity/article24514458.
ece (last visited on 24 February 2019).
60 The Law Review, Government Law College [Vol. 10

of choice are to be treated as tenets of privacy. Moreover, there is a

considerable infringement of women’s rights in such restrictions: of
equality in article 14, of discrimination in article 15, of untouchability
in article 17, of religious rights in article 25, and of course of personal
life and liberty in article 21 of the Constitution of India.

Chronologically, the Supreme Court’s exposition of privacy succeeded

the tumult following women’s movements pressing for entry into
religious places. The High Court of Bombay in Haji Ali Dargah took
the view that women must be permitted entry on a purely libertarian
and egalitarian basis. Privacy did not play a role in these judgments.
Understandably, privacy is one aspect of the right of women to enter
places of religious worship. It does not encompass the whole right, it
merely affords a lens with which it is necessary to view a woman’s
individuality in the context of religion and worship.

IV. Privacy Creates Confusion with Respect to Public Space

A. Privacy is an Irrelevant Defence to Claims for Individual Liberty

‘A right to privacy looks like an injury got up as a gift.’85

MacKinnon and Nussbaum argue that privacy is often plastered on

as an unnecessary defense in order to fill in constitutional gaps.86 The
difference in the approaches followed by MacKinnon and Nussbaum,
is seen in the former’s reliance on equality and the latter’s faith in
liberty to restore individualistic rights. However, what both scholars
fundamentally oppose is the relevance of a privacy claim with respect
to concerns such as access to public spaces.

MacKinnon argues that equality offers all the protection individuals

need, delving into a privacy defense is improbable in helping end

85 MacKinnon supra n. 41.

86 Nussbaum supra n. 6.
2019] Unveiling Privacy for Women in India 61

hierarchies and domination.87 Nussbaum ventures farther by suggesting

that liberty interests need express protection and that equality alone
does not suffice.88 In that respect, Nussbaum argues that many liberty
interests for women have sparked the privacy defense and need to
be extricated from the same. This narrative claims that there is a far
more direct, constitutional, and libertarian way of addressing such
concerns without bringing privacy into the picture.89

Women’s rights issues in India, many of which are poised to be

resolved by the judiciary, cannot be disassociated from a privacy
interest simply on the ground that they are concerns of individual
liberty. Given that the Supreme Court’s dissemination of privacy
includes the principles of decisional autonomy, informational self-
determination and spatial control,90 every individual liberty concern
corresponds to the same access to choice and consent that a privacy
right grants. One is not equated to another. Neither can one exclude
the other. Equality and liberty in the access to public spaces are
irrelevant without a sphere in which these principles can be realised
with independence and impunity. Ultimately, even issues like access to
public spaces, which do not arise from strict legal theory, are products
of the individualistic liberty assigned to women, after any equality
issues have been ironed out. Privacy is essential for the women to
have uninhibited and free access to public spaces.

B. The Relevance of Public Space to Privacy

The liberty and independence that a woman enjoys in moving around

in public is not the same as a man’s. When a woman’s independence
is so curtailed, it tends to limit the choice and control she has in
terms of her public surroundings. A woman walking down a dark
alley at night will always be on her way somewhere: she might be

87 Nussbaum supra n. 6.
88 Nussbaum supra n. 6.
89 Nussbaum supra n. 6.
90 Puttaswamy (Dr DY Chandrachud, J), para 141(iii), citing Bhairav Acharya,
‘The Four Parts of Privacy in India’ (2015), Economic & Political Weekly 50
(22), 32.
62 The Law Review, Government Law College [Vol. 10

homeward bound from work or on her way to eat dinner but rarely
will women step out in entirely public spaces for a leisurely night-time
stroll. In fact, in most cases where women are out with companions,
especially during the later hours of the evening, they will be dropped
to their very doorstep. The same courtesy doesn’t extend to a man.
When a lone female guest is leaving, it is only polite to hail a cab for
her or at the very least, accompany her to her car. Male guests are
bid goodbye at the door. In several ways, social conditioning makes
it polite, or often even necessary to oversee that women are not alone
in public spaces. Shilpa Phadke, a sociologist and gender studies
scholar, argues that women do not claim public space the way men
do.91 She suggests that women go out of their way to use markers
to prove their purpose of being out in public.92 Women’s access to
public space involves a series of strategies (appropriate clothing,
symbolic markings often indicating being married, and reserved body
language) in order to maintain the idea that despite their presence in
public space, they remain respectable women out for the legitimate
purposes of work or education or the like. 93 More significantly,
however, Phadke clarifies that the right to public space, rather than
just conditional access, can be achieved only when women are free to
be out in public spaces without having to demonstrate either purpose
or respectability and without being categorised into public or private
women.94 This corresponds with the individualistic notion of privacy
that women as individuals are entitled to.

The counternarratives to a privacy right for women stem from the

very trenchant belief that privacy rights are inherently incompatible
with women’s equality in terms of civil, sexual, political and other
liberties. According to MacKinnon, the right to privacy assumes that
State action is the primary threat to the freedom and equality of

91 See Shilpa Phadke et al, ‘Why loiter? Radical possibilities for gendered dissent’ in
Melissa Butcher and Selvaraj Velayutham (eds) Dissent and Cultural Resistance in
Asia’s Cities (1st edn Routledge Oxon 2009).
92 Ibid.
93 Phadke supra n. 91, 189.

94 Phadke supra n. 91, 192.

2019] Unveiling Privacy for Women in India 63

individuals, when oftentimes it is State action that makes these rights

available to its citizens.95 MacKinnon finds privacy untenable because
it justifies inequality on the incorrect presumption that all individuals
are equal, when they, in fact are not.96 In this context, a man has
unquestioned access to public space. However, giving a woman the
same access will not erase the concerns of safety and harassment
that prevail. Here, the man and the woman are inherently unequal,
because despite giving them both unrestricted access to public space,
one is still more disadvantaged than the other. Tracing this principle
of inherent inequality, especially with respect to public space, is
easy, based on the introductory illustrations. Insofar as MacKinnon
states that the perception of State action being the primary threat
to individual liberties is incorrect, the Indian example suggests that
even when states may not proactively stall individual liberties, their
inaction leads to the creation of an environment where it is easy for
these liberties to be denied or ignored. Women in India have the
constitutional freedom of movement and independence. In reality, this
is not a viable possibility for most women.

Importing MacKinnon’s argument to this context would suggest that

by creating laws which allow female independence in public space,
the State has done everything it possibly could to make the right to
space available to women. There is no room for a privacy claim in
MacKinnon’s argument. However, this is not entirely true. Although
loitering in itself is considered a frivolous activity, regarded as a
suspicious performance of non-productivity, 97 men who choose to
loiter are not reproached. Most women cannot even think of being
present in public spaces without cause. Unlike Indian men, women
rarely, if ever, laze in public parks unless they were to meet a friend
there. In this context, a privacy claim is relevant because a man
lounging in a public park will retain his right to privacy. He will not
be questioned as to his presence. A woman, on the other hand, is

95 MacKinnon supra n. 41.

96 MacKinnon supra n. 41.
97 Phadke supra n. 91, 192.
64 The Law Review, Government Law College [Vol. 10

always required to justify her presence in a public domain in addition

to remaining a private person even in a public setting.98

Nussbaum presents an interesting viewpoint when considering the

confusion privacy claims create.99 She suggests that where privacy
can be clearly demarcated through legal tradition to indicate
expressly what citizens have a right to and freedom from, it is useful
and appropriate.100 However, to assert a nebulous right to privacy,
according to her, does little to indicate how privacy rights shape the
diverse fields of pre-existing law. The confusion of a privacy claim
lies in its unelaborated form. The loose assertion of a mere ‘right to
privacy’ does not indicate where and how privacy impacts law as it
already exists and that complicates the source, strength and legitimacy
of a privacy defence for individuals.

Creating an all-encompassing law for privacy is virtually impossible

given the wide range of applicability privacy claims hold. The
evolution of privacy rights can come through the fashioning of legal
principles and the determination of how these legal principles can be
tested in real world situations by following judicial precedent, as the
Puttaswamy judgment itself reiterates. However, the idea of privacy
rights goes a little beyond just applicability. Privacy exists as the
concepts of equality and liberty do, in the spirit of the laws and not
in their precise wordings. Just as actual legislation for equality and
rights of freedoms would be improbable, in the same way, privacy
as a concept must be suffused in the spirit of our laws and in their
understanding and interpretation. Access to public space does point
to an inherent inequality between men and women. Women’s right
to claim public space is certainly a liberty concern, given that the
surrounding environment is not conducive for the realisation of the
constitutional guarantee of access and movement. However, privacy
plays an incremental role in reassuring women of their independence,
safety and autonomy in public spheres.

98 Ibid.

99 Nussbaum supra n. 6.
100 Nussbaum supra n. 6.
2019] Unveiling Privacy for Women in India 65

C. Public Privacy

For a woman to retain her privacy in a space that is freely

and uninhibitedly public is the ultimate test of the autonomy,
independence and inclusion of consent and choice. The right to
public space is controversial even in sophisticated democracies—yet it
shouldn’t be.

The right to a collective and common space for individuals of a

particular community dates back to the start of the earliest forms of
civilisation. The conception of a common town hall, or town square,
often in Indian villages, a particular area where the village panchayat
gathered for local governance, finds ground in almost all communities,
across cultures and countries. The concern when it comes to women
is that they are rarely a part of public space in mere exercise of a
right. Women access public space with a purpose. Using public spaces
purposefully–taking a train or bus to get to work, going grocery
shopping at street markets, taking their children to the park, or their
parents for a walk–lends some legitimacy to their being out in the
open. Such legitimacy insulates their safety in case anything untoward
happens outside the confines of the home.101 The right to access public
space is not a fundamental right—it hasn’t even been acknowledged
as such. At best, it can be interpreted as an implied right, manifested
in the freedoms articulated in article 19 of the Constitution of India.
Surely, a right to access public space seems far removed from the
convoluted knots of women’s reproductive, marital and political rights.

The right to public space rests on access. In India, this access is

clouded. This access is contingent on legitimacy–the stronger the
purpose women have for being out in the public eye, the safer they
feel. This can never be the true interpretation of access. It cannot be
conditional. It is absurd to expect a reason for explaining the simple
exercise of a right, implied or otherwise. Access which is contingent
upon an apparent legitimacy of use of space is not true access.

101 Phadke supra n. 91.

66 The Law Review, Government Law College [Vol. 10

True access implies security. Women do not have the benefit of this
security, therefore the access is merely theoretical. This distinction
is complicated in terms of equality, when men are not held to the
same requirements of reasoning. As Phadke points out, lower middle
class men access public space freely (and in due course earning the
labels of ‘vagrants’ or ‘loiterers’) and it is their access that is seen as
a threat to the safety of women in public spaces. Phadke argues that
inhibiting women’s right to public space, even circumstantially if not
through active legislation, is no way of securing some respite from
cat-calling and hooting and the general air of sexualising the female
form that carries on, unchecked, in the public space.102 Eve-teasing is
a common deterrent that prevents women from claiming public space.
At its best, it is a permanent predilection that women out in public
are compelled to endure. At its worst, it threatens the very safety of
women out alone. In this vein, the Supreme Court opined that eve-
teasing is a ‘pernicious, horrid and disgusting practice.’103 It found that
eve-teasing is a gross violation of fundamental rights.104 The Supreme
Court relied upon the categorisation of eve-teasing put forth by The
Indian Journal of Criminology and Criminalistics, which recognised five
different types of eve-teasing: verbal eve-teasing, physical eve-teasing,
psychological harassment, sexual harassment, and harassment through
objects.105 Every single one of these aspects of eve-teasing curtails a
woman’s access to public space by invading her individual right to
privacy.

The right to access public space then is not dissociated from the
inherent right to privacy, as it might seem. True, the essence of a
right to access public space is essentially implicit (and not defined).106
However, consider the implications of this right in the context of

102 Phadke supra n. 91.

103 Inspector General of Police v. S Samuthiram (2013) 1 SCC 598, 32.
104 Inspector General of Police v. S Samuthiram (2013) 1 SCC 598, 29.

105 Inspector General of Police v. S Samuthiram (2013) 1 SCC 598, 32.

106 In countries like the United States of America, which limits its Bill of Rights to

negative rights that mainly restrict government actions, the right to public space is an
implied right just like the right to privacy. Such implied rights, although unarticulated,
are essential in the exercise of other more well-defined rights.
2019] Unveiling Privacy for Women in India 67

the fundamental right to privacy, as held in India. The Court gave

a three-pronged definition of the tenets of privacy which included,
‘repose, sanctuary and intimate choices’.107 It is apparent that the
individual is entitled to make her choices in relative peace–if that
choice is to access public space without a specific aim, it is important
to create an environment where it is safe and feasible for women to
do so.

Public space is not restricted to roads, gardens and other open and
obvious spaces, where safety and feasibility are instinctive concerns
for women. Even in religious places of worship, which are public
spaces, women’s right to access is in partial dubiety. In parks and
gardens, on the streets and in other public places, women’s safety is
a wide concern that advises minimal female participation, outdoors.
In temples and mosques, however, it is absurd to apply the safety
concern.108 The High Court of Bombay, in the Haji Ali Dargah case
found that it was the responsibility of the Dargah Trust to ensure that
the dargah was a safe space for its female devotees, rather than to
enact a blanket restriction on them altogether.

V. Conclusion

The idea of privacy is all encompassing. It finds application in

virtually any claim simply because of its fundamental basic nature.
Privacy is the enabler through which women can effectively assert
their claims to equality and liberty.

For women to be able to speak up in their marriages, their

relationships, religious rights and their public presence, there must be
the creation of a space where they can exercise their ability to do so.

107 Puttaswamy (Chelameswar, J), para 36 citing Gary Bostwick, ‘A Taxonomy of

Privacy: Repose, Sanctuary, and Intimate Decision’, (1976) 64 California Law Review
1447.
108 Interestingly, in the Haji Ali Dargah case which granted women access to the inner

sanctum of the dargah, the Dargah Trust did pursue the women’s safety argument.
68 The Law Review, Government Law College [Vol. 10

Privacy enables the creation of such a space. Women must be able to

wilfully and deliberately exercise the active principles of choice and
consent. This interpretation of privacy is essential in terms of creating
a jurisprudence that is acutely fair to all categories of Indian women.

It is to be noted that every single one of the contexts used can be

defended, and moreover, has been defended on the basis of other
fundamental rights before various courts of justice ie, the marital rape
exception violates equality under article 14, temple entry broaches
the idea of untouchability under article 17, and eve-teasing in public
spaces is an infringement of articles 14 and 19. It is incorrect to
assume that privacy replaces these claims of fundamental rights, when
in fact it inheres in these very claims. It is impossible to dissociate
these claims from privacy rights.

In this light, the inferences drawn from the Puttaswamy judgment are
important in characterising the concept of privacy as an enabler as
opposed to an opaque, unformulated principle. Ultimately, it is the
affording of this particular power of unencumbered decision-making
to every single woman in the country that creates the true translation
of privacy and in turn, marks an equality of choice.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 69

INSOLVENCY PROCEDURES —
INVESTIGATING THE PRE-PACK PARADIGM
IN INDIA†
Sanjana Rao *

I. Introduction

Corporate rescue, as a precursor to insolvency resolution, enforcement

against or liquidation of a company,1 is a prominent feature of
insolvency laws in many jurisdictions. Corporate rescue provides
creditors2 of a stressed debtor company3 with the tools to formulate a
plan to salvage the status of such debtor company and to make it a
viable business again. This, in turn, benefits the creditors and allows
them to recover their dues with minimum losses as the debtor services
the debt timely.4

† This article reflects the position of law as on 24 February 2019.

* The author is an alumna of Government Law College, Mumbai and is currently an
Associate with the Banking and Finance and the Insolvency and Bankruptcy team at
Shardul Amarchand Mangaldas & Co. She can be contacted at sanjanarao@outlook.
com.

1 The author will be restricting the scope of the article to debtors which are corporates.

2 The term ‘creditors’ has been used to refer to financial creditors such as banks and
financial institutions and the term ‘stakeholders’ has been used to refer to all classes
of stakeholders which have financial interests in the affairs of the company vis-à-vis
employees of the debtor, crown debt creditors etc.
3 The term ‘debtor company’ has been used in this article to refer to a company which
inter alia has been incorporated under the laws of its jurisdiction as a distinct legal
entity, having perpetual succession and the power to enter into contracts under its own
name, which has borrowed through various means and owes a debt to its creditors
or has availed of credit or goods or services on deferred payment terms from other
entities.
4 Following the global financial crisis, certain special regulatory concessions and asset
classification benefits were allowed to banks and financial institutions to salvage
genuine projects. These concessions were given by the Reserve Bank of India as
incentives for timely and effective resolution / restructuring under the Reserve Bank
of India’s debt restructuring schemes. These guidelines and schemes were recently
withdrawn by the Reserve Bank of India and a consolidated circular dated 12 February
2018 termed as ‘Revised Framework for Resolution of Stressed Assets’ was issued
by the Reserve Bank of India for inter alia streamlining and consolidating the extant
debt restructuring procedures and bringing them under the purview of The Insolvency
and Bankruptcy Code, 2016.
70 The Law Review, Government Law College [Vol. 10

Corporate rescue is critical where a company is facing inherent stress

which could be the consequence of operational failure or business
or financial failure, resulting in the debtor company’s inability to
service debts timely. Inherent stress may also arise when a company
is unable to ensure that its assets are adequate to match its liabilities,
which must however, be distinguished from isolated instances of asset-
liability mismatch or default in repayment of debts that does not arise
from the inadequacy of funds of the debtor company.

Pre-packaged administration of bankruptcy, or ‘pre-packs’ as

commonly referred to, is a mode of corporate rescue which has not
yet formally percolated into the Indian market.5 A pre-packaged
administration has been defined as ‘an arrangement under which
the sale of all or part of a company’s business or assets is negotiated
with a purchaser prior to the appointment of an administrator, and
the administrator effects the sale immediately on, or shortly after, his
appointment’.6 Black’s Law Dictionary defines a ‘pre-pack bankruptcy’
as, ‘Bankruptcy where the debtor agrees to terms reducing the time it
takes to handle the business at hand.’7

In India, pre-packs could change the manner in which insolvency

resolution is undertaken. The Indian economy is grappling with
non-performing assets (NPA)8 that banks and financial institutions
are stranded with after having lent to large corporates who, due to

5 There exist views in the Indian insolvency sphere that introduction of pre-packs in
India would prove beneficial for the stakeholders of a corporate debtor under distress.
See infra n. 95.
6 Lorraine Conway, ‘Pre-pack Administrations, House of Commons Library,
Briefing Paper Number CBP5035’ (2017) House of Commons Library, at http://
researchbriefings.files.parliament.uk/documents/SN05035/SN05035.pdf (last visited
24 February 2019).
7 Black’s Law Dictionary, Free Online Legal Dictionary 2nd Ed., The Law Dictionary,
at https://thelawdictionary.org/prepackaged-bankruptcy/ (last visited 24 February
2019).
8 See Alekh Archana, ‘Bankers meet to take stock of progress in NPA resolution’ (2017)
Livemint, at http://www.livemint.com/Industry/8eaqgJ0CO4Gpyuh5yyhrwJ/Bankers-
meet-to-take-stock-of-progressin-NPA-resolution.html. (last visited 24 February
2019).
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 71

various reasons,9 have not been able to service these loans. It takes
an average of 4.3 years for a creditor to recover its debt in India
as per the World Bank’s Doing Business Report 2019 and India has
been ranked 108 amongst 190 countries in terms of resolution of
insolvency.10 In a bid to clean up the balance sheet of the banks, the
Reserve Bank of India (RBI) also identified certain large corporates
which have contributed to the majority NPAs in a list sent to all
banks having exposure to the named corporates. The banks were also
mandated by the RBI to commence Corporate Insolvency Resolution
Process (CIRP) under The Insolvency and Bankruptcy Code, 2016
(IBC) and the rules and regulations thereunder against the named
corporates, on their failure to meet certain set targets.11

In the above backdrop, the objective of this article is to explain the

nature of a pre-pack and specifically analyse how a pre-pack regime
would fare in the Indian insolvency market. This article also explores
whether the implementation of pre-packs in India would necessitate
an amendment in the existing insolvency regulatory framework and
if yes, the extent of such amendment.

Part II of this article seeks to analyse the nature of pre-packs

with an additional focus on their features, as a mode of corporate
rescue in the United Kingdom (UK) and the United States of

9 Pallavi Chavan and Leonardo Gambacorta, ‘Bank Lending and Loan Quality: The
Case of India WPS (DEPR): 09 / 2016 RBI Working Paper Series’ (2016) Reserve
Bank of India, at https://m.rbi.org.in/Scripts/PublicationsView.aspx?id=17400 (last
visited 24 February 2019). The authors have set out the rationale of the procyclical
nature of non-performing loans and analysed certain factors as to the reasons behind
growth of non-performing loans in India.
10 World Bank Group, ‘Doing Business Economy Profile 2017: India’ (2019) World
Bank, at http://www.doingbusiness.org/content/dam/doingBusiness/media/Profiles/
Regional/DB2019/SA.pdf (last visited 24 February 2019).
11 See Reserve Bank of India, ‘RBI identifies Accounts for Reference by Banks under
the Insolvency and Bankruptcy Code (IBC)’ (2017) Reserve Bank of India, at https://
www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=40743 (last visited 24
February 2019).
72 The Law Review, Government Law College [Vol. 10

America (US). Part III of this article sets out the present regulatory
framework of insolvency resolution in India, pre-packs in the Indian
insolvency regime and how pre-packs would fare in India. Part IV
analyses essential aspects when considering pre-packs in India and
contemplates certain key legislative considerations for pre-packs to be
undertaken in India. Part V sets out a holistic overview of the benefits
and disadvantages of a pre-pack. Part VI concludes the article.

II. The Nature of Pre-packs

A. Pre-packs vis-à-vis Restructuring

The term ‘restructuring’ is used frequently in the context of insolvency

resolution. The terms ‘corporate restructuring’ and ‘debt restructuring’
have different connotations. As per Black’s Law Dictionary, ‘corporate
restructuring’ generally signifies: ‘A fundamental and sometimes drastic
change that will alter the relationships within a company or with
other companies’,12 while ‘debt restructuring’ refers to, ‘An agreement
between creditors and the firms to reorganize liabilities to make it
more feasible. It is done to avoid foreclosure or liquidations. It can
involve forgiveness, rescheduling, and conversion into equity’.13 There
are various considerations while analysing the far-reaching impact of
undertaking ‘restructuring’ of a troubled company.

In the above context, a pre-pack is a mode of restructuring which

may involve any element or combination of the restructuring methods
set out above, to be undertaken in respect of the debtor company. A
pre-pack, however, is distinguished from the other modes of corporate
rescue by the manner in which the debtor company is sought to be
turned around and the timelines which are followed in relation to the

12 Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed., The Law Dictionary,
at https://thelawdictionary.org/restructuring/ (last visited 24 February 2019).

13 Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed., The Law Dictionary,
at https://thelawdictionary.org/debt-restructuring/ (last visited 24 February 2019).
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 73

process. In a pre-pack, a substantial portion of the restructuring of the

affairs of the company takes place prior to the debtor company filing
for insolvency.

B. What are Pre-packs?

Corporate rescue, as the term suggests, focuses on restoring the

status of a flailing company. Pre-packs, largely perceived as a subset
of corporate rescue, are typically employed to preserve the business
of the debtor company, ie, its tradeable or enterprise value.14 The
purpose of a pre-pack is to strike a balance between safeguarding
the interests of the creditors and maintaining the business and assets
of the debtor company by facilitating a swift transition of such assets
and business.

Certain key aspects of a pre-pack have been analysed with reference

to US or UK laws, as applicable, in view of the maturity and evolved
regime of pre-packs in the concerned jurisdictions. Set out below are
the key aspects of a pre-pack.

1. Initiation of a Pre-pack

The essence of a pre-pack is that the terms of restructuring are

formulated prior to the commencement of insolvency. When a pre-
pack is undertaken prior to the occurrence of an event of default with
a creditor, it is the debtor company which would be in a position to
propose the commencement of a pre-pack. However, in a situation
where the company has defaulted or has triggered a ‘potential event
of default’ clause in its credit documents or even when a creditor
becomes aware of the distress in the debtor company, he may seek
to have the debt of the debtor company restructured as a pre-pack.

Whether the process is debtor driven or creditor driven is an

important factor while analysing a pre-pack. In the event the debtor

14 See infra Paragraph B 6 of Part II below for analysis of enterprise value and Paragraph
A of Part IV of this article for the concept of fair value in India.
74 The Law Review, Government Law College [Vol. 10

company seeks to initiate the pre-pack, it would have to ensure that

the necessary shareholders’ resolutions and board resolutions have
been passed. For a creditor to initiate a pre-pack, the crucial factor is
the inter se understanding of all the creditors of the debtor company.15

The UK 16 and US 17 insolvency laws contemplate any stakeholder

of a corporate debtor initiating a pre-pack in relation to the debtor
company.

2. How Does a Pre-pack Work?

A pre-pack essentially involves restructuring of the debt of the

company. The mode of restructuring that is undertaken pursuant to
a pre-pack vis-à-vis the debtor company, would depend inter alia on
the nature of activity or business that is primarily undertaken by such
debtor company, the quantum and nature of debt that is incurred and
subsisting, and the stage of distress that the debtor company is facing,
thereby necessitating restructuring. This could also include corporate
restructuring being considered as a part of such restructuring exercise.
Once the mode of restructuring and the terms of the same have been
finalised between the parties, the pre-pack is executed promptly as the
company files for insolvency. Interestingly, under certain European
laws, a pre-pack is effectuated on the same day as the appointment
of the Insolvency Professional (IP) itself, ie, an immediate handover
of the business to the incoming purchaser.18

15 See infra paragraph B of Part IV of this article for an analysis on creditor control
over the debtor company.

16 PricewaterhouseCoopers, ‘Insolvency in brief: A guide to insolvency terminology
and procedure’ (2009) PricewaterhouseCoopers, at https://www.pwc.co.uk/assets/
pdf/insolvency-in-brief.pdf (last visited on 24 February 2019).

17 Law 360, ‘The Pros And Cons Of Prepackaged Bankruptcy’ (2013) Simpson Thacher
& Bartlett LLP, at https://www.stblaw.com/docs/default-source/cold-fusion-existing-
content/publications/pub1647.pdf?sfvrsn=2 (last visited on 24 February 2019).
18 Adrian Cohen, ‘A Guide to European Restructuring and Insolvency Procedures’ (2015)
Clifford Chance, at https://www.cliffordchance.com/briefings/2015/09/a_guide_to_
europeanrestructuringandinsolvenc.html (last visited on 24 February 2019).
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 75

While ‘pre-pack’ as a concept under UK laws has been used more

frequently in the context of sale of substantial business or assets of the
debtor company to a new entity prior to the debtor company formally
filing for insolvency,19 the usage of a pre-pack bankruptcy under the
US laws has a much wider connotation and entails formulation of the
terms of bankruptcy of the company prior to the company filing for
bankruptcy.20

In both scenarios, ie, in the UK and in the US, once a debtor

company files for insolvency, the administrator or the court-appointed
resolution professional effectuates the pre-pack immediately. In the
UK, once the terms of a pre-pack are formulated, the debtor company
is typically put under administration by approaching the court and
an administrator is appointed in relation to the management of the
business of the debtor company,21 although the permission of a court
is not required to initiate a pre-pack.22

19 Supra n. 6.

20 Investopedia, ‘Prepackaged Bankruptcy’ (2017) Investopedia, at https://www.
investopedia.com/terms/p/prepackagedbankruptcy.asp. (last visited on 24 February
2019). It stipulates while defining prepacked bankruptcy, ‘A prepackaged bankruptcy
is a plan for financial reorganization that a company prepares in cooperation with
its creditors that will take effect once the company enters Chapter 11 (of the US
Bankruptcy Code). This plan must be voted on by shareholders before the company
files its petition for bankruptcy, and can result in shorter turnaround times. The idea
behind a prepackaged bankruptcy plan is to shorten and simplify the bankruptcy
process in order to save the company money in legal and accounting fees, as well as
the amount of time spent in bankruptcy protection. A proactive company in distress
will notify its creditors that wishes to negotiate terms of bankruptcy before it files for
protection in court. These creditors — lenders, inventory suppliers, service providers,
etc. — naturally do not like the distressed situation of the company, but will work
with it to minimize time and expenses associated with bankruptcy reorganizations.
The creditors are more apt to be amenable during the negotiations to rework terms
since they will have a voice before the bankruptcy filing; the alternative would be a
surprise and then a scramble to deal with the delinquent debtor with more uncertainty
about how long the process will take.’
21 The procedure for administration of a company which is put under administration
in the UK is regulated by Schedule B1 of The Insolvency Act, 1986. India follows a
similar approach under the IBC which vests the control of the debtor company with
an Insolvency Resolution Professional once an application for commencement of
CIRP is accepted by the National Company Law Tribunal.
22 Supra n. 6.
76 The Law Review, Government Law College [Vol. 10

Thus, what sets a pre-pack apart from other modes of restructuring

is the promptness with which a restructuring plan is executed despite
the company being subject to insolvency proceedings at the end of
the restructuring.

3. Who Retains Control of the Debtor Company During Insolvency

Outside of a Pre-pack?

Pre-packs under US laws are typically undertaken under Chapter

11 of The US Bankruptcy Code, 2011 (US Bankruptcy Code).23 The US
Bankruptcy Code, which provides for a Debtor-In-Possession (DIP)
concept, 24 permits the debtor company to arrive at the terms of
restructuring while remaining in possession of its assets. Chapter 11
of the US Bankruptcy Code vests with the (concerned) courts, the
power to permit the debtor company to retain management of the
company.25

The debtor company, however, remains subject to the oversight of

the creditors’ committee and the court. An automatic moratorium,
not unlike section 14 of the IBC, is provided for under the US
Bankruptcy laws, as well. Under the DIP status granted to the
corporate debtor, the debtor is in charge of its day-to-day activities
and the existing management of the debtor is not replaced by the
control of a court-appointed administrator.

23 US Bankruptcy Code, (United States).

24 See ‘Bankruptcy Basics’, United States Courts, at http://www.uscourts.gov/services-
forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics (last visited 24
February 2019). One of the novel features of Chapter 11 under the US Bankruptcy
Code is that, ‘Upon filing a voluntary petition for relief under chapter 11 or, in an
involuntary case, the entry of an order for relief, the debtor automatically assumes
an additional identity as the “debtor in possession.” 11 USC § 1101. The term
refers to a debtor that keeps possession and control of its assets while undergoing
a reorganization under chapter 11, without the appointment of a case trustee. A
debtor will remain a debtor in possession until the debtor’s plan of reorganization
is confirmed, the debtor’s case is dismissed or converted to chapter 7, or a chapter
11 trustee is appointed. The appointment or election of a trustee occurs only in a
small number of cases. Generally, the debtor, as “debtor in possession” operates the
business and performs many of the functions that a trustee performs in cases under
other chapters. 11 USC § 1107(a).’

25 11 USC § 1107.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 77

This is in contrast to the UK laws which require the management

of the debtor company to vest in the administrator so appointed
on filing for administration of the debtor company. 26 Some have
even compared a pre-pack to a scheme of arrangement, which is
contemplated under The Insolvency Act, 1986 (Insolvency Act) in the UK
and a Chapter 11 filing under the US Bankruptcy Code.27

4. Appointment of an Insolvency Professional28

A pre-pack requires high level of skill and expertise in inter alia

managing the affairs of the company and commercial aspects of
insolvency resolution. Therefore, a qualified professional may be
required to assist the debtor company in formulating and executing
a pre-pack.

Under the UK laws, when a debtor company opts to go the pre-pack

route, it typically appoints an IP who undertakes the operational
aspects of finalising the pre-pack transaction. In the UK, apart from
the Insolvency Act and the rules thereunder, the administrator is also
required to adhere to guidance notes in the form of Statements of
Insolvency Practice (SIP) issued by the Joint Insolvency Committee
comprising representatives from recognised professional bodies and
the Insolvency Service, which is the executive arm of the Department
of Business Innovation and Skills.29

26 Supra n. 21.

27 See Alastair Goldrein, ‘Unwrapping English pre-packaged administrations: a guide to
“pre-packs” in England’ (2011) Chadbourne & Parke LLP, at https://www.lexology.
com/library/detail.aspx?g=da1945a8-be91-4557-9028-48c5e8993a39 (last visited 24
February 2019).

28 See infra Paragraph B 3 of Part III for an analysis of the role of an IRP or IP in India,
and also from a pre-pack perspective.

29 See Association of Business Recovery Professionals, ‘Statements of Insolvency
Practice - England & Wales’ at https://www.r3.org.uk/what-we-do/publications/
professional/statements-of-insolvency-practice/e-and-w (last visited 24 February
2019).
78 The Law Review, Government Law College [Vol. 10

The SIP 16 mandates an IP to act professionally and with objectivity,

with a view to maximise the interests of the creditors of a debtor
company as a whole, given the high level of interest the public and
the business community have in pre-packs and administrations.30
As per SIP 16, IPs are required to bear in mind the responsibility
that they have towards the company and the creditors prior to
their appointment, in which case it would be mostly advisory in
nature versus their duty in the eventuality they are appointed as
administrators.31

The role that the administrator of the company (when appointed)

plays in giving effect to a pre-pack arrangement is therefore crucial
and the IP who later acts as the administrator has a dual role, prior
to and post his engagement as an administrator. An IP has the
responsibility of ensuring that the arrangement that the company is
proposing is fair to each creditor and stakeholder, and is not carried
out in a manner which is opaque or prejudicial to the interests of any
stakeholder or class of stakeholders.32

An IP once appointed as the administrator, is required to act in the

best interests of all the creditors and stakeholders. If an IP is found
by the court to have acted improperly at any point during the course
of the entire process, he may be made liable for misfeasance. If he is
judged to have acted improperly by a professional body, he will be
subject to that body’s disciplinary proceedings.33

30 See Association of Business Recovery Professionals, ‘Statement of Insolvency

Practice - England & Wales’ at https://www.r3.org.uk/what-we-do/publications/
professional/statements-of-insolvency-practice/e-and-w/sip-16-list (last visited 24
February 2019).
31 Ibid.
32 Supra n. 30.
33 Supra n. 30.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 79

5. Court Approval

Court involvement is a necessary prerequisite in a pre-pack, since the

terms of restructuring are necessarily formulated by parties prior to
there being a formal filing of insolvency. In this situation, while it is
the creditors whose interests are primarily considered,34 there exist
interests of stakeholders of the debtor company which may not be
taken into consideration while formulating such terms. Employees,
vendors (in the Indian context, operational creditors), and statutory
authorities are certain stakeholders which would be interested in
ascertaining whether the terms of the pre-pack are beneficial to them
as well. In such situations, having an adjudicating authority as a mode
of grievance redressal is important to ensure that the stakeholders of
the debtor company are not prejudiced due to the terms of the pre-
pack.

Approval of the entire process by a neutral adjudicating body, which

has to be satisfied that the terms of a pre-pack sale are indeed
beneficial to the interests of all stakeholders concerned, would be
important in building confidence in the functioning of pre-packs and
would carry with them the seal of approval of the insolvency court
as being above board, and confer legal sanctity on the arrangement.

6. Determination of the Enterprise Value of the Debtor Company

The enterprise value 35 of the debtor company serves as the

benchmark, which the terms of a pre-pack are required to match at
bare minimum, where a sale of business or management or assets is
contemplated as a part of such pre-pack.

34 See infra Paragraph B. of Part IV of this article for analysis of creditor control and
how it is an important consideration while undertaking pre-packs, and also from an
Indian perspective.

35 Black’s Law Dictionary, Free Online Legal Dictionary 2nd Ed. The Law Dictionary at
https://thelawdictionary.org/enterprise-value/. The Law Dictionary defines ‘enterprise
value’ as, ‘A firm’s total capitalization defined as market value. Calculated as: Equity,
added to debt, minus the non-critical asset value. To the firm’s core business, these
assets must be casual, non-essentials’. This term finds similarities under the IBC in
the concept of fair value.
80 The Law Review, Government Law College [Vol. 10

It is interesting to note that a like process of valuation of assets of a

company under UK laws has not been prescribed.36 Certain objections
have been raised that the terms of a pre-pack may give a company
an unfair market advantage by allowing the new company to leave
behind its unwanted debts. 37 For the existence of a fair playing
ground for competition, it is necessary while considering a pre-pack
to ascertain the tangible value or the enterprise value of a debtor
company to ensure that a balance is struck between corporate rescue
of such company and to preclude a pre-pack from being used as a
means to escape inconvenient debts in the books of a company.

7. Marketing the Assets of the Debtor Company

Wide marketing of the assets or business of the corporate debtor,

calling for expressions of interest from parties interested in taking over
the business or assets of the debtor company by inviting the bidders
to quote their price for such assets would be crucial for a successful
pre-pack. On arriving at a satisfactory price, the definitive documents
are negotiated, consent from creditors is obtained and the terms of the
pre-pack are effectuated.38 The proceeds of the pre-pack are then used
for repayment to the creditors while the actual company undergoes
subsequent administration (or other insolvency processes prescribed
under the insolvency laws).

In the event the sale of the business or assets of a debtor company

is envisaged in a pre-pack, the SIP 16 in the UK requires that the
assets of the debtor company, which are proposed to be sold, must be
marketed widely to ensure that the debtor company obtains the best
deal possible and to minimise the chances of a circuitous transfer of
assets. Once a potential buyer is finalised, the debtor company files
for administration and in majority of the cases, proposes the IP to act
as the administrator.

36 Supra n. 27.
37 Supra n. 6.
38 See infra Paragraph B. of Part IV of this article for an analysis on creditor control.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 81

C. The Parties Involved

In a pre-pack, the debtor company is at the centre of the entire

process, and may undergo a change in shareholding or its assets.
The management of the debtor company, comprising the board of
directors and other key managerial personnel, play a critical role in
the pre-pack sale along with the shareholders, without whose approval
it is unlikely that the debtor company will be able to undertake a
pre-pack. This change in procedure is undertaken by the IP who is
appointed by the company to formulate the terms of the pre-pack and
oversee its execution.

The creditors of the debtor company are parties who are affected
to a great extent given that the very nature of the entity, to whom
they have lent substantial amounts of money, may undergo a change.
Within the broad class of creditors, there may exist various sub-
sets, viz. financial creditors such as banks and financial institutions
funding the debtor company, operational creditors which are typically
suppliers or vendors to the debtor company that are owed moneys
on invoices and under trade contracts, secured creditors which have
various forms of charge on the immovable or movable assets of the
company or its shares, and unsecured creditors which have a right of
recovery against the debtor company.

There are other crucial stakeholders in the debtor company, such as

its employees and vendors without whom operations cannot continue,
and the regulatory authorities of the jurisdiction, which, depending on
the nature of activities or business of the debtor company, regulate
and provide various licenses or approvals for the debtor company to
undertake its business. Lastly, the government to which tax, cess and
other charges are due also has an interest in the functioning of the
debtor company.

III. Pre-packs in India

A. Insolvency in India Presently

The concept of insolvency rescue by creditors has been a part of

Indian insolvency laws for more than a century. It has only attained
formal recognition and importance from contemporary stakeholders
82 The Law Review, Government Law College [Vol. 10

by the mandate of the fairly recent IBC. The IBC requires formation
of a Committee of Creditors (CoC) for arriving at a resolution plan
within the stipulated time period. 39 The Indian insolvency laws,
prior to enforcement of the IBC, were formulated during the British
regime and were not updated to align with contemporary insolvency
resolution practices. The IBC consolidates the insolvency laws in
relation to corporates and individuals both, and operates as the unified
legislation to address insolvency of corporates and individuals.40

CIRP is the corporate rescue element of the IBC. The IBC provides
for initiation of CIRP on admission, by the National Company
Law Tribunal (NCLT), of an application either by or on behalf of a
creditor or the corporate debtor. The resolution professional under
the IBC is the equivalent of an administrator appointed under the
UK model and all the affairs of the company vest in such resolution
professional. The board of directors or the partners of the corporate
debtor are stripped of all powers in relation to the management of
the corporate debtor.41 All creditors of the corporate debtor (including
offshore lenders) are required to form a CoC under the IBC, and
participate in collective decision-making for resolution of the financial
stress of the corporate debtor.

Introduction of pre-packs as a formal mode of corporate rescue in

India may be analysed now in the above backdrop.

39 Section 12 of the IBC stipulates that a corporate insolvency resolution process
must be completed within a period of 180 days from the date of admission of the
insolvency application by the NCLT, which may extend the period by 90 days more
at its discretion on an application by the insolvency resolution professional. The IBC
also contemplates an additional year to be granted to a successful resolution applicant
for obtaining the requisite regulatory approvals for implementation of the resolution
plan proposed by it.

40 The IBC was notified by the Government of India on 28 May 2016. Certain sections
of the IBC have been notified and are effective, specifically, the corporate insolvency
resolution process. The bankruptcy provisions dealing with individuals are yet to be
notified.

41 The IBC therefore responds to the question, ‘Who retains control of the debtor
company during insolvency?’ by following the UK approach, ie, a creditor-favouring
stance.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 83

B. The Pre-pack Proposition

1. Are Pre-packs Required in India?

While the IBC has had a positive effect on promoters of defaulting

companies in terms of repayment discipline,42 liquidation is a grave
threat perceived on failure of CIRP, and frequent instances of
liquidation may not be a viable or desirable solution in the long
run in terms of promoting the business community. This problem is
aggravated further when it is the micro, small and medium enterprises
which are mostly at the receiving end, due to a lack of investor
interest in their assets during CIRP. 43 Time and costs, even for
big companies undergoing CIRP, are huge factors which create an
aversion towards CIRP.

While analysing the necessity of a pre-pack, one may also argue

that prior to the pre-pack stage, the debtor company may enter
into a leveraged buyout or management buyout for the purpose of
transferring its assets or business to another entity. It may, however,
be noted that such a buyout would not carry the seal of approval of
a court44 and would therefore, to that extent, be open to challenge
by creditors if they were to object to such a transaction and require
clawback,45 which is a safeguard provided to creditors under the IBC.

42 Anup Roy, ‘Fearing insolvency proceedings, promoters line up to pay their dues’ (2018)
Business Standard, at https://www.business-standard.com/article/companies/fearing-
insolvency-proceedings-promoters-line-up-to-pay-their-dues-118070301213_1.html
(last visited 24 February 2019).

43 See Namrata Acharya, ‘IBC proceedings: 78 liquidation orders, a handful of
resolutions’ (2018) Business Standard, at https://www.business-standard.com/
article/economy-policy/ibc-proceedings-78-liquidation-orders-a-handful-of-
resolutions-118042200726_1.html (last visited 24 February 2019).
44 Unless the same is undertaken as a court approved scheme such as a Scheme of
Arrangement under The Companies Act, 2013.
45 Under section 44 of the IBC, the NCLT possesses the power to pass an order if
approached by the resolution professional, declaring any transaction entered into by
the debtor company prior to the insolvency commencement date as a preferential
transaction, undervalued transaction or an avoidance transaction.
84 The Law Review, Government Law College [Vol. 10

A risk of a clawback may not arise, however, if such a pre-pack

is approved by the NCLT itself. By proposing mandatory NCLT
approval for execution of a pre-pack, another advantage is that fears
which investors, creditors and other stakeholders would have, about
safeguarding their rights against the debtor company in recovery,
would be allayed to a great extent and confirm the finality and
binding nature of such transaction.

2. How Would a Pre-pack Work in India?

While the conventional definition of a pre-pack suggests that the

sale of assets is concluded prior to the company officially filing
for insolvency, a pre-pack in the Indian context may be broader
in its usage to comprise various tools utilised in relation to the
debtor company to revive it and rectify the financial stress that it is
undergoing (similar to the term used in the US context).46

In the Indian context, change in management, sale of assets of

the debtor company to another company, interim financing and
refinancing, assignment of debt of the debtor company to asset
reconstruction companies and turnaround funds are a few tools that a
debtor company and creditors possess while undertaking the corporate
rescue of such debtor company. These tools are also available to a
bidder (resolution applicant) once a debtor company is subject to
CIRP.

It would be interesting to blend the aspects of the IBC with such

corporate rescue tools, prior to the debtor company undergoing CIRP
itself.

It may be worth considering Project Sashakt, an initiative introduced

by a Government panel headed by the Chairman, Punjab National

46 See also paragraph A. 2 of Part II which analyses the question, ‘What Really is a
Pre-pack?’
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 85

Bank, which was recently in the news due to its recommendations

on handling stressed assets.47 Project Sashakt suggests an approach
of bringing together banks dealing with stressed assets by way of an
inter-creditor agreement. The resolution approach to be adopted in
respect of the assets is based on the size of the stressed asset.48 For
mid-sized assets, the lead bank is to be in charge of the resolution
of the asset and the voting process in respect of resolution of the
asset would be as under the IBC, being 66.66 per cent of majority
vote share. 49 For larger stressed assets, the same are proposed to
be auctioned to asset reconstruction companies and majority equity
of the debtor company would then be transferred to sector-specific
alternate investment funds, which would work under a unified asset
management company to be set up by the banks. This would enable
better price discovery and quicker turnaround of assets.50 The timeline
prescribed under Project Sashakt is 180 days, within which the
resolution plan is expected to be formulated. Failing completion of
the resolution in 180 days, the asset would be subject to CIRP under
the IBC.51

47
See Gopika Gopakumar, ‘Mint Primer: What is Project Sashakt and how
it will work’ (2018) LiveMint, at https://www.livemint.com/Industry/
xx5DASBD0xB9fgEPzKGwUO/Mint-Primer-What-is-Project-Sashakt-and-how-
it-will-work.html (last visited 24 February 2019).
48 See Vishwanath Nair, ‘Government Unveils Five-Point Plan ‘Sashakt’ To Tackle
Bad Loans’ (2018) Bloomberg Quint, at https://www.bloombergquint.com/business/
government-unveils-five-point-plan-sashakt-to-tackle-bad-loans#gs.KQmVwtvY
(last visited 24 February 2019).
49 See ‘Project Sashakt: Banks give shape to inter-creditor pact for bad assets’
(2018) Economic Times, at https://economictimes.indiatimes.com/industry/
banking/finance/banking/banks-give-shape-to-inter-creditor-pact-for-bad-assets/
articleshow/64877560.cms (last visited 24 February 2019).
50 Viral Acharya, ‘Some Ways to Decisively Resolve Bank Stressed Assets’ (2017)
Reserve Bank of India, at https://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1035
(last visited 24 February 2019). This approach may be reminiscent of a certain ‘bad
bank’ which was discussed by the RBI Deputy Governor in the concerned speech.
51 See supra n. 48.
86 The Law Review, Government Law College [Vol. 10

While Project Sashakt is a corporate rescue mechanism which is

aimed at quicker recoveries to creditors, it is proposed to be a
precursor to the IBC.52 This is a large-scale initiative by the Central
Government to manage stressed assets. A pre-pack in some ways
would be similar to this scheme as it would contemplate corporate
rescue prior to initiation of proceedings under the IBC.

Analysing the pre-pack in terms of Project Sashakt, the similarity in

both is that the terms of the pre-pack would be formulated prior to
the application for commencement of insolvency being filed against
the debtor company. The differentiating factor is that on finalisation
of the terms of the pre-pack, a CIRP application would be filed by
the debtor company and the pre-pack plan promptly implemented as
a resolution plan under the IBC.53 Under Project Sashakt, however, a
successful resolution of the debtor company precludes it from being
subject to CIRP under the IBC.

The pre-pack process, therefore, would be similar to the IBC and

work along the lines of a CIRP, with creditor involvement. However,
being a less formal procedure, a pre-pack could be concluded
on obtaining consent from creditors, without undergoing a 180-
day process. This, of course, would depend greatly on the inter se
understanding between creditors. In practice, it is not uncommon that
negotiations of restructuring fail between a debtor company and its
creditors due to lack of consensus between the creditors.

The majority vote concept of 66.66 per cent would aid in such
situations. To give sanctity to a pre-pack, if the same is undertaken
in compliance with all the procedures and processes prescribed, it
could be the NCLT’s sole discretion, whether or not to re-open a
particular pre-pack on being approached by a dissenting creditor, and
if the NCLT did seek to analyse a pre-pack, it may be restricted to a
particular aspect or term.

52 See supra n. 48.

53 See infra paragraph C of part IV of this article for analysis on viability of connected
party pre-packs in India.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 87

3. The Role of an IP

The UK insolvency laws differ from the Indian insolvency laws

in the following way: while in the former, the debtor company
appoints the IP prior to formally filing for insolvency, and such IP
most likely is appointed as the administrator when the company files
for insolvency,54 in the present regulatory regime in the latter, the
Insolvency Resolution Professional (IRP) is appointed only after an
application for the commencement of the CIRP is admitted by the
NCLT.

While the existing regulations in India governing IPs set out the code
of conduct and their powers and responsibilities, these regulations
apply once the IP has been appointed, ie, once the CIRP application
against the corporate debtor has been filed and accepted by the
NCLT.55

In the event that pre-packs as a mode of corporate rescue are

formally recognised in India, the regulations may need to be amended
to contemplate the scope of powers and responsibilities of an IP in a
pre-pack transaction. Guidance from the SIP 16 may be sought since
it contemplates the specificities of the role of an IP in a pre-pack.56

IV. Legislative Aspects of Pre-packs in India

Given the above background of the nature of pre-packs, certain

specific issues set out below may be analysed from a legislative
perspective to ascertain whether pre-packs would succeed in the
Indian market.

54 See supra n. 30.

55 See Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations,
2016. Notification No. IBBI/2016-17/GN/REG003 dated 23 November 2016.

56 Supra n. 29.
88 The Law Review, Government Law College [Vol. 10

A. Tradeable Value of the Company

The main responsibility of an IRP and subsequently the resolution

professional is to ensure that the debtor company functions as a going
concern during CIRP.57 The approval of the CoC is required for the
IRP or the resolution professional to undertake activities which affect
the rights of the members of the CoC.58 Therefore, any decision
which may be arrived at by an IP for sale of either a part or whole
of the assets of the debtor company under a pre-pack would be
permitted to be executed only after the debtor company has filed for
insolvency and with the approval of the CoC.

The disadvantage of a sale that is concluded under such

circumstances, ie, where the debtor company has already entered into
insolvency, is that the assets of the debtor company would depreciate
given the insolvency proceedings.59 For instance, a company whose
assets are valued at INR 10 prior to the commencement of the
insolvency proceedings may only have a tradeable value of INR 2
after the insolvency proceedings are concluded and the resolution plan
for sale of the assets or business of the debtor company is approved
by the CoC and the NCLT. It is the creditors who would ultimately
bear the losses of a devalued sale since their dues will abate in
substantial proportion. In the case of an unlisted company, while the
tradeable value of the company may not fall in the case of insolvency,
there would nonetheless be a general decline in the affairs of the
company, since vendors would not desire to trade with a distressed
company and fresh credit would not be forthcoming.

The IBC provides for calculation of the liquidation value of the

debtor company. The liquidation value of a corporate debtor is
defined under the IBC as the ‘estimated realizable value of the assets

57 IBC, sections 20 and 25.

58 IBC, section 28.
59 Moneycontrol News, ‘HCC’s shares fall 7% after creditors file insolvency proceedings
against Lavasa Corporation’ (2018) Money Control, at https://www.moneycontrol.
com/news/business/markets/hccs-shares-fall-7-after-creditors-file-insolvency-
proceedings-against-lavasa-corporation-2901501.html (last visited 24 February
2019).
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 89

of the corporate debtor if the corporate debtor were to be liquidated

on the insolvency commencement date.’60 There is a fair amount
of discussion surrounding how reliable the liquidation value of the
company may be while assessing and formulating the resolution
plan vis-à-vis the debtor company. Given that the liquidation value is
essentially calculated at the insolvency commencement date,61 there
is a possibility that the figure so arrived at by the valuers may not
reflect the actual value of the assets of the company, ie, its enterprise
value.62

The IBC has been amended in view of the above and only the
CoC members are permitted to have access to the liquidation value
of the debtor company undergoing CIRP. Further, instead of the
liquidation value, the resolution applicants are provided with the ‘fair
value’ which is, ‘the estimated realizable value of the assets of the
corporate debtor, if they were to be exchanged on the insolvency
commencement date between a willing buyer and a willing seller in
an arm’s length transaction, after proper marketing and where the
parties had acted knowledgeably, prudently and without compulsion’.63
While this would, to a great extent, help in ensuring that the value
of the company does not depreciate, the damage to the brand value
may have occurred due to the commencement of CIRP itself, not to
mention the costs and the time taken for completion of CIRP.64

60 Insolvency and Bankruptcy Board of India (Insolvency Resolution of Corporate
Persons) Regulations, 2016, regulation 2(k).

61 The date of admission of an application for initiating corporate insolvency resolution
process by the NCLT, which application is filed under sections 7, 9 or 10 of the IBC.

62 FE Bureau, ‘Stressed asset valuation: Both fair and liquidation values to be considered’
(2018) Financial Express, at https://www.financialexpress.com/economy/stressed-
asset-valuation-both-fair-and-liquidation-values-to-be-considered/1057179/ (last
visited 24 February 2019).

63 Insolvency and Bankruptcy Board of India (Insolvency Resolution of Corporate
Persons) Regulations, 2016, regulation 2(hb).

64 ‘Insolvency and Bankruptcy Code: Here’s why resolution must be strictly time-bound’
(2017) Financial Express, at https://www.financialexpress.com/opinion/insolvency-
and-bankruptcy-code-heres-why-resolution-must-be-strictly-time-bound/675643/
(last visited 24 February 2019): ‘A very long CIRP period is likely to push the
corporate towards liquidation while reducing its liquidation value. Further, a longer
CIRP period means a larger number of firms under resolution process at a given point
of time, which would impinge on economic growth.’
90 The Law Review, Government Law College [Vol. 10

The proposition here is that for price discovery in terms of a pre-

pack, the ‘fair value’ prescribed under the IBC may help the IPs,
creditors and potential investors or counterparties to have a uniform
criterion to evaluate the debtor company’s tradeable value while
formulating its terms. Thus, to that extent, extant laws will not have
to be re-written to think of a new formula to calculate the enterprise
value of a debtor company under a pre-pack.

B. Creditor Control

Creditors play a crucial role in any corporate rescue mechanism. In

view of the maturity of insolvency laws in the US and the UK and
the continuing reliance placed by Indian authorities thereon, it would
be useful to understand the significance and extent of control which
a creditor exercises in a pre-pack in the aforesaid jurisdictions and
analyse the same in the Indian context vis-à-vis pre-packs.

1. The United Kingdom

In the UK, an interesting point arose basis the interpretation of the

Insolvency Act in relation to an administrator’s powers to sell the
assets of the company in the period between his appointment and
until a meeting of the creditors is to be called.65 In fact, courts in
England have at instances also considered whether pre-pack sales may
be effectuated by an administrator soon after his appointment without
seeking creditors’ consent for concluding the transaction. Courts in the
UK have held that administrators have sufficient discretion to manage
the affairs of the company, including the discretion to refrain from
taking into consideration the views of the creditors where deemed fit,
for the purpose of ensuring smooth continuance of business of the
debtor company.66 This view has, to a great extent, been tempered
by the SIP 16.67

65 Re Transbus International Limited, [2004] EWHC 932 (Ch), para 12 and Re T&D
Industries Plc [2000] 1 WLR 646.
66 See Re Transbus International Limited, [2004] EWHC 932 (Ch) and Re T&D
Industries Plc [2000] 1 WLR 646.
67 Supra n. 29.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 91

Where a proposal for sale of all or substantially all of the business of

the debtor company is being contemplated, the creditors of the debtor
company in most situations possess the contractual right to know
of such proposal.68 Such a transaction will have an impact on the
capacity of the debtor company to continue functioning and therefore,
also affect its ability to repay debts.

Where a transaction for divestment of the business of the debtor

company is undertaken by it, and more specifically undertaken
foreseeing the oncoming insolvency, the creditors should ideally
have a definitive say in the transaction. The flipside, however, is that
certain creditors or classes of creditors apprehend that such divestment
is for avoiding the payment of their dues. Once the operational part
of a company is divested to another company, then the creditors feel
that they essentially have nothing to go after, in case the company
undergoes liquidation. For this reason, creditors initiate independent
legal recovery against the debtor company to prevent the transaction
from going through. In such scenarios, actual transactions from which
the debtor company could have benefited, also fall through.

In the past, anticipating creditor interference in the UK, companies

would undertake pre-packs without entering into negotiations
with their creditors.69 Subsequently, the IP, once appointed as the
administrator, would immediately conclude the transaction without
taking creditor approval. 70 However, to ensure that no action
prejudicial to the interests of the company is undertaken, the SIP 16
has been put in place, which requires the IP to comply with certain
established standards of conduct and procedures.71

68 Hugh Sims, ‘Pre-packs: Recent law and practice’ (2007) Guildhall Chambers,
at http://www.guildhallchambers.co.uk/files/Pre-packs_RecentLaw&Practice_
HS&PeterCranston.pdf (last visited 24 February 2019).

69 See Re Transbus International Limited, [2004] EWHC 932 (Ch) and Re T&D
Industries Plc [2000] 1 WLR 646.

70 See Re Transbus International Limited, [2004] EWHC 932 (Ch) and Re T&D
Industries Plc [2000] 1 WLR 646.

71 Supra n. 29.
92 The Law Review, Government Law College [Vol. 10

2. The United States of America

As has been explained above, the US has a DIP mechanism available

to debtor companies.

From a practical aspect, certain views exist in the US market as to

when a voluntary filing under Chapter 11 may ultimately be of benefit
to the debtor company. A debtor company, which has a certain class
of lenders with a homogeneous type of debt, may benefit more from
a pre-pack, given that prior negotiations on a bilateral basis will yield
effective results for the debtor company.

When a debtor company has to negotiate with various classes of

creditors, for instance, trade creditors, landlords, crown creditors,
workmen or employees, the expectation that each class of creditor will
have from the debtor company will vary widely, given the nature of
the dues owed to them, and in such circumstances, even a pre-pack
undertaken by the debtor company (with speediness of procedure as
the primary consideration) may be rendered fruitless as the time spent
in negotiating with the wide variety of creditors may amount to the
same time which a conventional insolvency resolution process would
take.72

3. India

As stated above, the IBC follows a more UK-centric approach to

the management of the affairs of the debtor company once the
application for commencement of its insolvency is admitted by the
court.73 It has been reiterated by the Supreme Court of India in its
landmark judgment in the case of Innoventive Industries v. ICICI Bank
Ltd.,74 that the promoters of a debtor company under CIRP have no

72 See Douglas M Folley and Jame E Van Horn, ‘Pre-packs on the Rise in Chapter
11 Bankruptcies: Prenegotiated Plans Can Accelerate Re-negotiations’ (2008)
Bankruptcy Alternative, at https://www.mcguirewoods.com/news-resources/
publications/prepacks.pdf (last visited 24 February 2019).

73 IBC, section 17.

74 Innoventive Industries v. ICICI Bank Ltd. (2018) 1 SCC 407.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 93

powers to take any decisions on behalf of the debtor company, or for

management of the debtor company.75

In India, the appointed IRP is responsible to ensure that the interests

of all the stakeholders of the debtor company are protected, and
not just those of certain classes of creditors. This ensures that the
resolution plan formulated is not prejudicial to a section or class of
creditors of the debtor company.

A foreseeable problem that may arise in India, is where inter se

creditor rights are concerned. Where there is a dissenting creditor
in terms of a pre-pack, it would result in the failure of the pre-
pack (absentia a formal procedure on democratic decision-making
and enforcement of majority vote). It would therefore be a crucial
consideration for a legislation contemplating pre-packs to clearly set
out the provisions pertaining to the inter se treatment of creditors in
terms of decision-making under a pre-pack.

A long-drawn process where parties end up negotiating terms for

days on end would be counterproductive to the spirit of a pre-pack.
Notwithstanding the aforesaid, in the event the principle of majority
democratic vote is incorporated as a part of the pre-pack regime,
whether the dissenting creditor would continue to have the right to
seek initiation of CIRP under the IBC, de hors the pre-pack terms,
would be a key consideration for legislators.

C. Connected Party Pre-packs

1. The United Kingdom

It is a fact that in the UK, it is usually the existing management

which takes over the business or assets of the debtor company and
commences business afresh. These arrangements are referred to as

75 In the above judgment, the apex court further clarified that the existing management
of the debtor company does not possess the power to file an appeal against orders
of the court pertaining to the debtor or to appear on behalf of the company in its
proceedings as representatives of the debtor company.
94 The Law Review, Government Law College [Vol. 10

connected party76 pre-packs, giving the term ‘phoenix’ company to the

resultant new entity with the ‘fresh’ management. It was estimated in
the UK that in the period between 1 November 2015 to 1 November
2016, of the 1,689 cases that were referred for administration, 22
per cent of the cases were sought to be resolved under the pre-pack
route and more than half of these, ie, 51 per cent of the cases were
arrangements entered into with connected parties.77

It may be inferred from the above statistics that one of the strongest
motives for a company’s directors to undertake a pre-pack is to
regain control of its business and/or assets, however, under a different
identity. It is arguable that this roundabout manner of regaining
control of the debtor company can result in circumvention of the
insolvency laws. This particularly becomes an issue where a company
is facing huge losses primarily due to promoter or managerial
inefficiency.78

To regulate the sphere of connected party pre-packs, one of the

recommendations of the Graham Committee set up to review the
existing set of pre-pack laws in the UK, was to create a pool of
independent business people to assess and give their opinion on
whether the proposed arrangement of the debtor company would
be viable and beneficial both to the rights of the creditors and the
debtors.79 The recommendation of the Graham Committee was carried

76 The Insolvency Act, section 249 defines a connected party as:

‘For the purposes of any provision in this Group of Parts, a person is connected with
a company if—
(a) he is a director or shadow director of the company or an associate of such a
director or shadow director, or
(b) he is an associate of the company,
and “associate” has the meaning given by section 435 in Part XVIII of this Act.’
77 ‘Pre-pack Pool: Annual Review’, (2017) Pre-pack Pool, at https://www.prepackpool.
co.uk/uploads/files/documents/Pre-pack-Pool-Annual-Review-2017.pdf, page 7 (last
visited 24 February 2019).
78 Amar Bhatti, ‘Insolvency - Pre-packs’ (2016) LinkedIn, at https://www.linkedin.com/
pulse/insolvency-pre-packs-amar-m-bhatti (last visited 24 February 2019).
79 House of Commons, Business, Innovation and Skills Committee, ‘The Insolvency
Service’ (2013) Sixth Report of Session 2012-13; Evidence 67, [HC 675], 6 February
2013.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 95

out and subsequently a pre-pack pool, which is an independent body

consisting of ‘experienced business people who will offer an opinion
on the purchase of a business and/or its assets by connected parties
to a company where pre-packaged sale is proposed’, was set up.80

2. India

The extent of involvement of connected parties in pre-packs may be

worth analysing in the event legislative framework is introduced for
regulating pre-packs in India.

Where CIRP is initiated against a debtor company which is party to

an inter-company loan transaction, the lender company (which is the
related party) will not have the right of representation, participation
or voting in the CoC.81

From a resolution applicant’s perspective, the IBC was specifically

amended by The Insolvency and Bankruptcy Code (Amendment) Act, 2018
(Amendment Act)82 to inter alia address the issue of connected party
involvement in CIRP of a debtor company. The Amendment Act
under section 29A has effectively barred the existing management
of the debtor company from taking any steps which would permit
them to regain control over the assets of the debtor company.83 The
Amendment Act culminated due to cases of CIRP being undermined
by the existing promoter group.84

80 See supra n. 78. In such scenarios, it would be counterproductive for a company to
enter into a pre-pack given that there is no or very less assurance that the existing
set of promoters will succeed in keeping the company afloat. This in turn might
discourage suppliers of the debtor company from engaging in business with the
phoenix company.
81 IBC, section 21(2).
82 The Amendment Act was passed by both houses of Parliament on 19 January 2018.

83 IBC, section 29A.

84 In Edelweiss Asset Reconstruction Co. Ltd. v. Synergies Dooray Automative Ltd.

& Ors. CA (AT) Nos. 169 to 173-2017, by divesting assets of the debtor company
to an associate company, the associate company of the debtor company was able to
participate in the CoC as a majority creditor. The resolution plan which was ultimately
formulated envisaged a 98 per cent haircut for the lenders of the debtor company.
96 The Law Review, Government Law College [Vol. 10

Under the Amendment Act, as per section 29A, a connected person85

is barred from proposing a resolution plan, ie, acting as a resolution
applicant, if the applicant falls foul of the various criteria set out
under section 29A. The most important criterion being that the
resolution applicant ‘has an account, or an account of a corporate
debtor under the management or control of such person or of whom
such person is a promoter, classified as non-performing asset in
accordance with the guidelines of the Reserve Bank of India issued
under The Banking Regulation Act, 1949 and at least a period of one
year has lapsed from the date of such classification till the date of
commencement of the corporate insolvency resolution process of
the corporate debtor.’ There is a window provided for a connected
person to act as a resolution applicant if the connected person makes
payment of all overdue amounts with interest thereon and charges
relating to NPA accounts before submission of the resolution plan.

Once the resolution plan is implemented, the existing management,

including the promoters, are replaced and the debtor company is
managed by the IRP. Further, under the Amendment Act, the terms
of the resolution plan must not contemplate scenarios pursuant
to which, during the tenure of the resolution period, the existing
management of the debtor company may return to manage the
debtor company. The management of the company during the
implementation of the resolution plan should be vested with entities
which are required to be completely unconnected from the existing
management of the debtor company.86

85 A “connected person” is –
‘(i) any person who is the promoter or in the management or control of the resolution
applicant; or
(ii) any person who shall be the promoter or in management or control of the business
of the corporate debtor during the implementation of the resolution plan; or
(iii) the holding company, subsidiary company, associate company or related party of
a person referred to in clauses (i) and (ii)’. By subsequent amendments, certain
entities have been carved out and been permitted to participate as a resolution
applicant during CIRP, to further the aim of the IBC.’

86 See supra n. 84.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 97

3. Can Connected Party Pre-packs Be Considered in India?

Whether permitting existing management to retain control of a flailing

company, specifically as permitted in the US, is desirable or not, is
debatable. If the insolvency of the company was caused essentially
due to mismanagement by the existing board, then permitting the
existing management to continue controlling the debtor company
would seem counterproductive. However, if the inability of the
company to repay its debts can be attributed to external factors,
such as sluggish growth in a particular sector of the economy and
temporary cash flow mismatch, then allowing the existing management
to continue overseeing the functioning of the company would be
economical as the company would be in a better position to revive
under its existing management.

There may be differing views on this subject while considering a

connected party pre-pack, with arguments being made for both sides
–on one hand, support for ensuring that all links which the existing
management of the debtor company had with the debtor company are
severed from it, and on the other hand, views that where the distress
in the company is not caused by promoter or managerial causes but
by financial risks or business risks, actually replacing the management
of the company may be counterproductive.87

There exist certain arguments in support of the creditor-centric

approach where the management of the affairs of the debtor company
vests in the court-appointed administrators, citing that the ‘historical
link between the insolvency to the displacement of management is
very strong’.88 However, the argument for the existing management
retaining control over the debtor company is also strong, primarily

87 Andy Mukherjee, ‘View: India turns a bad-loan tragedy into a bankruptcy
farce’ (2018) Economic Times, at s://economictimes.indiatimes.com/industry/
banking/finance/banking/india-turns-a-bad-loan-tragedy-into-a-bankruptcy-farce/
articleshow/63839265.cms (last visited 24 February 2019).

88 ‘Comparison of Chapter 11 of the United States Bankruptcy Code’, Jonesday at https://
www.jonesday.com/files/Publication/1ec093d4-66fb-42a6-8115-be0694c59443/
Presentation/PublicationAttachment/e5b46572-7aeb-4c34-ab2e-bee2f8f3d3c2/
Comparison%20of%20Chapter%2011%20(A4).pdf, page 13 (last visited 24 February
2019).
98 The Law Review, Government Law College [Vol. 10

when a debtor company files for voluntary bankruptcy, as there is

an added incentive for the debtor company to reorganise its business
efficiently. This is because there is an extra layer of court protection
to the creditors on the failure of the debtor company to repay its
dues. There are, therefore, benefits to both approaches regarding in
whom the control of a debtor company ultimately vests.

The present section 29A of the IBC, as amended from time to time,
has tempered the erstwhile position of law which may have seemed
harsh. However, given the strong stance that the Indian legislature
has taken against connected party involvement in resolution of the
corporate debtor, one may assume that connected party pre-packs
may not be favoured in the event that pre-packs are formalised in
India by the regulators, if not altogether prohibited along the lines of
the present section 29A of the IBC.

D. Would the Law Require Reform for Pre-packs?

The introduction of pre-packs in India would require amendment

to the extant insolvency laws. The IBC and its ancillary rules and
regulations would require amendments to incorporate provisions which
would not only enable but also regulate the sphere of pre-packs,
depending on how much independence is considered to be vested in
the parties to undertake and formulate the terms of a pre-pack.

Presently, in India, for a person or entity to be appointed as an IRP

or resolution professional, such person or entity is required to meet
certain qualifications and be registered as an IP with an insolvency
professional agency, which in turn is registered with the Insolvency
and Bankruptcy Board of India. These IPs or IP entities could serve
a dual function just as the IPs in UK.

A specific set of regulations may also be required to regulate pre-

packs. Some of the features that these regulations could contemplate
have been set out below:

a) It would be the primary responsibility of the debtor company

to mandatorily appoint an IP or IP entity prior to resolving to
undertake a pre-pack.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 99

b) The IP or IP entity would then undertake a detailed diligence of

the debtor company and prepare an Information Memorandum
(IM) which, just as in the case of CIRP, would be required to
be kept strictly confidential. This IM would be permitted to be
reviewed only by the creditors and bidders and subject to point
(d).

c) It must be ensured that each creditor or stakeholder of the

debtor company is notified of and made aware of the nature of
the transaction being contemplated.

d) The most essential feature of a pre-pack would be for the IP

or IP entity to ensure that adequate safeguards for maintaining
confidentiality are in place, such as non-disclosure agreements
and undertakings provided by potential bidders, and to ensure
that participation of a creditor in the pre-pack does not
jeopardise the process by the creditor commencing insolvency
proceedings in the midst of a pre-pack.

e) As part of the terms of an understanding to undertake a

pre-pack transaction, the parties may also be subjected to a
‘stand-still period’ where the creditors of the debtor company
are restricted from independently initiating recovery against
the debtor company during the subsistence of the pre-pack
formulation process, which would undermine the entire process.
The option of objecting to a pre-pack would always be available
to the dissenting creditor at the time the company files for
insolvency.

f) In continuation of point (c), it would be critical for the NCLT to

satisfy itself that the interests of all stakeholders are considered
prior to approving the pre-pack.

g) The decision to permit connected party pre-packs is open for

debate. However, given the strong stance that the legislature
has taken against involvement of connected persons in the
insolvency resolution process of a debtor company, it seems
likely that connected party pre-packs would be prohibited or
strictly regulated in India.
100 The Law Review, Government Law College [Vol. 10

h) In the event a sale of the business or assets of the debtor

company is envisaged as a part of the pre-pack, the next step
would be to seek potential acquirers or investors. The IP or IP
entity, at this stage, may benefit from the involvement of the
debtor company in this regard as the debtor company would be
more adept at identifying the best terms and conditions at which
the transaction may be concluded.

Delineating the finer provisions in relation to pre-packs will require

considerable analysis of insolvency laws of other jurisdictions. Just
as the introduction of a new legislation requires time to test how it
fares, so will pre-packs be analysed adequately as it is yet uncharted
territory.

V. To Pre-pack or Not to Pre-pack?

A. Benefits of a Pre-pack

Lenders add restrictive covenants to loan agreements that prevent

a debtor company from alienating its assets (which are secured)
or disposing of all or a majority of its business without creditor
approval. 89 Therefore, the debtor company along with the I P
are bound to ensure that all creditors’ interests are considered to
effectuate a meaningful pre-pack.

A pre-pack which does not consider the interests of a particular

creditor will ultimately lead to a creditor independently initiating
recovery actions against the corporate debtor, thereby rendering the
entire exercise of a pre-pack futile.

89 Typical restrictive clauses in a loan agreement include prohibition on:
(i) change in the management control of the debtor company (ie the power to direct
the management and policies of the company);
(ii) effecting any change in the capital structure of the company;
(iii) undertaking any merger, consolidation, reorganisation, reconstruction or
amalgamation;
(iv) amending or modifying the charter documents of the company;
(v) register or give effect to any transfer in the shareholding of the promoter below
a prescribed threshold;
(vi) sale of any asset which is secured to or financed by the lender.
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 101

To therefore enable debtor companies to undertake pre-packs, the

first question posed to administrators and legislators is: Will the
Indian situation commercially benefit from pre-packs? There may
be divergent views on this. While arguing against the advent of pre-
packs, it may be said that a pre-pack is not required at the moment,
given that the IBC provides for a fairly all-encompassing regime in
order to identify and resolve insolvency. It may also be stated that a
pre-pack may in fact not be desirable since it may permit the debtor
company to divest its business and assets which, in all fairness, must
be made available for creditor action and dealt with formally as per
the prevalent insolvency laws of the land. It is essential, therefore, to
evaluate both benefits and disadvantages of a pre-pack.

Pre-packs are undertaken typically with the following advantages in

mind:

(1) A pre-pack provides the debtor company with a way to realise

its assets and repay its outstanding dues.

(2) In the event a change in management of the debtor company is

contemplated as a part of a pre-pack, the assets of the company
are put to good use, albeit under a new management.

(3) A pre-pack reduces the strenuous and cumbersome exercise,

which all involved parties are put through, during conventional
restructuring or even liquidation of a company.

(4) The insolvency process is a costly procedure and the costs of

the same are borne by the estate of the debtor company. It
is from the assets of the debtor company that the insolvency
costs are discharged. Valuation of assets and costs and fees of
professionals and resolution professional costs sometimes tax an
already burdened company to a great extent.90 A pre-pack is a
promising way of achieving a smooth transition of the assets of
the company in a cost-effective manner.

90 See Insolvency and Bankruptcy Board of India Circular number IBBI/IP/013/2018
‘Fee and other Expenses incurred for CIRP’ (2018) Insolvency and Bankruptcy Board
of India, at http://ibbi.gov.in/webadmin/pdf/whatsnew/2018/Jun/Circular%20on%20
Fee%20and%20other%20Expenses%20incurred%20for%20CIRP%20[June%20
2018]_2018-06-18%2014:06:58.pdf (last visited 24 February 2019).
102 The Law Review, Government Law College [Vol. 10

(5) Creditors have better prospects of expecting greater returns since

the debtor company’s tradeable value is not eroded by virtue of
the insolvency proceedings as the assets are valued and sold at
a price determined prior to the initiation of insolvency.

(6) Given the distressed status of the company, a pre-pack is

characterised by the speedy procedure followed for concluding
the terms of the proposed sale, which helps in addressing the
stress in the company and effectuating company rescue before
the value of the assets of the debtor degenerates or before
creditors stake claim to it.

(7) Job protection for employees of the debtor company is one of

the primary considerations for pre-packs where the long-drawn
process of administration does not hamper the ongoing business
of the company and poaching of resources by competitors of
the debtor company can be curtailed to a great extent.91 The
UK also has laws which mandatorily require employees to be
protected in the event of change of control, when a business or
undertaking, or part of one, is transferred to a new employer.92

B. The Disadvantages of a Pre-pack

Given the inherent nature of pre-packs, it has faced strong opposition

from certain quarters which have cited the manner in which pre-
packs are concluded. Unsecured creditors typically contend that as
opposed to the insolvency process as it currently stands, the process
of entering into pre-pack arrangements is opaque,93 may not consider
the interests of the creditors and other stakeholders, and has an
element of risk that the assets of the debtor company or its business

91 Association of Business Recovery Professionals, ‘Pre-packaged Sales’, Rescue
Recovery Renewal, at https://www.r3.org.uk/media/documents/publications/press/
Pre-packs_briefing.pdf (last visited 24 February 2019).

92 The Transfer of Undertakings (Protection of Employees on Transfer of Undertakings)
Regulations, 2003 mandatorily requires protection of employees in the event of a
business or undertaking, or part of one, is transferred to a new employer.

93 Louise Lang, ‘Pre-pack administration: Pros and Cons’, (2015) The Gazette Official
Public Record, at https://www.thegazette.co.uk/insolvency/content/100359 (last
visited 24 February 2019).
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 103

may be transferred to entities without keeping in mind the interests

of the creditors or other stakeholders.

In the Indian scenario, it may also be argued that the interests of

the unsecured creditors are usually not considered due to their low
priority in the liquidation waterfall mechanism set out under the
insolvency laws, and in case of pre-packs, such class of creditors has
no opportunity to object to the transaction. Adequate remedies and
recourse in relation to pre-packs to check the wide and uncontrolled
use of pre-packs by debtor companies, as a means of avoiding the
insolvency process, would need to be contemplated thereunder.

There exist some views that pre-pack arrangements may be

entered into without taking into consideration the interests of all
stakeholders. It is arguable that where the insolvency of a company
has been brought upon the company by its own management
(due to operational mismanagement of the existing promoters or
management), permitting them to control the alienation of the assets
de hors the statutory insolvency framework is highly prejudicial to
the interest of all the stakeholders. The bidding for the assets or
business of the debtor company may also pose a problem. This
would fall within the IP’s responsibility, who would ultimately be
answerable to the insolvency court established under the insolvency
laws of that particular jurisdiction. The IP would also have to ensure
that the assets or business of the company are widely marketed
notwithstanding its impending insolvency, hampering its prospects of
continued functioning. Since the management of the debtor company
presently remains with the company until admission of the CIRP
application, the management in case of a pre-pack would continue to
vest in the debtor company.

Finally, it must be highlighted that any action which is taken by the

administrator must be with a view to: (i) ensuring that the company
functions as a going concern and (ii) maximise value of the assets of
the debtor company to ensure that the dues of the creditors do not
get affected.94

94 Bo Xie, Comparative Insolvency Law: The Pre-pack Approach in Corporate Rescue
(Edward Elgar Publishing Cheltenham 2016).
104 The Law Review, Government Law College [Vol. 10

VI. Conclusion

In view of the analysis undertaken in this article, corporate rescue

and specifically pre-packs would prove useful since liquidation of
borrowers seems far from a viable solution to cure the longstanding
malaise of NPAs in India.

Corporate rescue, for this reason, is looked upon by many as the

last resort before recovery proceedings are initiated. In such cases,
the option may be considered by lenders of even big borrowers as a
means to exit its exposure to turnaround entities (be it by divesting
the debt or change of management of the debtor company) who
actually possess the bandwidth to fund companies with intense capital
requirements in certain sectors.

In the present situation of NPAs with which the financial sector is

stranded, pre-packs may prove to be a useful tool to aid the IBC
process. Such pre-pack transactions however, would have to be strictly
within the four corners of a specifically formulated framework, be
vetted thoroughly and approved by specialised adjudicatory bodies
which may be set up under the aegis of the NCLT, which could
substantially cut down the requirement of NCLT participation as well.

In fact, the Chairman, Insolvency and Bankruptcy Board of India

and the NCLT President have expressed confidence that insolvency
processes would soon mature and India may see the introduction of
pre-packs.95

Pre-packs could thus prove helpful in a scenario where, despite

availability of umpteen corporate rescue modes, creditors continue

95 See Menaka Doshi, ‘Who Among The 353 Resolution Professionals Can Manage
12 Large Insolvencies?’ (2017) Bloomberg Quint, at https://www.bloombergquint.
com/law-and-policy/2017/06/19/challenges-facing-insolvency-professionals-
large-corporate-insolvencies-bankruptcies-nclt-ibbi-ms-sahoo-comments (last
visited 24 February 2019) and KR Srivats, ‘Time ripe to consider ‘pre-packs’
under insolvency: NCLT President’ (2018) The Hindu Business Line, at https://
www.thehindubusinessline.com/economy/time-ripe-to-consider-pre-packs-under-
insolvency-nclt-president/article23650251.ece (last visited 24 February 2019).
2019] Insolvency Procedures — Investigating The Pre-pack Paradigm in India 105

to face a situation where they are expected to make high provisions

against NPAs and also reconcile to face huge haircuts. Security
enforcement and credit enhancement may seem adequate precautions
to be taken at the time of sanction of big loans but these safeguards
seem to prove inadequate in the long run on a large-scale, for the
purpose of remedying the existing NPA problem and resolving the
deep-rooted default culture.
106 The Law Review, Government Law College [Vol. 10

DECONSTRUCTING THE DICHOTOMY

IN CULTURAL PROPERTY LAW†
Vedika Shah *

I. Introduction

The world’s oldest extant book ‘Jikji’ housed at the Bibliothèque

Nationale de France has garnered much attention worldwide. Printed
in 1377 during the reign of the Koryõ Dynasty in Korea, Jikji is a
Korean Buddhist document comprising of excerpts from the writings
of erudite Buddhist monks. Since around the 1950s, Jikji has been
displayed at the Bibliothèque Nationale de France.1 Though the
circumstances surrounding Jikji’s transfer to France are unclear, it has
been alleged by some that Jikji was looted from Korea by the French,
while several others contend that Jikji was legally taken out of the
country by a French private collector, and was thereafter donated to
the Bibliothèque Nationale.2

At its heart, the Jikji controversy rests upon the rival claims of Korea
and France to this cultural object of great significance. Korea, on one
hand claims that Jikji, bearing historical significance to the people of
Korea, must be rightfully returned to its source nation. In contrast,
the Bibliothèque Nationale de France contends that Jikji forms an
integral part of the cultural heritage of mankind, and does not belong
to one particular country. The Bibliothèque Nationale de France
further contends that given the unmatched technological and scholarly

† This article reflects the position of law as on 24 February 2019.

* The author is a student of Government Law College, Mumbai and is presently
studying in the Fourth Year of the Five Year Law Course. She can be contacted at
[email protected].
1 Hye Ok Park, ‘The History of Pre-Gutenberg Woodblock and Movable Type Printing
in Korea’ (2014) 4 International Journal of Humanities and Social Science, 9, 14.
2 Lee Eun-joo, ‘Jikji Buddhist Documents – A Question of Ownership’ (2009), BTN-
Buddhist Channel, at http://www.buddhistchannel.tv/index.php?id=92,7622,0,0,1,0#.
WcJx8ohx3IU (last visited 24 February 2019).
2019] Deconstructing the Dichotomy in Cultural Property Law 107

resources that it possesses, Jikji has been better preserved and secured
in France than it would be elsewhere.3

The contentious claims of the two countries reflect two competing

ideologies dominating the cultural property debate today—cultural
nationalism versus cultural internationalism.4

The present article explores the two fundamental theories of the

cultural property conundrum and examines in great detail the
rationale behind demanding return of cultural property. Part I of this
article is introductory in nature. Part II delves into the concepts of
cultural nationalism and cultural internationalism and explains their
facets. Part III examines the application of the theories of cultural
nationalism and internationalism in four varying circumstances. In
each situation, the author has proposed a solution best suited to the
needs of that peculiar situation. The circumstances analysed include:
disputes between metropoles and their colonies over ownership
of acquired cultural property; the existence of multiple claims by
different nations, each having varied connections to a single piece of
cultural property; determination for preservation of cultural property
in conflict-ridden nations; and lastly, discerning the rivaling claims
of Greece and Britain with respect to the Parthenon Marbles and
consequently, the need to find a way through. The article ends with
concluding statements and explores which of the two theories is more
tenable.

II. The Concept of Cultural Property and its Theories

A. Cultural Property

The word ‘cultural property’ was first defined in the Convention for
the Protection of Cultural Property in the Event of Armed Conflict, 1954

3 Kwak, ‘World Heritage Rights versus National Cultural Property Rights: The Case
of the Jikji’ (2005), Carnegie Council for Ethics in International Affairs, available
at https://www.carnegiecouncil.org/publications/archive/dialogue/2_12/online_
exclusive/5153 (last visited 24 February 2019).
4 Naomi Mezey, ‘The Paradoxes of Cultural Property’ (2007) 107 Columbia Law
Review 2004, 2011.
108 The Law Review, Government Law College [Vol. 10

(1954 Convention)5 as movable and immovable property of great

importance to the cultural heritage of people.6 ‘Immovable property’
has been defined to include monuments of architecture, art or history,
archaeological sites whereas movable property includes manuscripts,
books, scientific collection among others.7

The 1954 Convention was enacted as a reaction to the massive

cultural looting which took place during World War II, however,
it confined itself to protecting cultural property only during times
of armed conflict. It failed to address looting, illicit importing and
pillaging of cultural property in peacetime.

Prior to 1970, the illegal trade of antique objects and cultural items
was widespread. Consequently, several sovereign states embarked
upon preservation of important historical and culturally significant
objects by enacting the UNESCO Convention on the Means of Prohibiting
and Preventing the Illicit Import, Export and Transfer of Ownership of
Cultural Property, 1970 (1970 Convention). 8 The 1970 Convention
enabled safeguarding of cultural property in peacetime. The meaning
ascribed to the term ‘cultural property’ in the 1970 Convention is very
similar to that of the 1954 Convention.

The UNESCO Recommendation Concerning the International Exchange of

Cultural Property, 1976 further went on to give a definitive meaning to
the term ‘cultural property’, as being ‘items which are used as means
of expressions, evincing human creation and evolution of nature for
inter alia historical, artistic, scientific or technical value and interest.’9
The aforesaid recommendation gives a more inclusive definition of
cultural property, thus encompassing a wider category of objects.

5 UNESCO Convention for the Protection of Cultural Property in the Event of Armed
Conflict (adopted 14 May 1954, entered into force 7 August 1956) 249 UNTS 240.
6 1954 Convention, article 1.
7 Ibid.
8 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import,
Export and Transfer of Ownership of Cultural Property (adopted 14 November 1970,
entered into force 24 April 1972) 823 UNTS 231.
9 UNESCO, Records of the General Conference, 19th Session, Recommendation
Concerning the International Exchange of Cultural Property (26 November 1976),
para 1.
2019] Deconstructing the Dichotomy in Cultural Property Law 109

In context of cultural property, disputes pertaining to ownership arise

between two parties, ie, the source nation and the market nation.
The concept of what constitutes a ‘source nation’ has been widely
contested. Several authors have propounded different interpretations
of this concept. The popular leaning has been towards ‘source nation’
being referred to as the place where cultural property is produced and
with which people of that country have a direct and genuine link.10

On the other hand, countries that purchase, or more often than not,
loot and pillage cultural property from the source nations or art-
rich nations are known as ‘market nations’.11 For instance, the Benin
Bronzes, a collection of numerous metal plaques and intricately
carved sculptures depicting the rulers of the ancient kingdom of
Nigeria, formerly known as Benin, were looted in 1897 by Britain
during an attack on Benin City, and since then have been treated as
spoils of war and have been property of the British Museum. In such
a scenario, Nigeria would be treated as the source nation whereas
Britain would fall under the category of market nations.

The burgeoning scuffle between source nations and market nations

has sparked a growing interest in cultural property, and has brought
the cultural property debate, particularly the aspect concerning the
restitution of cultural property to source nations, to the forefront. The
perception as to what constitutes cultural property largely differs from
region to region. An object which may be considered significant in
one culture may not be so considered in another. A strict approach
in designating what constitutes cultural property would be antithetical
to a country’s autonomy in determining its cultural identity.

B. Cultural Nationalism

The proponents of the theory of cultural nationalism believe that

states have a right to retain their cultural treasures within their
territorial boundaries.12 They believe they are entitled to complete

10 Lyndel Prott, Commentaire Relatif à La Convention Unidroit (1st edn UNESCO

2000) 46.

11 John Henry Merryman, ‘The Public Interest in Cultural Property’ (1989) 77 California
Law Review 339, 340.
12 Ibid, 350, 351.
110 The Law Review, Government Law College [Vol. 10

control over cultural property that originated in their territory and

forms part of their country’s national patrimony. Cultural nationalists
place emphasis on national interests and values. According to them,
cultural property is an element of national culture and can be
understood only in relation to its origin, history and traditional setting
and must be kept in its original archaeological context.13 They believe
that many market nations in the past have done much damage to the
cultural heritage of source nations and to protect the national interests
and values of these nations, return of the plundered property to the
source nation is essential.

The two chief conventions dealing with illegal import, export,

theft and transfer of ownership of cultural property are the 1970
Convention and the UNIDROIT Convention on Stolen and or Illegally
Exported Cultural Objects, 1995 (1995 Convention).14 Both these
conventions condemn illicit import, export and transfer of ownership
of cultural property and recognise the absolute right of source nations
to retain their cultural property.15 While the 1970 Convention reflects
a milder undertone in encouraging parties to return cultural property
to source nations, the 1995 Convention emphatically advocates for the
right of the source nations to have their cultural property restituted.
Furthermore, the United Nations General Assembly has recognised
the right of the source nation to have its cultural property returned
to it.16 Cultural property has been repatriated to the source nation

13 James Cuno, Whose Culture? The Promise of Museums and the Debate over
Antiquities (1st edn Princeton University Press Princeton 2009) 9.

14 UNIDROIT Convention on Stolen and or Illegally Exported Cultural Objects (adopted
on 24 June 1995, entered into force 1 July 1998) 2421 UNTS 457.

15 1970 Convention, articles 3 and 6, and 1995 Convention, articles 3 and 5.

16 General Assembly, ‘Resolution 3026 (1972): Human Rights and Scientific and
Technological Developments’ (A/RES/3026(XXVII)A, December 1972); General
Assembly, ‘Resolution 3148 (1973): Preservation and Future Developments of
Cultural Values’ (A/RES/3148(XXVIII), December 1973); General Assembly,
‘Resolution 58 (2003): Return or Restitution of Cultural Property to Countries of
Origin’ (A/RES/58/17, December 2003); General Assembly, ‘Resolution 61 (2007)
: Return or Restitution of Cultural Property to Countries of Origin’, (A/RES/61/52,
February 2007); General Assembly, ‘Resolution 67: Return or Restitution of Cultural
Property to Countries of Origin’ (A/RES/67/80 (2012) and General Assembly,
‘Resolution 67 (2015): Return or Restitution of Cultural Property to Countries of
Origin’ (A/RES/70/76, December 2015).
2019] Deconstructing the Dichotomy in Cultural Property Law 111

on a few occasions. The most recent example of this is the return

of the Maori’s skull of New Zealand by Germany. The Maori, an
indigenous community in New Zealand, traditionally preserved the
skulls of revered male relatives, famous chiefs and enemies killed
in war. From the 1840s to 1910, thousands of heads and skulls of
indigenous Maori were taken from New Zealand by European and
American anthropologists with many ending up in museums or private
collections. One such museum, the Rautenstrauch Joest Museum of
World Cultures in Cologne, Germany, returned such a preserved
Maori skull to New Zealand. Henriette Reker, the mayor of Cologne,
told the delegation from New Zealand in a statement made at the
ceremony, ‘I cannot reverse the wounds of the past. But I have done
what I could to take your descendant out of an anonymous collection
and return his human dignity.’17 Reaching such a compromise today
not only conveys a rightful regard for the cultural sentiments of
source nations which they ought to be granted, but is also the epitome
of utmost international cooperation. Other such repatriations include
the Makonde Mark to the United Republic of Tanzania,18 the Mask of
Gorgon to Algeria19 and Maori heads to New Zealand.20

The theory of cultural nationalism propagates that in order to lead

a fulfilling life and ensure a secure identity, people often feel the
need to be exposed to their history, most of which is represented by
historical objects. These objects provide people with the means to

17 Kurt Bayer, ‘60 Maori and Moriori heads and skulls repatriated from UK and US’,
The New Zealand Herald, at https://www.nzherald.co.nz/nz/news/article.cfm?c_
id=1&objectid=11638270 (last visited 24 February 2019).

18 Return or Restitution Cases, UNESCO website, at http://www.unesco.org/new/
en/culture/themes/restitution-of-cultural-property/return-or-restitution-cases/ (last
visited 24 February 2019).

19 ‘Recent Restitution cases of cultural objects using the 1970 Convention,’ UNESCO
website, at http://www.unesco.org/new/en/culture/themes/illicit-trafficking-of-
cultural-property/recent-restitution-cases-of-cultural-objects-using-the-1970-
convention/ (last visited 24 February 2019).

20 Press Association, ‘Maori Chief’s Mummified Head to Return to New Zealand After
150 Years in UK’ (2013), The Guardian, at http://www.theguardian.com/culture/2013/
aug/06/maori-chief-head-returned-new-zealand (last visited 24 February 2019).
112 The Law Review, Government Law College [Vol. 10

connect to their heritage and roots. On this basis, it is perceived as a

moral imperative for market nations to return to source nations their
cultural property.

C. Cultural Internationalism

The cultural internationalism theory propounds that cultural property

is of vital importance for the people of the world and must therefore
be available all around the world, so that everyone has an opportunity
to access their own as well as the cultural achievements of other
people.21 It is not necessary that something made in a particular place
must belong there, or that the present government of a nation should
have under its control artefacts historically associated with its territory.
Given that we live in an increasingly globalised society where there is
growing societal acceptance towards harmonisation of cultures, cultural
internationalism is viewed as quintessential for the preservation of
cultural property.

The principles of preservation, access and integrity are the three

principal tenets of the cultural internationalism theory which must be
considered while determining the appropriate allocation of cultural
property.22 Cultural internationalism mandates preservation.23 There
exists a presumption that market nations are better situated to care
for and preserve the property for the enjoyment of mankind. The
obligation is recognised by the 1970 Convention itself and requires
the retaining state to promote ‘the development or the establishment
of scientific and technical institutions, (museums, libraries, archives,
laboratories, workshops) required to ensure the preservation and

21 John Henry Merryman, Thinking about the Elgin Marbles: Critical Essays on Cultural
Property, Art and Law (2nd edn Kluwer Law International Netherlands 2009) 61.

22 Ibid, 1912.

23 John Henry Merryman, ‘Two Ways of Thinking About Cultural Property’, (1986),
Vol. 80, No. 4, The American Journal Of International Law, 831-53.
2019] Deconstructing the Dichotomy in Cultural Property Law 113

presentation of cultural property’. Even generally, the obligation to

preserve is internationally recognised.24

The principle of access recognises that cultural property is a medium

through which the peoples of the world gain intellectual exchange
and hence they have a right to claim access to it. 25 The concept
of ‘common heritage of mankind’ promotes widespread access to
cultural property and its preservation for future generations; states
are therefore responsible for the preservation of cultural property
and have the duty to take appropriate steps to render it accessible
to everyone.26 Cultural internationalism opines that cultural property
forms part of the common cultural heritage of mankind and its
protection is an erga omnes 27 obligation. 28 Lastly, the principle of
integrity signifies that any work of art or other cultural object should
be as intact and whole as possible–the object loses value (aesthetically,
scientifically or monetarily) even if some of it has been separated.29

24 UNESCO, ‘Records of the General Conference: Recommendation on International
Principles Applicable to Archaeological Excavations’ (9th Session, 5 December 1956),
Preamble; UNESCO, ‘Records of the General Conference: Recommendation for the
Protection of Movable Cultural Property’ (20th Session, 28 November 1978), para
15; UNESCO, ‘Records of the General Conference: Recommendation Concerning
the Protection, at the National Level, of the Cultural and National Heritage’ (17th
Session, 16 November, 1972).

25 Sharon Williams, The International and National Protection of Movable Cultural
Property: A Comparative Analysis (Oceana Publications, New York, 1978)1, 52.

26 Stephen Urice, The Beautiful One Has Come - To Stay in Imperialism, Art and
Restitution (1st edn Cambridge University Press Cambridge) 152.

27 In international law, the concept of erga omnes obligations refers to specifically
determined obligations that states have towards the international community as a
whole. An erga omnes obligation is a non-derogable legal obligation that is cast on
all states, and which must be performed at all times.

28 Temple of Preah Vihear (Cambodia v. Thailand) (1962 Interpretation separate opinion
of Judge Cançado Trindade) [2011] ICJ Reports 566, 598.

29 Ana Sljivic, ‘Why Do You Think it’s Yours? An Exposition of the Jurisprudence
Underlying the Debate Between Cultural Nationalism and Cultural Internationalism’
(1997) 31 George Washington Journal of International Law and Economics, 393,
414.
114 The Law Review, Government Law College [Vol. 10

The cultural internationalism theory finds its genesis as early as

1863 in the Lieber Code. 30 The Lieber Code contained a number of
regulations relating to protection of cultural property during armed
conflict. The Lieber Code was followed by the 1954 Convention. The
1954 Convention is the first official international instrument which
views cultural property as the heritage of mankind, and lays emphasis
on its preservation. Articles 3 and 4 of the 1954 Convention enjoin
upon state parties the responsibility to abstain from damaging cultural
property situated either in its own territory or in any other country,
and to take measures to safeguard and protect it.31

The concept of cultural property protection being an erga omnes

obligation received a further impetus when various international
tribunals recognised the desecration of cultural property as a violation
of customary international law and punished the perpetrators of these
crimes.

The Yugoslav Wars which ravaged the state of Yugoslavia from

1991 to 2001, led to the destruction of a number of structures of
immense cultural importance, including the Vukovar City Museum,
which contained artefacts dating back to the 13th century. The war
destroyed the works of famous Croatian artists like Vlaho Bukovac
and perpetuated the destruction of the Church of St. Demetris built
in 1715, which was one of the largest cathedrals of the country. It was
this cultural depredation that led the International Criminal Tribunal
for Yugoslavia, a tribunal which was set up under the aegis of the
United Nations to prosecute serious crimes that were committed
during the Yugoslav Wars, to hold the destruction of cultural objects
as an injury to mankind and a crime against humanity.32

This principle was reaffirmed by the Claims Commission, a body

established to end the war between Ethiopia and Eritrea. During the
war between the two countries, the Stela of Marta, a 2,500 year old

30 Lieber Code, Instructions for the Armies of the United States in the Field (War
Department 1863).

31 1954 Convention, supra n.5, articles 3 and 4.

32 Prosecutor v. Kordic and Cerkez, Case No. IT-95-14/2-T, Judgement (International
Criminal Tribunal for Former Yugoslavia 26 February 2001), 207.
2019] Deconstructing the Dichotomy in Cultural Property Law 115

obelisk bearing a rare description, was destroyed. The Commission

reached a conclusion that the destruction of the Stela of Marta was
a violation of customary humanitarian law and reparations should be
made for the same.33

The common cultural heritage notion received a further stimulus

when the International Criminal Court (ICC) recognised cultural
destruction as a war crime against the backdrop of mass wreckage of
cultural property in Mali at the hands of militant groups, the Ansar
Die and Al-Qaeda.34 Magnificent mosques and mausoleums, erected
to commemorate the contribution of revered Muslim saints, which
were perceived as the identifying structures of Mali, were annihilated
in this rampage.

The prosecutor in her opening statement to the ICC remarked that

the shrines and mausoleums were historically significant for humanity,
and the whole of mankind was affected by their loss. The ICC
eventually prosecuted Ahamd-al-Faqi-al-Mahdi, an Islamic militant for
destroying these ancient shrines and mausoleums in Mali.35

Thus, the theory of cultural internationalism in essence does not

believe in confining cultural property to the producing nation’s
capricious borders. Rather, it lays emphasis in recognising and
celebrating works of art as manifestations of universal human genius
and creativity.36

33 Eritrea / Ethiopia Partial Award – Central Front Eritrea’s Claims 2, 4, 6, 7, 8 & 22
(Claims Commission, 28 April 2004), para 113.

34 The Prosecutor v. Ahmad Al Faqi Al Mahdi, Case No. ICC -01/12-01/15, Judgement
and Sentence (27 September 2016), para 52.

35 ‘Statement of the Prosecutor of the International Criminal Court Fatou Bensouda,
at the opening of the confirmation of charges hearing in the case against Mr Ahmad
Al-Faqi Al Mahdi’, International Criminal Court website, at https://www.icc-cpi.int/
Pages/item.aspx?name=otp-stat-01-03-16 (last visited 24 February 2019).

36 Claudia Caruthers, ‘International Cultural Property: Another Tragedy of the
Commons’, (1998) 7 Pacific Rim Law and Policy Journal, 143, 154.
116 The Law Review, Government Law College [Vol. 10

III. Application of the Theories

A. Colonial Era

1. Historical Background

The era of colonisation can be traced back to 1270 BC during the

reign of Ramesses II. Ramesses II was a renowned Egyptian king
who ruled Egypt from 1279-1213 BC. He was a formidable leader
under whose aegis the Egyptian empire expanded vastly. He was also
extremely passionate about art and architecture, and built a number
of monuments under his patronage. During his reign, he colonised
a number of Mediterranean countries and robbed these countries
of their cultural property.37 Another prominent pillage was evinced
during the reign of Napoleon Bonaparte, an eminent French emperor.
Napoleon Bonaparte was regarded as the greatest commander in the
military history in the West. His reign over France spanned from
1804 to 1814 during which he defeated mighty states including Austria
and Prussia, and gained control over a major part of Europe by
1810. He extensively plundered artistic treasures from the nations he
conquered. The classical oil painting by Italian artist Paolo Veronese,
Wedding Feast at Cana, which is known to depict the moment when
Jesus turned water into wine; and the Horses of St. Mark by a Greek
sculptor Lysippus, an exquisite set of four bronze horses, formed part
of Napoleon’s artistic conquests.38

Looting artefacts and paintings was seen as means of raising funds to

support military expeditions as well as symbolising victory. Though
pillaging was not carried on with an active intent of destabilising the
colony but rather to purely add to the wealth of the colonising nation,
it produced some disastrous consequences for the colonies.

37 Leonard D DuBoff et al., ART LAW: Cases and Materials (2nd edn. Aspen Publisher
New York 2010) 533.

38 Ivan Lindsay ‘From Napoleon to Nazis : the 10 most notorious looted artworks’,
The Guardian at https://www.theguardian.com/artanddesign/2014/nov/13/10-most-
notorious-looted-artworks-nazis-napoleon (last visited 24 February 2019).
2019] Deconstructing the Dichotomy in Cultural Property Law 117

Modern-state global colonialism began in the 18th century wherein

global powers like Britain, France, Spain and Portugal conducted large
scale colonisation in Latin America and Asia. A number of global
powers colonised nations that had previously housed the most ancient
and culturally rich civilisations of the world. Britain colonised India
and Egypt, that cradled the Indus Valley Civilization and the Ancient
Egyptian Civilisation respectively, while France captured the Assyrian
region (which would include modern-day Syria, Iraq and Egypt) that
was the origin of the Mesopotamian civilisation.39

Soon the phenomenon of draining colonised nations of their cultural

property gained traction around the world. Colonised nations were
stripped of their cultural vestiges with which they shared immense
emotional value, while the westernised nations became more powerful
both economically and culturally. The 19th and 20th centuries saw the
beginning of the process of decolonisation wherein most colonies
gained independence from their metropoles. However, the process
of decolonisation failed to give the colonies the right to recover their
cultural property which they had been unfairly dispossessed of. Even
today in the 21st century, cultural property of most former colonies is
housed in museums of their powerful European colonisers. The effort
of these colonies to have their cultural property repatriated to them
has been fraught with obstacles and has barely achieved the desired
result. Colonisation not only subjected the colonies into servitude
and economic exploitation, but also left them bereft of any power or
capacity to recover what is rightfully theirs.

2. Who Owns the Cultural Property?

Cultural property bears an imprint of thoughts, practices and values

of a particular culture and is a medium around which the ethnic,
communitarian and national identities of a country revolve.40 Cultural
property formed an integral part of the identity of the people in the
colonies. For them, their artefacts were a partial extension of their

39 Timothy Michelle, Colonising Egypt (1st edn. University California Press United
States of Amercia 1991) 14.

40 Amartya Sen, The Argumentative Indian, (1st edn Farrar Staraus and Giroux United
States of America) 53.
118 The Law Review, Government Law College [Vol. 10

identities, which were revered, and from which they drew their
confidence and inspiration.41 The Coroma textiles of Bolivia are an
example of cultural property that has given purpose and meaning
to the life of the Aymara community of Bolivia, and which has kept
them tied to their ancestors and their roots.42 The Coroma textiles are
sacred ancient textile bundles, which represent a particular ancestral
social group also known as ‘Ayllu’. They believe that the spirits of
their ancestors are contained within these textiles. They offer prayers
and food to them, and consider them to be oracles whose blessings
are sought before any important community decision is made. A
festival is held every November wherein the Aymara community
members wear the sacred textiles and dance as a mark of respect
to their ancestors. These textiles were seldom displayed publicly.
However, during the aforementioned festival where these textiles were
displayed, they were surreptitiously stolen by western traders and
widely traded in the international market. The world may perceive
these Coroma textiles as mere fabrics as a means of trade but for the
Aymara community it formed the bedrock of their identity.

The systematic plundering of cultural property carried on by the

colonisers did indeed have a debilitating effect on the subjects of
the colonies. The threads that wove an entire culture and nation
together had suddenly vanished. The people in the colonies soon
found themselves chained in the bondage of despair and experienced
a loss of faith in themselves. The means that connected them to their
past and inspired them for the future was lost.43 Even after gaining
independence, the loss of cultural property and the subsequent loss
of cultural continuity, continues to wreak havoc in these indigenous
communities.44

41 Shashi Tharoor, An Era of Darkness (1st edn Aleph Book Company India) 194.

42 Susan Lobo, ‘The Fabric of Life : Repatriating the sacred Coroma Textiles’ (1991)
15 Cultural Survival Quarterly Magazine, 40, 42.

43 Patty Gerstenblith, ‘The Public Interest in the Restitution of Cultural Objects’ (2001)
16 Connecticut Journal of Int’l Law, 197, 206.

44 Photini Pazartzis and Maria Gavouneli, Reconceptualising the Rule of Law in Global
Governance, Resources, Investment and Trade (1st edn Hart Publishing United
Kingdom 2016) 154.
2019] Deconstructing the Dichotomy in Cultural Property Law 119

Aboriginal Australians are one such indigenous community that have

been left culturally enervated after their colonisation by Britain. About
6,000 objects including culturally significant items like the Gweagal
shield belonging to aboriginal Australians have been in the possession
of British museums.45 The Gweagal shield belonged to an indigenous
Australian warrior who bravely fought Captain Cook and his crew
when they first set foot on Australian shores in 1770. The shield is
looked upon by the aboriginal Australians as a symbol of the valour
that their ancestors possessed. The aboriginal Australians believe
that their culture is dying and the return of cultural objects like the
Gweagal shield will help reinvigorate the lost aura and prestige of
their culture.

The adherents of cultural nationalism strongly subscribe to the view

that cultural property must be returned to the colonised nations,
while the proponents of cultural internationalism believe that colonial
powers are in a better position to protect the integrity of cultural
property. The museums in nations of the colonial powers possess
the facilities and expertise required for the safekeeping of cultural
property which the colonised nations lack. Furthermore, the museums
provide the widest possible access to the cultural property, and people
from all over the world have a greater opportunity to behold these
objects there vis-à-vis their presence in the colonised states.46

The entire construct of cultural internationalists is based on the

primary foundation that the colonising nations did not do anything
wrong or unethical. Loot of cultural property then was viewed as
a corollary of war. It was looked upon as the norm and something
that was perfectly acceptable. Metropoles believed that in return for
administering and managing the affairs of the colonies and providing
them with technical and scientific know-how which they did not

45 Hannah Ellis Petersons, ‘Indigenous Australians demand return of shield taken by
Captain Cook’ (2016) The Guardian at https://www.theguardian.com/culture/2016/
nov/08/indigenous-australians-demand-gweagal-shield-captain-cook (last visited 24
February 2019).

46 John Henry Merryman, ‘The Retention of Cultural Property’ (1987) 21University of
California, Davis, 477, 497.
120 The Law Review, Government Law College [Vol. 10

possess earlier, the colonial powers were entitled to economically and

culturally enrich their own country at the expense of depriving the
colony. This justification is farcical and ill-founded. The colonisers
colonised the nations in order to strengthen their own might and
add to their own resources. There was no benevolent intention of
helping the colonised country. Therefore, the question of being able
to claim a right to exploit as a reward for supposedly selfless actions
of improving the colonies does not arise. Looting and plundering
a disarmed and resourceless population cannot be justified by the
colonisers under the garb of progress, and is an obvious wrong which
requires complete redressal.

The next narrative put forth by cultural internationalists that only

colonisers possess the resources and expertise to house exquisite
cultural property is untrue.47 This argument is nothing but a façade
put forth by market nations, so as to enable them to retain cultural
property over which they historically have no right. Further, even if
it was believed that the former colonies did not possess the resources
that their metropoles did, the same cannot be said today. Former
colonies including India, Greece, Australia and Egypt are today home
to some world famous museums like the Egyptian Museum in Cairo,
the Australian Museum in Sydney, the Athens Museum in Greece
and the Prince of Wales Museum in Mumbai, where cultural property
is preserved and protected in an extremely secure environment with
the necessary expertise in place. Moreover, these countries have
government departments dedicated to the protection and preservation
of cultural property, like the Ministry of Culture in India, the Hellenic
Ministry of Culture in Greece and the Ministry of Culture in Egypt
to ensure cultural property receives due attention and care. The
argument of the lack of an ability for preservation of precious cultural
property holds no water in light of these developments.

Lastly, the idea that cultural property can be granted full accessibility
only in the country of the coloniser is at best haughty and parochial

47 Anne Erdos, Return and Restitution of Cultural Property (31, United Nations
Educational, Scientific and Cultural Organisation France 1979) 58.
2019] Deconstructing the Dichotomy in Cultural Property Law 121

in nature. There are only a few percentages of persons who can

afford to visit Britain or France to see the cultural property displayed
in their museums. It is almost a dream for an average Indian with a
Gross National Income of USD 1,680 or an average Egyptian with
a Gross National Income of USD 3410, who is barely able to make
ends meet, to visit the Tower of London or the Louvre museum in
France.48 He is unable to view the cultural property residing there
which was plundered from his country and of which he ought to be
the rightful owner. If cultural property is returned to the colonies, not
only would the people of that country, who ought to be the rightful
heirs, be able to first-hand witness their own cultural property, but
it would also provide a great boost to the tourism industry of the
former colony. This move would incentivise a large number of foreign
tourists to flock to these countries to experience their rich cultural
heritage and stimulate economic growth in this sphere. Further, even
if the argument of greater accessibility in the metropoles compared
to the colonies is deemed to be a tangible benefit, it can be said that
the benefits of reuniting the colonial people with their heritage which
is so integral to their life, outweighs any benefit of better access and
visibility in the metropoles.49

3. Proposed Solution

Objects like Maharaj Ranjit Singh’s golden throne, the Kohinoor,

Amravati sculptures and Tipu Sultan’s famous mechanical tiger
are examples of exemplary Indian craftsmanship that remain
in the custody of the British even after more than 70 years of
independence.50 Such amassing of cultural property by colonial powers

48 —— World Bank at https://data.worldbank.org/country/india?view=chart ; ——
World Bank at https://data.worldbank.org/?locations=IN-EG (last visited 24 February
2019).

49 Irini A Stamatoudi, Cultural Property Law and Restitution: A Commentary to
International Conventions and European Union Law, 39 (2011).

50 Sonali Pimputkar, ‘Not just Kohinoor these Indian treasures are also in foreign
custody’ (2008) The Free Press Journal at http://www.freepressjournal.in/featured-
blog/not-just-kohinoor-even-these-indian-treasures-are-in-foreign-custody/1222577
(last visited 24 February 2019).
122 The Law Review, Government Law College [Vol. 10

serves as a flagrant reminder of the injustices perpetrated against the

colonies by the colonisers. It is imperative to realise that colonised
states and indigenous groups have been unfairly deprived of their
cultural property, which were either surreptitiously or under coercion
removed from their national boundaries. The colonised states are
justified in demanding a return of their cultural property belonging
to these people. The restitution of cultural patrimony will provide an
opportunity to the people to reconnect with their traditional culture
and to rediscover a part of their identity which they lost years ago.
Artefacts are symbols of achievements of a country, their return will
play a great role in inspiring indigenous artists and craftsmen and will
motivate them to scale greater heights. It must be remembered that
unless cultural property is returned to the colonies, it will continue
to remain evidence of the evils of loot, arsenal and pillaging that
colonialism was all about.

Further, today in the 21st century where the concept of sovereignty

of a state is regarded as sacrosanct, 51 and a sovereign state has
complete freedom of action in all its matters without being subject to
the authority of any foreign power, it is only fair that countries are
entitled to equal freedom and right over the cultural property created
by their ancestors without any interference from any external state or
authority. A sovereign state must have an unimpeded right to retain,
enjoy and recover its cultural heritage. It is only when former colonies
can claim recovery of objects that bear witness to their identity and
civilisation as a matter of right, without having to be at the mercy of
its metropoles, that these former colonies may be considered to be on
equal footing with their metropoles and do justice to the mandate of
sovereignty in the true sense of the word.

B. Multiplicity in Ownership Claims

The theories of cultural nationalism and cultural internationalism,

based on individual parameters of ownership, access, preservation

51 The Charter of the United Nations (adopted on 26 June 1945, entered into force 24
October 1945) 1 UNTS XVI, article 2.
2019] Deconstructing the Dichotomy in Cultural Property Law 123

and protection respectively, recognise only a single country which

can be regarded as the owner or keeper of cultural property. Both
these theories fail to address the dilemma as to which country should
be given ownership and possession of a piece of cultural property
where more than two nations stake a claim over it. This segment
analyses three distinct situations under which it would be difficult
to individually attribute ownership to one particular country, and
outlines the road ahead so as to provide a framework under which
such countries can jointly enjoy the cultural property.

1. Culture Traversing Territorial Boundaries

In Peru v. Johnson, 52 the dispute arose when cultural antiquities

from the Moche culture, a Peruvian pre-Columbian culture, were
looted from Sipin and illicitly imported into the United States. Peru
filed a civil suit for recovery of its artefacts. In its judgment, the
United States District Court of California held that Peru could not
conclusively prove its ownership over the antiquities since the Moche
culture spanned not only across Peru but also included areas that
were part of modern day Bolivia and Ecuador.53 In this case, if only
one country was to be chosen as the legitimate descendant of Moche
antiquities, the obvious question which arises is what makes a claim of
Peru to Moche cultural property more deserving than an Ecuadorian
or a Bolivian claim? Here, one cannot conclusively determine the
exact nature of the ownership of Peru, Bolivia and Ecuador. However,
the aforementioned countries could contemplate claiming equal and
joint ownership over the Moche antiquities.

In circumstances like these where cultural property stems out of a

particular culture or community that once resided in an expansive
region, but have over the years disintegrated and got categorised
into well-defined sovereign states, there is a discernible difficulty in
ascertaining an exclusive owner of the antiquities. The followers of
the culture in all states may stake a claim to cultural property. Such
property belongs to their shared culture and heritage and equally

52 Government of Peru v. Johnson 720 F. Supp. 812 (DC Cir 1989).

53 Government of Peru v. Johnson 720 F. Supp. 812 (DC Cir 1989), para 1.
124 The Law Review, Government Law College [Vol. 10

ties them all to their ancestors. In such cases, it is neither fair nor
equitable for one country to be heralded as the heir to the cultural
property.

a. Contribution of Diverse Countries

In circumstances where cultural property has changed myriad

locations, and two or more nations stake a claim to a piece of cultural
property, there is a deadlock. There is ambiguity as to the right of
which nation would gain precedence over the other.54

The case of the Hebrew manuscripts 55 is one such affair which

exemplifies the tussle between countries claiming provenance to
the manuscripts. The Hebrew manuscripts were taken from various
sources at different points of times. Hebrew books were written
in different countries like Islamic-ruled Spain, North Africa, and
Christian Europe among others. The local environment of each
country left a deep and unique effect on these manuscripts. If the
Hebrew manuscripts which are currently housed in the Russian
National Library, St. Petersburg, were to be restituted, there is
no single country that could make a claim of being the exclusive
possessor of the manuscripts. It has been suggested by many that
the manuscripts should be restituted to Israel, which is supposedly
considered as the official Jewish state. However, it is questionable
whether Israel—a single state, which came into existence only in
1948, and by mere reason of it being a Jew dominant state—has a
strong enough claim to represent all the different cultures that have
contributed to these manuscripts.56

54 Yehuda Blum , ‘On the Restitution of Jewish Cultural Property Looted in World War
II’ (2000) 94 American Society of International Law 88, 101.

55 Hebrew manuscripts are a handwritten copy of a portion of the text of the Hebrew
Bible (Tanakh) made on papyrus, parchment, or paper, and written in the Hebrew
language. The oldest manuscripts were written in a form of scroll, the medieval
manuscripts usually were written in a form of codex. The late manuscripts written
after the ninth century use the Masoretic text.

56 Barnavi, ‘Hebrew Manuscripts in the middle ages’ (2015) Jewish Learning , at http://
www.myjewishlearning.com/article/hebrew-manuscripts-in-the-middle-ages/ (last
visited 24 February 2019).
2019] Deconstructing the Dichotomy in Cultural Property Law 125

b. Eventual Disintegration of Conjoined Regions and Dynastic Empires

In the case of the Kohinoor diamond,57 both India and Pakistan are
at loggerheads, with each claiming to be the rightful owner of the
diamond, and demanding its repatriation from England. Maharaj
Ranjit Singh, the then ruler of Punjab and Lahore, was the original
owner of the Kohinoor diamond. After the death of Maharaj Ranjit
Singh, the diamond was passed on to his twelve year old son, Duleep
Singh. The treaty of Lahore signed between Maharaj Duleep Singh
and the British divested him of his rights over the Kohinoor and
subsequently the diamond came into the possession of the British.58

On one hand, Pakistan believes that since the diamond was

surrendered in Lahore, now part of the territory of present day
Pakistan, the diamond should be repatriated to Pakistan. 59 On the
other hand, India believes that the Kohinoor is traditionally part of its
own cultural property, forcibly taken out of its control by the British
during the colonial era, and which must now be repatriated to India.
The question of the Kohinoor is indeed perplexing. Both India and
Pakistan were, at that time, a part of one nation—the erstwhile British
India—and predominantly shared a common culture and heritage.
Recognising any one of the countries as the source nation, and
thereby entitling that country to retain the Kohinoor, will in effect
deprive the other country of its cultural patrimony.

In situations like these where antiquities originally belonging to an

empire or a country which no longer exists, and has split into several
independent countries, the theories of cultural property are not precise

57 The Kohinoor is a 106 carat diamond which was once the largest diamond in the
world. Previously, it has belonged to various rulers in India; today it lies in the hands
of the British royal family and is part of the Crown Jewels.

58 Utkarsh Anand, ‘The Kohinoor Controversy: The 1970 UN Convention now offers
some answers’ (2016) The Indian Express, at http://indianexpress.com/article/
explained/kohinoor-controversy-1970-un-convention-offers-answers-12762766/ (last
visited 24 February 2019).

59 Saby Goshray , ‘Repariation of the Kohinoor Diamond: Expanding the Legal Paradigm
for Cultural Heritage’ (2007) 31 Fordham International Law Journal, 741, 752.
126 The Law Review, Government Law College [Vol. 10

as to which would then be the rightful place of provenance of the

cultural property.

c. Proposed Solution

In all of the above discussed scenarios, giving one country an

exclusive ownership over the cultural property will amount to denying
the right of other countries to their cultural patrimony. The non-
receiving countries will be at the mercy of the legally recognised
owner to be able to associate with and access their past heritage, of
which they ought to be equal inheritors. It is grossly unfair to let only
one country possess an unfettered title over the cultural antiquities,
while its counterparts possess an equally valid title over the cultural
property.

The existence of such competing claims over cultural property only

works to the advantage of former colonial powers, as these nations
now have an opportunity to fend off claims of restitution raised by
such countries on grounds of uncertainty of provenance, and can
continue to retain wrongfully acquired cultural property. Britain, for
instance, has been reaping the benefits of the Kohinoor, while India
and Pakistan squabble over its ownership.

In light of this, the author proposes that in situations where a number

of states of a region possess a valid title over a common cultural
antiquity, each country should be recognised as the ‘co-owner’ of the
cultural property. Each co-owner should have an equal claim over the
cultural property. Further, instead of a particular co-owner being given
the right to display the cultural property, a regional organisation to
which a number of co-owners belong must be entrusted with the task
of protecting and preserving the cultural property. For instance, the
African Union, a regional organisation representing over fifty African
countries, could be assigned the task of safekeeping common cultural
property belonging to a number of African States. This would help
in the decentralisation of power in the region as no single owner
can wield a greater influence over the cultural property than its
counterpart. It also reduces the possibility of any kind of animosity
among different co-owners. The regional organisation would provide
a medium for the co-owners to come together, thaw their differences
2019] Deconstructing the Dichotomy in Cultural Property Law 127

and unite in their struggle to bring back their cultural property.

Further, it would also ensure a better bargaining power for the
co-owners vis-à-vis their individual capacity to bargain with a foreign
power. In this manner, regional organisations will bridge disparity and
provide an equal footing to various co-owners of the cultural property.

C. A Tale of Regions Rife with Conflict

Several countries harbour the notion that their cultural property is

only safe within the borders of their country, in lieu of which they
tighten their borders and implement stringent restrictions on any
sort of transfer of cultural property. However, this perception may
not always be best suited for ensuring effective protection of cultural
property in certain exceptional cases.

Often, in crisis situations including armed hostilities and insurgencies,

artefacts within the boundaries of the conflict-torn nation can be
subject to destruction through vandalism, arson or neglect by deviant
forces. The wanton destruction of cultural property by the Islamic
State of Iraq and Syria (ISIS) in Syria and the unconscionable damage
to cultural property caused by the Taliban in Afghanistan bears
testament to the fact that mere retention of cultural property within
a source country may not always be optimal. In certain compelling
situations, source countries must dispel this notion in order to prevent
their cultural property from being destroyed.

1. When Cultural Property Fell Prey to Warring Factions

Afghanistan’s unique geographical position made it a focal trade

route connecting the east to the west. Trade, apart from bringing in
economic prosperity, also contributed to the country by becoming
a throughway of various cultures. Cultural segments as diverse as
the Bronze Age, the Greek epoch, Buddhist and Islamic influences
were attracted to the fertile region. Each culture brought with it its
unique artistic convention, which enriched the country’s heritage.
Artefacts ranging from gold and bronze ornaments, effigies belonging
to the Bronze Age to Ghandharan sculptures showcasing the earliest
figural depictions of Buddha, and Islamic paintings with intricate
128 The Law Review, Government Law College [Vol. 10

geometrical lacing were found in Afghanistan.60 This expansive art

and architecture collection earned it a distinction of being an art-
rich country. However, the reign of the Taliban, a fundamentalist
belligerent group in Afghanistan, from 1996-2001, changed the
political and social landscape of the country. Afghanistan, once
a rich cultural repository, was reduced to ravages. The Taliban
annihilated Afghan cultural heritage that the country boasted of.
The Kabul Museum, which housed a diverse range of artefacts, was
ransacked. 140,000 cultural objects ranging from Islamic art to Roman
bronze effigies were destroyed.61 Ancient archaeological sites in the
country were pilfered. Valuable antiques showcasing the rich Afghan
civilisation were sold to bordering countries for paltry sums.62 All the
purloining and destruction left Afghanistan with nothing but smoke
smothered museums, shattered artefacts and lost history.

The destruction by the Taliban was followed by the Arab Spring in

2010. The Arab Spring, which may have brought in a ray of hope
for freedom and democracy in the Middle Eastern states, ended up
giving a major blow to the cultural heritage of mankind. In the face
of revolution, collective public sentiment propelled the destruction
of cultural property as a means to express anger against the ruling
government.63 In Egypt, the Cairo Museum that was home to the
most splendid works of art from around the world, fell prey to
destruction.64 During this time, a number of artefacts were looted and

60 Gil Stein, ‘The War Ravaged Cultural Heritage of Afghanistan : An overview
of Projects of Assesment, Mitigation and Preservation’ (2015) 78 Near Eastern
Archaeology, 187, 189.

61 Andrea Cunning, ‘U.S. Policy on the Enforcement of Foreign Export Restrictions on
Cultural Property & Destructive Aspects of Retention Schemes’ (2004) 26 Houston
Journal of International Law, 450, 496.

62 James Cuno, ‘The Whole World’s Treasures’ (2001) Boston Globe, at http://www.
law.harvard.edu/faculty/martin/art_law/cuno.htm (last visited 24 February 2019).

63 Yoma Sarhan, ‘The Arab spring and the state of Egypt’s antiquities’ (2014) Wilson
Centre, at https://www.wilsoncenter.org/event/the-arab-spring-and-the-state-egypts-
antiquities (last visited 24 February 2019).

64 Alexander Joffe, ‘Egypt’s Antiquities Caught in the Revolution’, The Middle East
Quaterly (2011) 73.
2019] Deconstructing the Dichotomy in Cultural Property Law 129

smuggled to foreign countries. The invaluable objects lost included

a statue of King Tutankhamun and a statue of Queen Nefertiti.
King Tutankhamun was the 18th dynasty Egyptian pharaoh widely
remembered for the numerous building projects undertaken under
his patronage. The majestic statue of the king was made of wood,
and portrayed him being carried by a goddess. Queen Nefertiti, on
the other hand, was one of the most powerful and beautiful women
of Egypt and the wife of the great Egyptian pharaoh, Akhenaten. She
was known for her worship of the sun God, Aten, and the new belief
system created by her that changed the ways of religion within Egypt.
The statue of the majestic Queen was made of sandstone and depicted
her making offerings to God.65 Thus, after all the loot and plunder,
Cairo Museum was reduced from a culturally significant building to
a plain, vandalised site.

Syria and Iraq witnessed the rise of a fanatic insurgent group, ISIS,
who had blatant disregard for cultural property.66 ISIS wrecked not
only invaluable manuscripts and Islamic books housed in libraries,
but also pillaged museums and destroyed artefacts, antiques and
architecture.67 The situation worsened in 2014, when ISIS captured
eastern Syria and Mosul in Iraq. Videos were released showing
artefacts displayed in the museum in Mosul being destroyed and
several parts of the site of Palmyra being demolished.68 To ISIS,
these artefacts and statues were nothing more than stone and metal
used to honour false Gods. They plundered and desecrated the

65 Farah Halime, ‘Revolution Brings Hard Times for Egypt’s Treasures’ (2012) , New
York Times, at http://www.nytimes.com/2012/11/01/world/middleeast/revolution-
brings-hard-times-for-egypts-treasures.html (last visited 24 February 2019).

66 Amr Al-Azm, ‘The Pillaging of Syria’s Cultural Heritage’ (2015) Middle East
Institute, at http://www.mei.edu/content/at/pillaging-syrias-cultural-heritage (last
visited on 24 February 2019).

67 Graciela Gestoso Singer, ‘ISIS’s War on Cultural Heritage and Memory’ (2015) 6
UK Blue Shield, 1, 2.

68 Allison Cuneo, Susan Penacho and LeeAnn Barnes Gordon , ‘Special Report: Update
on the Situation in Palmyra’ (2015) ASOR Cultural Heritage Initiatives, at http://
www.asor-syrianheritage.org/special-report-update-on-the-situation-in-palmyra/.
(last visited 24 February 2019).
130 The Law Review, Government Law College [Vol. 10

Assyrian capital of Khorsabad, famous for the oldest artefacts in Iraq,

without even a semblance of remorse. ISIS carried on looting on
archaeological and historical sites, and raised about USD 200 million
every year from this to fund its terror activities.69 ISIS’ acts of cultural
destruction have obliterated the rich and diverse foundation of Syrian
art and heritage.

2. Proposed Solution

The pilfering and destruction carried on in the aforementioned

instances has led to the loss of cultural heritage of not just the citizens
of the source nations, but of humanity as a whole. More than 200
years of history represented by the Syrian and Egyptian cultural
property, can no longer be witnessed by human civilization. The
creativity and culture of our ancestors has been lost forever.

To avoid such a travesty, such objects should be tranferred into

museums of countries where they would be assured professional
care and attention, and better preservation of the antiquities, than in
home countries where it is likely that it will be subject to heightened
exposure to proprietary destruction. In case of immovable property,
it is impossible to transfer the monuments out of the nation, and
hence that destruction cannot be prevented. However, in case of
movable property, where there is a slight chance to safeguard and
protect these assets, every effort must be expended to transfer the
cultural property to a safer environment. It would be prudent for
source nations to hand over their artefacts for a temporary period
to neutral organisations, like the United Nations Education Scientific
and Cultural Organisation or the International Council of Museums,
which would be in a better position to safeguard the cultural objects.
A kind of a trust relationship can be established between the two
sides. The safekeeping organisation would be a trustee (a person or
country who administers the trust) and the source nation would be
the beneficiary (a person or country who receives the benefits of

69 Louis Charbonneau, ‘ISIS is making $200 million from stolen artefacts’ (2016)
Business Insider, at http://www.businessinsider.com/r-islamic-state-nets-up-to-200-
million-a-year-from-antiquities-russia-2016-4?IR=T (last visited 24 February 2019).
2019] Deconstructing the Dichotomy in Cultural Property Law 131

the trust).70 The trustee country or organisation would preserve and

protect the cultural property, and keep it within its safe custody until
the belligerent situation in the source nation comes to an end and
conditions stabilise. Thereafter, the trustee organisation will transfer
the cultural property to the source nation.

An interesting instance of such a forged trust relationship dates back

to the late 1990s, when a few Afghan cultural assets were temporarily
held by the Afghanistan Museum-in-Exile in Bubendorf, Switzerland,
during periods of rising conflict in Afghanistan.71 If these cultural
assets had been left behind in Afghanistan, they too would have faced
the same fate as the remaining cultural property in the country. It is
because these assets were transferred to the Afghanistan Museum-
in-Exile in Bubendorf, Switzerland, that the people of the world still
have the opportunity to marvel at them. Thus, through this trust
mechanism, cultural objects can be protected from the actions of
pernicious forces and can be safeguarded from being lost forever.

D. The Parthenon Marbles Wrangle

1. Greece versus Britain

The scuffle between Greece and England regarding the ownership of

the Parthenon Marbles has garnered much attention worldwide. The
Parthenon Marbles dispute is one of the most renowned amongst the
cultural property repatriation cases.

The Parthenon Temple,72 built in around 447 BC was viewed as a

divine work of the Hellenistic culture. The Temple was decorated

70 Nertila Sulce, ‘Trust as a Relationship Treated by Common Law Legal Systems
and as a Relationship Treated by Civil Law Legal Systems. Things in Common and
Comparison between the Two Systems’, (2015), 4 European Journal of Sustainable
Development, 102, 103.

71 ——, ‘Museum in Exile : Swiss foundation safeguards over 1,400 Afghan artefacts’,
UNESCO, at http://www.unesco.org/new/en/culture/themes/museums/museum-
projects/archive/museum-in-exile-swiss-foundation-safeguards-over-1400-afghan-
artefacts/ (last visited 24 February 2019).

72 ——, ‘An introduction to the Parthenon and its sculptures’, The British Museum
Blog, available at https://blog.britishmuseum.org/an-introduction-to-the-parthenon-
and-its-sculptures/ (last visited 24 February 2019).
132 The Law Review, Government Law College [Vol. 10

with delicately carved marble friezes and sculptures. These sculptures

depicted episodes from the battle between the Olympian Gods and
the giants, the battle between the Olympians and the Amazons
and the Trojan War. The friezes which were about 160 metres long
with 115 panels, displayed the Greek procession on their way to
the panathenaic festival, a festival celebrated in Greece to honour
the goddess Athena. The friezes and sculptures were placed on the
exterior of the Temple and greatly added to the aura and prestige of
the edifice.

However, in the seventh century, on the basis of a permit allegedly

given by the Ottoman Empire, the then ruling kingdom of Greece,
Lord Elgin, a representative of the British crown, removed a plethora
of friezes and marble sculptures from the Greek Temple and shipped
them to Britain. In around 1816, Lord Elgin sold these marbles to
the British Museum, and since then the marbles have been adorned
there.73

Since gaining independence, the Greek Government has vehemently

demanded return of the Parthenon Marbles. They contend that
removal of the Parthenon Marbles from Greece was immoral, as
Lord Elgin, in the first place, had no authority to remove the treasure
outside the territorial borders of Greece. Further, the Parthenon
Marbles are intricately linked to Greek cultural heritage and they
must be returned to their rightful owner.74

The Parthenon Marbles, together with the Temple of Parthenon,

conveyed a glimpse of life and religion in ancient Athens. The
de-contextualisation of the Parthenon Marbles from Greece has greatly
hampered the integrity of the Temple.75 Britain and the proponents
of cultural internationalism argue that for centuries the Parthenon

73 John Henry Merryman, supra n. 21, 150

74 Leila Aminneddoleh, ‘The British Museum Should Return : The Parthenon Marbles
To Greece’ (2014) Forbes, at https://www.forbes.com/sites/realspin/2014/12/23/
the-british-museum-should-return-the-parthenon-marbles-to-greece/#1d510ca129e5
(last visited 24 February 2019).

75 Andromache Gazi, ‘Museums and National Cultural Property II: The Parthenon
Marbles’ (1990) 9 Museum Management and Curatorship 241, 246.
2019] Deconstructing the Dichotomy in Cultural Property Law 133

Marbles have been better preserved in the British Museum. If left

in Greece, they would have been subject to deterioration on account
of acute pollution. Moreover, it is contended that the Parthenon
Marbles are better viewed and studied by scholars in the British
Museum, in the context of artefacts from other civilizations like the
Egyptian, Syrian and many others.76 The wide accessibility granted
to the Parthenon Marbles in the British museum has brought about
approbation, and renewed interest in Greek history worldwide.77

The Greeks, on the other hand, contend that the imperialistic attitude
of Britain that only they can protect and preserve the Parthenon
Marbles, is misplaced. The Parthenon Marbles would remain equally
safe in the Acropolis Museum, specially created by the Greek
Government to house the Marbles. The Marbles would be secure
from environmental hazards under controlled conditions. The British
now have no reason to retain the Parthenon Marbles and they must
be returned to Greece.78

Britain argues that even if the Parthenon Marbles were to be returned

to Greece, they would be housed in the Acropolis Museum next to
the Temple, and not in their original context on the Temple. In this
way, the restitution of the Parthenon Marbles to Greece may not
entirely restore the context and integrity of the Parthenon Temple.
In such circumstances, the return of the Parthenon Marbles has been
allegedly considered meaningless.79

2. Need for Cooperation between the Two Countries

It is undoubtedly true that source nations are well justified in

claiming the return of their lost cultural patrimony. Objects that are

76 Dorothy King, The Elign Marbles, (1st edn. Random House United Kingdom 2006)
298-299.

77 Ibid, 305.

78 Melineh Ounanian, ‘Of all the Things I’ve Lost, I miss my Marbles the Most! An
Alternative Approach to the Epic Problem of the Elgin Marbles’ (2007) 9 Cardozo
Journal of Conflict Resolution 109,114.

79 John H Stubbs and Emily Makas, ‘Architectural Conservation in Europe and the
Americas’ (2005) Flinders University at https://dspace2.flinders.edu.au/xmlui/
bitstream/handle/2328/8156/241_262%20simpson.pdf?sequence=1 (last visited 24
February 2019).
134 The Law Review, Government Law College [Vol. 10

closely linked to the history of a state or community, essential to

the understanding of the heritage, must be returned to the source
nation. However, the claims of world museums80 that have for years
preserved and protected these cultural artefacts cannot be completely
disregarded. It would be unfair to expect a universal museum to
return each and every effigy and statue demanded for restitution by
source nations.

In the situation relating to the repatriation of the Parthenon Marbles,

the claim of neither country can be discounted. It is trite that Greece
has a right over the Marbles that are intricately connected to Greek
culture and life. The fact that Greece has gone ahead and built a
museum to specially house the Marbles shows that the country is
yearning to have its priceless artefact returned and is committed to go
to great length to protect and preserve it.81 The claim of the British
Museum is also not completely without reason. Historically, they had
removed the Marbles and transferred them to Britain after obtaining
the requisite permission. The fact that Greece now claims82 that the
consent of the Ottoman Empire was of no consequence and that the
consent of the Greeks was not taken, may be perceived as unjust.
Further, there exists a fear that if the Parthenon Marbles are restituted,
it would be tantamount to opening a Pandora’s box—with each
country claiming the return of all its cultural artefacts. In situations
like these, it is imperative for countries to try and reach a middle
ground through the medium of diplomacy and to find a solution.

80 Ibid.

81 Andrew Pierce, ‘Greek Government unveils new home for Elgin Marbles’(2009) The
Telegraph at https://www.telegraph.co.uk/news/worldnews/europe/greece/5304133/
Greek-government-unveils-new-home-for-Elgin-Marbles.html (last visited 24
February 2019).

82 Dominic Selwood, ‘Greek knows there is no legal right to the Elgin marbles-that
is why it won’t sue the UK’ (2015) The Telegraph at https://www.telegraph.co.uk/
news/worldnews/europe/greece/11604991/Greece-knows-there-is-no-legal-right-
to-the-Elgin-Marbles-thats-why-it-wont-sue-the-UK.html (last visited 24 February
2019).
2019] Deconstructing the Dichotomy in Cultural Property Law 135

International exchanges, long term loans and memorandums of

understanding between the two countries can be considered for
promoting understanding and harmony between the countries.
The agreement entered into between Nigeria and France on the
subject of the Sokoto and Nok statues is also a specimen of such
mutual understanding.83 The Sokoto and Nok terracotta statues are
the oldest sculptures to be found in West Africa. These statues of
humans and animals with distinctive features, represent a rare form
of artistry found exclusively in the West African region. Being one
of the most sought-after forms of art, these statues were looted from
Nigeria in 1998 and entered the French art market, where they were
eventually bought by the French Government from a private dealer.
Nigeria claimed that the works of art had been illegally exported
from the country, while France maintained that they had validly and
legally bought the statues.84 However, following a rigorous round of
negotiation between the two countries, an agreement was concluded
between them wherein France recognised Nigeria’s ownership over the
statues but the objects would continue to be displayed in the French
museum for 25 years, subject to a joint renewable agreement.85 This
cooperative approach has helped the two countries end a bitter feud
without jeopardising the interests of either side.

A similar kind of understanding can put an end to the Parthenon

Marbles controversy. An agreement can be entered into between
the countries whereby the British museum recognises Greece’s
ownership over the Marbles, and agrees to loan to Greece the
Parthenon Marbles for a specified period. In exchange for receiving
the Parthenon Marbles, Greece must provide to Britain an opportunity
to temporarily exhibit and study unique Greek artefacts. This
understanding will be advantageous for both the countries. Greece
will get unimpeded ownership over its most prized artefact, and its

83 Ece Velioglu, ‘Case Three Nok and Sokoto Sculptures – Nigeria and France’ (2012)
1 Platform ArThemis 1, 5.

84 Ibid, 2.

85 Marie Cornu and Marc Andre-Renold, ‘New Developments in the Restitution of
Cultural Property : Alternative means of Dispute Settlement’ (2009) Journal Du
Droit International, 1, 2.
136 The Law Review, Government Law College [Vol. 10

citizens will also get a chance to associate with and access its treasures
after years. While for Britain, not only will it retain the ultimate right
to access and display the Parthenon Marbles, but it will also get an
opportunity to study, access and display to its visitors, exquisite and
ancient Greek artefacts. An acrimonious dispute can indeed be solved
with a bit of compromise on both sides. Thus, it is advisable for all
countries facing such disputes to be circumspect and not think in
terms of wins and losses, but to recognise the concern on both the
sides and to amicably resolve the dispute.

IV. Conclusion

The debate surrounding cultural property is often biased with each

side inclined to favour a predisposed ideological view. After analysing
the two theories—nationalism and internationalism–thoroughly,
the question which arises is: Are cultural internationalists justified
in demanding retention of cultural property? The principles of
preservation, protection and access are undoubtedly important to
an extent, but they are not as critical so as to trump considerations
of ownership, sentiments or linkage to heritage. Cultural property is
integral to the identity of mankind and every effort must be expended
to protect it. However, the off-chance of the cultural property being
destroyed in the source nation should not result in the citizens
of that country being deprived of the opportunity of beholding
their cherished cultural property. It would be fairly reasonable to
facilitate transfer of cultural property to secured locations in times
of unrest, but not otherwise. The elitist notion followed by cultural
internationalists that cultural property is safe only in highly developed
countries is an example of the stance of naked retentionism followed
by these countries.

Decades have passed since former colonies and nations alike have
attained independence and the United Nations Charter explicitly
recognises 86 every nation’s unimpeachable right of sovereignty.

86 The Charter of the United Nations, article 2.
2019] Deconstructing the Dichotomy in Cultural Property Law 137

A corollary of independence is the equality of states, historically

expressed by the maxim par in parem non habet imperium.87 It is only
when one country respects the right of sovereignty and integrity of the
other, such respect extending to the ownership of its cultural property,
and does not unjustly enrich its self at the expense of the other, that
parity between the states can be achieved in the truest sense.

It is high time that countries engage in diplomatic discussions and

negotiations to resolve this issue. Such mediums will facilitate in
striking a balance between the varying interests of different states.
An amicable return of cultural property by market nations to source
nations world over will serve as the greatest hallmark of civilised
society as a whole.

87 James Crawford, Brownlie’s Principles of Public International Law (8th edn Oxford
University Press 2012), 448. The maxim translates to ‘For it is not one city to make
the law upon another, for an equal has no power over an equal’.
138 The Law Review, Government Law College [Vol. 10

DETERMINING DISGORGEMENT IN
SECURITIES LAW†
Vidhi Shah *

I. Introduction

A regulatory power frequently exercised by securities commissions

across various jurisdictions, disgorgement is an indispensible tool to
square off unjust enrichment availed by any participant in the capital
markets. The Black’s Law Dictionary defines disgorgement as ‘the act
of giving up something (such as profits illegally obtained) on demand
or by legal compulsion.’1 The primary purpose of disgorgement is
to deter violations of securities laws by depriving violators of their
ill-gotten gains. 2 To disgorge means to deprive a person of the
value by which he has been unjustly enriched. Unjust enrichment,
in turn, refers to the retention of certain benefits, which is not
legally justifiable. Therefore, disgorgement as a remedial measure in
securities law involves a wrongdoer being stripped of the unlawful
profits or wrongful gains made by him. The underlying idea and
purpose behind this remedial measure is that no person should be
permitted the opportunity to profit from his wrongdoing. Therefore,
even before any punishment or penalty is levied, it is quintessential
to deprive a wrongdoer of the fruits of his misconduct or wrongdoing.
In this sense, disgorgement may be understood as a primary and
basic remedy. Put in simple terms, the objective of disgorgement is to
restore status quo ante, ie, the situation and conditions which existed
prior to the commission of the legal contravention.

† This article reflects the position of law as on 24 February 2019.

* The author is a student of Government Law College, Mumbai and is presently studying
in the Fifth Year of the Five Year Law Course. She can be contacted at vidhihshah98@
gmail.com
1 Bryan A Garner, Black’s Law Dictionary (10th edn Thomson Reuters 2014) 568.
2 Kokesh v. SEC 137 S. Ct. 1635 (2017); SEC v. Fischbach Corp., 133 F. 3d 170, 175
(CA2 1997) and SEC v. First Jersey Securities, Inc., 101 F. 3d 1450, 1474 (CA2
1996).
2019] Determining Disgorgement in Securities Law 139

Today, while the legitimacy of disgorgement as a remedy has

received acceptance in the securities enforcement context, regulatory
commissions are left to decide what must be included in the
quantification of disgorgement and how disgorgement must be
quantified. Globally, securities commissions have developed and
employed varied methods for the calculation of disgorgement. A
perusal of these methods highlights the equitable characteristics which
are inherent in disgorgement as a form of remedy for the violation of
securities law. Thus, the objective of this article is to understand the
nature of disgorgement in the context of its evolution, its constituents
and its calculation by regulatory commissions. For the purpose of this
article, the author will rely on securities law in the United States of
America (USA) as a reference model in view of the sophistication
and maturity of the securities market and law in USA and extensive
reliance by Indian authorities thereon.3

Part II of this article traces the evolution of disgorgement in USA

and India. Part III analyses disgorgement as a distinct and unique
remedy. Part IV examines the jurisprudence governing the constituents
of disgorgement and its quantification by the Securities Exchange
Commission (SEC) in USA. Part V expounds the jurisprudence on
the constituents and computation of disgorgement as adopted by
the Securities and Exchange Board of India (SEBI). Part VI seeks
to explore and develop certain standards for the calculation of
disgorgement. Part VII concludes.

II. Evolution of Disgorgement in India and USA

A. Evolution of Disgorgement in USA

In its year of enactment, the Securities Exchange Act, 19344 did not
include any separate statutory provision for disgorgement. The
remedies, which it provided for, inter alia included injunctions and
civil penalties. The law was rooted in the rule that equity ought

3 See Rakesh Agarwal v. SEBI (SAT Appeal No. 33 of 2001) Order dated 03.11.2003
and Bharat Jayantilal Patel v. SEBI (SAT Appeal No. 126 of 2010) Order dated
15.09.2010.

4 Securities Exchange Act, 1934 15 U.S.C. § 78a et seq.
140 The Law Review, Government Law College [Vol. 10

not to intervene where an adequate legal remedy exists.5 In 1971,

disgorgement or rather ‘restitution of unlawful gains’ was considered
and upheld in Securities Exchange Commission v. Texas Gulf (Texas Gulf).6
In this case, it was argued that the SEC was not conferred with the
general equitable power of ordering ‘restitution of illegal profits’. It
could only order injunctive relief and such other ancillary remedy
as may be necessary to enforce such injunctive relief.7 Therefore,
ordering restitution of unlawful profits would in essence constitute a
‘penalty’.8 However, the court dismissed the argument on the ground
that it would defeat the purposes of the Securities Exchange Act, 1934 if
a violator of Rule 10b-59 were allowed to retain the profits from his
violation.10 This marked an essential departure from the previously
outlawed claim of the SEC to order disgorgement. As a consequence
of Texas Gulf, courts came to accept as truism, the notion that
disgorgement is inherently an ancillary equitable remedy.11 In the year
1990, the US Congress conferred statutory sanction on the remedy of

5 John D Ellsworth, ‘Disgorgement in Securities Fraud Actions Bought by the SEC’

(1977) 3 Duke’s Law Journal 641.
6 SEC v. Texas Gulf 446 F.2d 1301, 1303-1311 (2d Cir. 1971), cert. denied, 404 US
1005 (1971).
7 Texas Gulf, 1307.
8 Texas Gulf, 1308.
9 § 240.10b-5, Employment of manipulative and deceptive devices: ‘It shall be unlawful
for any person, directly or indirectly, by the use of any means or instrumentality
of interstate commerce, or of the mails or of any facility of any national securities
exchange
(a) To employ any device, scheme, or artifice to defraud
(b) To make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person, in connection with the purchase
or sale of any security.’
10 See § 240.10b-5.
11 Russel G Ryan, ‘The Equity Façade of SEC Disgorgement’, Harvard Business Law
Review Online (2013), at http://www.hblr.org/2013/11/the-equity-facade-of-sec-
disgorgement/ (last visited 24 February 2019).
2019] Determining Disgorgement in Securities Law 141

disgorgement by the enactment of the Security Enforcement Remedies and

Penny Stock Reform Act, 1990.12

Subsequently, disgorgement has matured as an effective and frequently

employed remedy by the SEC, particularly in the context of securities
fraud and insider trading.13 It may be noted that in suits where the
SEC seeks enforcement of securities law, the SEC acts in its capacity
as a statutory regulator to protect and secure public interest. Hence,
in such cases, it is the threshold of public interest and not private
litigation that measures the propriety and need for equitable relief.14

B. Evolution of Disgorgement in India

Six years after the enactment of the Securities and Exchange Board of
India Act, 1992 (SEBI Act), SEBI made its first unsuccessful attempt
to direct disgorgement in the matter of Hindustan Lever Limited v.
SEBI.15 It endeavored to expand the ambit of its regulatory powers
to direct disgorgement through another unsuccessful attempt in Rakesh
Agarwal v. SEBI.16 SEBI made yet another attempt at disgorgement
in the Roopal Ben Panchal scam,17 cautious this time, to term it as ‘a
useful equitable remedy because it strips the perpetrator of the fruits
of his unlawful activity and returns him to the position, he was in,
before he broke the law.’18 The Roopal Ben Panchal scam, as referred

12 Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (SERPSRA),
Pub. L. No. 101-429, 104 Stat. 931. The Act expressly authorises accounting and
disgorgement in the securities laws.

13 SEC v. Shapiro, 494 F.2d 1301, 1303-1314 (2d Cir. 1974); Chris-Craft Industries,
Inc. v. Piper Aircraft Corp., 480 F.2d 341, 390-92 (2d Cir.), cert. denied, 414 U.S.
910 (1973); SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1103-06 (2d Cir.
1972).

14 See SEC v. Mgmt. Dynamics, Inc. 515 F.2d 801 (2d Cir. 1975) and James Tyler Kirk,
‘Deranged Disgorgement’, (2015) 8 J. Bus. Entrepreneurship & L. 131.

15
Hindustan Lever Ltd. v. SEBI [1998] 18 SCL 311 (AA) and Sumit Agrawal and Robin
Joseph Baby, SEBI ACT: A Legal Commentary on Securities and Exchange Board
of India Act, 1992 (Taxmann Publication 2011).

16 See Rakesh Agarwal v. SEBI (SAT Appeal No. 33 of 2001) Order dated 03.11.2003.

17 SEBI order in the matter of investigations into initial public offerings dated
21.11.2006.

18 Ibid.
142 The Law Review, Government Law College [Vol. 10

to in common market parlance, involved the cornering of retail

category shares in certain initial public offers and was different in
being characterised as a ‘useful compensatory remedy’.19 Subsequently,
disgorgement was directed by SEBI and upheld by the Securities
Appellate Tribunal (SAT) in a multitude of cases.20 SAT has further
clarified that since the chief purpose of disgorgement is to make
sure that the wrongdoers do not profit from their wrongdoing, the
disgorgement amount should not exceed the total profits realised as
a result of the unlawful activity.21 The burden of proving that the
amount sought to be disgorged ‘reasonably approximates’ the amount
of unjust enrichment lies on SEBI.22

However, it was only in the year 2014, that section 11B23 of the SEBI
Act was amended to incorporate and establish disgorgement as an

19 Supra n. 15.
20 See Karvy Stock Broking Ltd. v. SEBI (SAT Appeal No. 6 of 2007) Order dated
2.05.2008; NSDL v. SEBI (SAT Appeal No. 147 of 2006) Order dated 22.11.2007;
Opee Stock Link Ltd. and Anr. v. SEBI (SAT Appeal No. 20 of 2009), Order dated
30.12.2009; Himani Patel v. SEBI (SAT Appeal No. 154 of 2009) Order dated
07.09.2009; Shadilal Chopra v. SEBI (SAT Appeal No. 201 of 2009) Order dated
02.12.2009; Dhaval Mehta v. SEBI (SAT Appeal No. 155 of 2008) Order dated
08.09.2009; Dushyant Dalal v. SEBI (SAT Appeal No. 182 of 2009) Order dated
12.11.2010.
21 Karvy Stock Broking Ltd. v. SEBI (SAT Appeal No. 6 of 2007) Order dated 02.05.2008.
22 Karvy Stock Broking Ltd. v. SEBI; Sumit Agrawal and Robin Joseph Baby, SEBI
ACT: A Legal Commentary on Securities And Exchange Board of India Act, 1992
(Taxmann Publication 2011).
23 SEBI Act, 1992, section 11B Power to issue directions: (before the 2014 amendment)
‘Save as otherwise provided in section 11, if after making or causing to be made an
enquiry, the Board is satisfied that it is necessary,—
(i) in the interest of investors, or orderly development of securities market; or
(ii) to prevent the affairs of any intermediary or other persons referred to in section 12
being conducted in a manner detrimental to the interest of investors or securities
market; or
(iii) to secure the proper management of any such intermediary or person,
it may issue such directions,—
(a) to any person or class of persons referred to in section 12, or associated with
the securities market; or
(b) to any company in respect of matters specified in section 11A, as may be
appropriate in the interests of investors in securities and the securities market.’
2019] Determining Disgorgement in Securities Law 143

explicit power of SEBI. The explanation to section 11B embodies the

statutory sanction to disgorgement and reads as follows:

‘For the removal of doubts, it is hereby declared that

the power to issue directions under this section shall
include and always be deemed to have been included
the power to direct any person, who made profit or
averted loss by indulging in any transaction or activity
in contravention of the provisions of this Act or
regulations made thereunder, to disgorge an amount
equivalent to the wrongful gain made or loss averted
by such contravention.’24

Section 12A of the Securities Contract Regulation Act, 1956 (SCRA)

and section 19 of the Depositories Act, 1996 are identical to section
11B of the SEBI Act. The concerned sections 12A and 19 were
also amended vide the Securities Law Amendment Act25 to include the
same explanation,26 which defines and confers legislative sanction to
disgorgement. Therefore, in Indian securities law, the power of SEBI
to order disgorgement now stems from statutory provisions embedded
in the SEBI Act, the SCRA, 1956 and the Depositories Act, 1996.

The amount of money disgorged was earlier credited to the

Consolidated Fund of India. It is now credited to the Investor
Protection and Education Fund and used in accordance with the
SEBI (Investor Protection and Education Fund) Regulations, 200927 to first,

24 Inserted by the Securities Law (Amendment) Act, 2014 w.r.e.f. 18.07.2013.

25 Securities Law (Amendment) Act w. r. e. f. 13.07.2013.
26 Securities Contracts (Regulation) Act, 1956, Explanation to section 12A:
‘For the removal of doubts, it is hereby declared that the power to issue directions
under this section shall include and always be deemed to have been included the
power to direct any person, who made profit or averted loss by indulging in any
transaction or activity in contravention of the provisions of this Act or regulations
made thereunder, to disgorge an amount equivalent to the wrongful gain made or
loss averted by such contravention.’
27 SEBI (Investor Protection and Education Fund) Regulations, 2009 dated 19.05.2009.
(SEBI (IPEF) Regs).
144 The Law Review, Government Law College [Vol. 10

provide restitution to eligible and identifiable investors,28 who have

suffered losses as a consequence of violation of securities law and then
use such funds along with interest thereon for the purpose of investor
welfare and education.29 SEBI extensively uses this power to direct
disgorgement in cases of violations of securities law.

III. Disgorgement: A Unique Remedy

This part of the article seeks to elucidate the nature of disgorgement

as a remedy for the enforcement of securities law. The purpose
of understanding the nature of disgorgement is twofold. First, to
understand the nuances between disgorgement vis-à-vis other powers
of the regulator to remedy a violation of securities law. Second, to
determine the constituents of disgorgement. This would be crucial for
the calculation of disgorgement.

A. Disgorgement as an equitable remedy or a penal measure?

Before commencing the discussion on whether disgorgement is an

equitable remedy or a penalty, it would be essential to understand
why this distinction is important. In a multitude of cases, securities
commissions or regulators order injunctions or debar wrongdoers from
dealing in the securities market for a statutorily stipulated number of
years. In addition, they also direct disgorgement and penalties. The
classification of disgorgement as a penalty would have a significant
impact on its calculation. In the given context, it would now be useful
to understand the distinction between penalty and disgorgement.

28 The investors affected by a securities law violation are not always identifiable. For
instance, in cases of insider trading, it may not be possible to identify any particular
person who has suffered loss. However, the act is prejudicial to the interests of the
investors in the securities market as a whole. In such cases, it may not be possible
to grant restitution to specific individuals from the amount credited to the Investor
Protection and Education Fund (IPEF). However, in certain cases of Initial Public
Offer (IPO) irregularities, it may be possible to identify affected investors, who
may be the unsuccessful applicants in an IPO. See also SEBI Press Release dated
17.12.2015, ‘SEBI distributes disgorgement amount to the investors affected by IPO
irregularities’, PR No. 295/2015 and SEBI Press Release dated 12.04.2010, ‘SEBI
commences disbursement process of disgorgement amount’, PR No. 93/2010.

29 See SEBI (IPEF) Regs, 2009, regulations 4 and 5.
2019] Determining Disgorgement in Securities Law 145

The term ‘penalty’ denotes a punitive action, whether corporal

or pecuniary, imposed and enforced by the State for a crime or
offence against its laws.30 Mere contravention of the law suffices an
invocation of such provisions. Across various jurisdictions, the judicial
trend has been to distinguish the concept of penalty from that of
disgorgement. To ascertain whether a law is penal, it is important
to understand whether the wrong sought to be redressed is a public
wrong or a private wrong.31 While penal laws ordinarily govern public
wrongs only, a pecuniary sanction would operate as a penalty if the
objective is to punish the wrongdoer and deter the public at large, ie,
compensating a victim for loss caused to him.32 If the liability imposed
is compensatory in nature and paid entirely to a private plaintiff to
redress a private injury only, then it would not constitute a penalty.33

Traditionally, in India and USA, it has been held that disgorgement is

not a punishment, and nor is it concerned with the damages sustained
by the victims of the unlawful conduct.34 Disgorgement is merely a
monetarily equitable remedy,35 and not a punitive measure36, 37. The
purpose of penalty is to punish and therefore, penalty by its very
nature is retributive whereas the purpose of disgorgement is to strip
the wrongdoer to the limited extent of unjust enrichment.38

30 Huntington v. Attrill, 146 U. S. 657, 667 (1892). It may be noted that in the Indian
context, although penalty is perceived to be punitive in nature, there is no requirement
to prove mens rea for the purpose of imposing penalty on account of breach of civil
obligations. See Shriram Mutual Fund v. SEBI (2006) 5 SCC 361. Alternatively, it
can be argued that mere absence of mens rea will not change the punitive nature of
a penalty imposed.
31 Huntington v. Attrill, 668.
32 Kokesh v. SEC 137 S. Ct. 1635 (2017), 6.
33 Meeker v. Lehigh Valley R. Co., 236 U. S. 412, 421-422 (1915).
34 Karvy Stock Broking Ltd. v. SEBI [2008] 84 SCL 208.
35 Karvy Stock Broking Ltd. v. SEBI.
36 SEC v. Blatt, 583 F.2d 1325, 1327-1336 (5th Cir. 1978).
37 See Dhaval Mehta v. SEBI (SAT Appeal No. 155 of 2008) Order dated 08.09.2009
and Shailesh Jhaveri v. SEBI (SAT Appeal No. 79 of 2012) Order dated 04.10.2012.
38 Fatema Dalal and Murtuza Kachwalla, ‘Disgorgement: An Introduction to a New
Concept or a Precedent to a Debacle?’ (2007) 6 Law Review GLC 74, 79.
146 The Law Review, Government Law College [Vol. 10

Interestingly, the approach of the legislature and the courts now

seems to be to dilute the fine but thin distinction between penalty
and disgorgement. This shift was recently witnessed in USA in its
recent decision in Kokesh v. SEC. 39 In this case, the question was
whether the limitation period of 5 years, which is applicable to civil
penalties in USA,40 would also be applicable to the disgorgement
amount directed in the securities enforcement context. The Supreme
Court of USA (US SC) held that ‘disgorgement’ would classify as a
‘penalty’ within the meaning of §2462 of the United States Code41. This
is because first, disgorgement is a remedy seeking to redress a public
wrong or a wrong against the state as against providing redressal
to an aggrieved investor in the securities market. For the purpose
of disgorgement, the regulatory commission would act in public
interest rather than put itself in the shoes of particular injured parties.
Second, an inherent objective of disgorgement is to achieve deterrence
of securities law violations. 42 Lastly, disgorgement is not always
compensatory in nature. This is generally in cases where aggrieved
investors cannot be identified. A classic example of this would be
a case of insider trading wherein it is the securities market which
suffers as a whole on account of such unlawful conduct. In such cases,
compensation cannot be granted to particular individuals or persons,
as the investors to whom loss has occurred are not identifiable. Citing
Porter v. Warner Holding Company,43 the US SC held that payment of
a non-compensatory sanction to the government as a consequence of
legal violation causes disgorgement to operate as a penalty.44 Further,
it explained that a civil sanction may have more than one purpose.
It may be compensatory in nature and deterrent or retributive at the

39 Kokesh v. SEC.

40 Judiciary and Judicial Procedure, (25 June 1948) 28 U.S.C. § 2462 (United States)
reads as: ‘an action, suit or proceeding for the enforcement of any civil fine, penalty,
or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced
within five years from the date when the claim first accrued.’

41 28 U. S. C. §2462.

42 SEC v. Fischbach Corp., 133 F. 3d 170, 175 (CA2 1997) and SEC v. First Jersey
Securities, Inc., 101 F. 3d 1450, 1474 (CA2 1996); SEC v. Rind, 991 F. 2d, 1491.

43 328 U. S. 395, 402 (1946).

44 Kokesh v. SEC; Distinguishing between restitution paid to an aggrieved party and
penalties paid to the Government.
2019] Determining Disgorgement in Securities Law 147

same time. Considering that in a number of cases, disgorgement goes

beyond mere compensation and imposes punishment, disgorgement
would constitute a penalty. In holding so, the US SC has attenuated
the distinction between penalty and disgorgement to a considerable
extent.

Similarly, in India, certain legislative changes have been recently

introduced in the SEBI Act by way of The Finance Act, 2018 45,
which also appear to have watered down the distinction between
disgorgement and penalty to some extent. For this purpose, it would
be essential to understand section 11B of the SEBI Act.46 It may be
useful to break down this section on the basis of its purpose for the
ease of understanding. Section 11B comprises of the following three
parts:

(i) Circumstances which necessitate SEBI’s intervention (such as

protection of investors, need to secure proper management, etc)

(ii) To whom SEBI may issue directions (companies, stock brokers,

persons associated with securities market, etc);47

45 The Finance Act, 2018.

46 SEBI Act, 1992, section 11B: Power to issue directions and penalty:
‘Save as otherwise provided in section 11, if after making or causing to be made an
enquiry, the Board is satisfied that it is necessary,—
(i) in the interest of investors, or orderly development of securities market; or
(ii) to prevent the affairs of any intermediary or other persons referred to in section 12
being conducted in a manner detrimental to the interest of investors or securities
market; or
(iii) to secure the proper management of any such intermediary or person, it may
issue such directions,— (a) to any person or class of persons referred to in
section 12, or associated with the securities market; or (b) to any company
in respect of matters specified in section 11A, as may be appropriate in the
interests of investors in securities and the securities market. Explanation — For
the removal of doubts, it is hereby declared that the power to issue directions
under this section shall include and always be deemed to have been included
the power to direct any person, who made profit or averted loss by indulging
in any transaction or activity in contravention of the provisions of this Act or
regulations made thereunder, to disgorge an amount equivalent to the wrongful
gain made or loss averted by such contravention.’
47 See Finance Act, 2018, section 12 read with SEBI Act, 1992, section 11B.
148 The Law Review, Government Law College [Vol. 10

(iii) An explanation to the section, which statutorily empowers

disgorgement.

Now, the table given below seeks to assist the reader in

comprehending how the distinction between disgorgement and penalty
may have been partially blurred vide The Finance Act, 2018.

Relevant Prior to the After the Comments

Section Amendment48 Amendment
Marginal Note Power to issue Power to issue SEBI’s power to
to section 11B directions. directions and direct disgorgement
of SEBI Act, penalty.49 is manifested
1992. in section 11B.
Section 11B, which
originally dealt with
the power to issue
directions only,
now confers on
SEBI the power to
levy penalties as
well.
Marginal Note Factors to be Factors to be By way of this
to section 15J taken into taken into amendment,
of SEBI Act, account by the account while it is now clear
1992. adjudicating adjudging the that section 15J
officer. quantum enumerates the
of penalty factors to be
(emphasis considered in the
supplied).50 determination
of quantum of
‘penalty’.

48 Amendment in this table refers to the amendment to SEBI Act, 1992 under Finance
Act, 2018, Part X.

49 Finance Act, 2018, section 180.

50 Finance Act, 2018, section 185.
2019] Determining Disgorgement in Securities Law 149

Relevant Prior to the After the Comments

Section Amendment48 Amendment
Section 15J While adjudging While adjudging Section 15J has
of SEBI Act, quantum of quantum of been further
1992. penalty under penalty under amended to
section 15-I, section 15-I or provide for the
the adjudicating section 11 or determination of
officer shall havesection 11B, penalty, inter alia,
due regard to the Board or under section 11B,
the following the adjudicating which encapsulates
factors, namely: officer shall have the power to
(a) the amount of due regard to the disgorge.
disproportionate following factors,
gain or unfair namely:
advantage, (a) the amount of
wherever disproportionate
quantifiable, gain or unfair
made as a result advantage,
of the default; wherever
(b) the amount quantifiable,
of loss caused made as a result
to an investor of the default;
or group of (b) the amount
investors as a of loss caused
result of the to an investor
default; or group of
(c) the repetitive investors as a
nature of the result of the
default. default;
(c) the repetitive
nature of the
default.51

51 Finance Act, 2018, section 185.
150 The Law Review, Government Law College [Vol. 10

Let us consider a situation where a person who has been debarred

from accessing and dealing in the securities market by SEBI has
undertaken certain legal trades through connected companies during
the period of debarment. In such a scenario, would the appropriate
measure undertaken by the regulator be that of levying penalty
under section 15HB52 of the SEBI Act, which envisages a maximum
penalty of INR 1 crore or award disgorgement of unlawful gains, in
which case, there is no cap to the maximum amount which can be
disgorged. While both, penalty and disgorgement, may be awarded
in cases of contravention of provisions of the SEBI Act or regulations
made thereunder, the difference lies in determining whether the
gains made from legal trades during the period of debarment would
constitute wrongful gains. The author is of the opinion that when a
person is debarred from accessing the securities market, any trade
undertaken by him would be unlawful by virtue of the debarment
itself and notwithstanding the legality inherent in the nature of the
trade. Interestingly, recently SEBI has also chosen the latter route of
directing disgorgement in a similar fact situation.53

Further, unlike USA, there is no limitation period prescribed by the

SEBI Act or the Limitation Act, 1963 in India for any enforcement
action by SEBI. In fact, in Vaman Madhav Apte v. SEBI, 54 SAT

52 SEBI Act, 1992, section 15HB, Penalty for Contravention where No Separate Penalty
has been provided: ‘Whoever fails to comply with any provision of this Act, the rules
or the regulations made or directions issued by the Board thereunder for which no
separate penalty has been provided, shall be liable to a penalty which shall not be
less than one lakh rupees but which may extend to one crore rupees.’

53 See SEBI order dated 27.03.2017 in Beejay Investment and Financial Consultants
Pvt Ltd & 17 others. See also CA Jayant Thakur, ‘Disgorgement of profits – profits
made in violation of SEBI directions vs. profits made in violation of law’ (2016)
Indian Corporate Law, at https://indiacorplaw.in/2016/06/disgorgement-of-profits-
profits-made-in.html. (last visited 24 February 2019).

54 Vaman Madhav Apte & Ors. v. SEBI (SAT Appeal No. 449 of 2014) Order dated
04.03.2016. This order was given by SAT in an appeal against the order of SEBI dated
31.10.2014. In the facts of the case, the Appellants acted in violation of Regulation
10 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997
on account of failure to make a public announcement for the acquisition of shares.
When the appellants argued that there was inordinate delay on the part of SEBI in
taking action, the Whole Time Member of SEBI observed that such violation of
securities law was a continuous violation giving rise to a fresh cause of action each
day during which the failure continued.
2019] Determining Disgorgement in Securities Law 151

has explicitly held that neither the SEBI Act nor any regulations
thereunder stipulate a maximum time period within which (i)
proceedings shall be initiated by the regulator, or (ii) on the expiry of
which, action by the regulator against the violator shall be barred. In
the absence of any such provisions, the doctrine of delay and laches
cannot be invoked in a securities enforcement action by the regulator.
Although the doctrine of laches is an equitable principle commonly
accepted by courts of law in India, the courts are unlikely to accept
it in the securities enforcement context, considering that the objective
of such action is to serve a public purpose by protecting the interests
of investors and preserving the integrity of the securities market.55

B. Disgorgement distinguished from Impounding

Section 11(4)(d) of the SEBI Act empowers SEBI to impound and

retain proceeds or securities in respect of any transaction, which is
under investigation. The term ‘impound’ means:

‘1. To place (something such as car or personal

property) in the custody of the police or the court,
often with the understanding that it will be returned
intact at the end of the proceeding. 2. To take and
retain possession of (something, such as a forged
document to be produced as evidence) in preparation
of a criminal prosecution.’56

From the above, it can be discerned that impounding is an interim

measure in the hands of SEBI during the pendency of the process
of investigation and before the final adjudication of guilt. This power
enables SEBI to retain the approximate proceeds by which the
wrongdoer has been unjustly enriched. Impounding can also operate
as an effective instrument against diversion of funds and erosion of
value of assets pending investigation.57 On the contrary, disgorgement

55 This would be subject to the facts and circumstances of every case. In a given case,
if the regulator, having known about the violation of securities law, acts after a
considerable amount of time without reasonable cause, in such a case, the court may
choose to reject such action on the ground of delay and laches.

56 Bryan A Garner, Black’s Law Dictionary (10th edn Thomson Reuters 2014) 874.

57 See SEBI order in the matter of Beejay Investment & Financial Consultants Pvt Ltd
dated 27.03.2017. See also SEBI order in the matter of Abhijit Rajan dated 21.03.2016.
152 The Law Review, Government Law College [Vol. 10

is a final remedy available to SEBI. Using this power, SEBI can

permanently deprive the wrongdoer to the extent of the unjust
enrichment availed by him. It may be noted that while impounding
is generally ordered vide an interim order, disgorgement cannot
be ordered at the interim stage. Disgorgement, being a permanent
remedy, can be directed only by way of a final order.58

C. Disgorgement and Restitution

Restitution means to return or restore wealth received by the
defendant from the claimant as it amounts to unjust enrichment at
the expense of the claimant. 59 Disgorgement means relinquishing
gains made by the defendant as a consequence of some wrongdoing
to the claimant, where such gains have been received from a third
party. 60 While multiple attempts have been made to distinguish
restitution from disgorgement, this distinction faces a multitude of
practical challenges. To demonstrate a few: (i) when disgorgement is
computed as loss averted, there may not be any real gain accruing
to any person (if the computation is based only on a notional
gain) or (ii) when wrong has not been caused to any ‘particular
identifiable person’. Recently, in Kokesh v. SEC, the US SC held that
‘disgorgement is a form of restitution measured by the defendant’s
wrongful gain.’ 61 Hence, the distinction between restitution and
disgorgement appears to be considerably convoluted.

IV. Constituents of Disgorgement and its Computation by the

Sec and Courts in USA
A. US Jurisprudence on Constituents of Disgorgement
In view of James Tyler Kirk’s article titled ‘Deranged Disgorgement’,62
the author seeks to highlight certain elements which should either be

58 See National Securities Depository Ltd. v. SEBI (SAT Appeal No. 147 of 2006) Order
dated 22.11.2007.

59 RB Grantham and CEF Rickett, ‘Disgorgement for Unjust Enrichment’, (2003) 62
The Cambridge Law Journal 159, 159.

60 Ibid.

61 Restatement (Third) of Restitution and Unjust Enrichment §51, Comment at 204
(2010) (Restatement (Third)) as cited in Kokesh v. SEC at 2.

62 James Tyler Kirk, ‘Deranged Disgorgement’ (2015) 8 J. Bus. Entrepreneurship & L.
131 (James Tyler Kirk).
2019] Determining Disgorgement in Securities Law 153

included or excluded from the broad parameters of disgorgement. An

understanding of the constituents of disgorgement would assist one in
arriving at the reasonably accurate quantification of disgorgement. In
his article, Kirk has formulated what he calls ‘the theory of regulatory
equity’.

He emphasises the crucial distinction between unlawful ‘profits’ vis-

à-vis unlawful ‘benefits or gains’. He advocates that the doctrine of
unjust enrichment should include unlawful gains or benefits rather
than profits only. The essential distinction between the two is that
while unlawful profits connote a prerequisite monetary dimension,
an unlawful gain or benefit may occur even in the absence of any
monetary profits. Put simply, Kirk advocates that an unjust enrichment
can occur in the securities context, even in the absence of a monetary
gain.63 Alternatively, unjust enrichment is not merely restricted to what
remains in the pockets of the wrongdoer in the aftermath of a fraud,
but rather includes the ‘value of the other benefits’ which accrue to
the wrongdoer through a scheme.64 These benefits may be in the form
of interest free loans, improved reputation, cost defrayments, etc.65

Example: A tipper (also an insider) who shares unpublished price

sensitive information (UPSI) may not necessarily make a monetary
gain but he becomes a coveted tipper by future and potential
tippees.66

Kirk has further proposed that ‘to give effect to the deterrent purposes
of disgorgement, the remedial scheme must have a way to neutralise
secondary and tertiary benefits flowing from the securities violation.’

However, disgorgement of benefits, other than monetary benefits,

is likely to entail a plenitude of legal challenges, as disgorgement is
fundamentally perceived as a monetarily equitable measure and not
as a punitive measure.

63 James Tyler Kirk at 156; See SEC v. Yun, 148 F. Supp. 2d 1287 (M.D. Fla. 2001);
Texas Gulf Sulphur. Here, the tippers were made liable to disgorge without any
monetary gain.
64 See SEC v. Great Lakes Equity, 775 F. Supp. 211.
65 James Tyler Kirk at 158; SEC v. Great Lakes Equity, 215.
66 See SEC v. Yun, 148 F. Supp. 2d 1287 (M.D. Fla. 2001).
154 The Law Review, Government Law College [Vol. 10

Kirk further analyses that while direct transactional costs, such as

brokerage fees, may be offset in the calculation of disgorgement,
the general and legitimate business expenses incurred in the process
of acquiring the unlawful gains cannot be offset while calculating
disgorgement and therefore, such general business expenses must be
lawfully included in the amount to be disgorged.67

B. Computation of Disgorgement in USA

The computation of disgorgement extends only to the amount with

interest by which, the defendant profited from his wrongdoing. 68
Any further sum would constitute a penalty assessment.69 Thus, it
becomes essential that where benefits are derived from lawful and
unlawful conduct, the party seeking disgorgement must distinguish
between legally and illegally derived profits.70 In cases of systematic
and pervasive fraud, where it is difficult to find any lawful activity, all
profits may be construed as unlawful in nature and therefore, required
to be disgorged.71 However, the rules for calculating disgorgement
must recognise that separating legal from illegal profits, may at
times, be a near impossible task.72 Accordingly, disgorgement need
only be a ‘reasonable approximation of profits causally connected
to the violation’.73 The SEC bears the ultimate burden of persuasion
that its disgorgement figure reasonably approximates the amount of
unjust enrichment. 74 It is then for the defendant to show that the
disgorgement figure is a not a reasonable approximation.75

67 SEC v. McCaskey, 2002 WL 850001 at 4 (S.D.N.Y. 2002); See SEC v. Hughes Capital
Corp., 917 F. Supp. 1080, 1086-87 (D.N.J. 1996) and SEC v. Kenton Capital Ltd.,
69 F. Supp. 2d 1 (D.D.C. 1998).
68 § 240.10b-5.
69 § 240.10b-5.
70 See SEC. v. Willis, 472 F. Supp. 1250, 1276 (D.D.C 1978).
71 See Commodities Future Trade Commission v. British American Commodities Options
Corporation, 788 F.2d 92, 93-94 (2d Cir. 1986) cert. denied, 479 U.S. 853, 107 S.Ct.
186, 93 L.Ed.2d 120 (1986).
72 Elklind v. Ligett Myers Inc., 635 F.2d 156, 171 (2d Cir. 1980).
73 SEC v. First Financial City Corp. Ltd. 890 F.2d 1215, 1217-1233 (D.C. Cir. 1989).
74 SEC v. First Financial City Corp. Ltd.
75 SEC v. First Financial City Corp. Ltd.
2019] Determining Disgorgement in Securities Law 155

An analysis of multiple judgments of the courts of law in USA yields

three important patterns adopted in the computation of disgorgement.
Although, these judgments are in the context of shares, they may be
considered under the broader ambit of securities traded in the cash
segment of stock exchanges. They are as follows:

1. Consideration of ‘Cost Basis’

In this method of computing the amount of disgorgement, reasonable

approximation of profits is calculated as the difference between the
price at which shares were sold and the cost of acquiring such shares.
Simply put, it works on the basic formula, which has been set out as
follows:

Profits = Selling Price – Cost Price

In SEC v. MacDonald,76 an officer purchased shares of a trust, while

in possession of material, non-public information. In this case, though
the determination of the disgorgement amount was remanded back to
the commission, the Court ruled that the correct computation would
involve a difference between the sale value of shares and the price at
which, such shares were purchased.

The following table is an explanatory example, which clarifies the use

of ‘cost of acquisition’, in computing the amount of disgorgement.77

Situation Cost Basis Selling Profits (Selling Price -

(Purchase Price) Price Purchase Price)
Insider sold it $4 $5 $1
The stock rose and $4 $10 $6
the Insider sold it

2. Consideration of Market Value of Shares at the Relevant Date

of Sale Instead of Cost Basis

In this method, the amount of disgorgement is calculated as the

difference between the value of shares at the date of sale, while in

76 SEC v. MacDonald 699 F.2d 47, 49-58 (1st Cir. 1983).

77 See SEC v. MacDonald.
156 The Law Review, Government Law College [Vol. 10

possession of material non-public information, and the value of shares,

a reasonable time after such information is made known to the public.

An analysis of case law demonstrates a trend that this method is

generally employed, in cases where there is a sale of shares while
in possession of material non-public information, which is likely to
cause a decline in the value of shares.78 Alternatively, this method of
computing disgorgement is largely employed in cases where losses are
sought to be unlawfully averted rather than a situation where gains
are unlawfully or wrongly made.

In SEC v. Happ, the Appeals Court held that in an insider trading

case, the proper amount of disgorgement is generally the difference
between the value of the shares when the insider sold them, while
in possession of material non-public information, and their market
value, ‘a reasonable time after public dissemination of the inside
information.’ 79 In this case, the appellant explicitly argued that
disgorgement must be calculated on the basis of cost, ie, it must be
calculated as the difference between the value of sale of shares, and
its cost of acquisition, which would enable the SEC to determine
his unlawful gains. He unsuccessfully contended that the SEC was,
in fact, proceeding on a ‘wrong footing’ by equating the amount of
disgorgement to the ‘loss averted’ by him instead of proceeding on
the lines of ‘unlawful gains made’ to determine unjust enrichment.80
Where the securities market is manipulated to mulct the public, there
is no justification to give the offender any credit for the fact that such
person had not succeeded in avoiding losses.81 For example, loss may
be unlawfully averted in cases of negotiated deals and circular trading
to stabilise the price of certain shares.

78 See SEC v. Patel 61 F.3d 137, 139 (2d. Cir. 1995); SEC v. Happ 392 F.3d 12, 14-35
(1st Cir. 2004) and SEC v. Shapiro 494 F.2d 1301, 1303-1314 (2d Cir. 1974).
79 SEC v. Patel and SEC v. Happ 392.
80 SEC v. Happ 392 F.3d 12, 14-35 (1st Cir. 2004)
81 See SEC v. Common Wealth Chem. Sec. Inc. 574 F.2d 90, 102 (2nd Cir. 1978); James
Tyler Kirk.
2019] Determining Disgorgement in Securities Law 157

In such cases, it is for the defendant to show that the loss avoided
is not a reasonable approximation as made by the SEC.82 The onus
is on the defendant to demonstrate ‘a clear break in or considerable
attenuation for the causal link between the illegality and ultimate
profits.’83 It may be relevant to note that the requirement of a causal
relationship between a wrongful act and the property to be disgorged
does not imply that a court may order a malefactor to disgorge only
the actual property obtained by means of his wrongful act.84 Rather,
the causal connection required is between the amount by which the
defendant was unjustly enriched and the amount he can be required
to disgorge. 85 Disgorgement of only the actual assets would lead
to abnormal results.86 An order to disgorge establishes a personal
liability, which the defendant must satisfy regardless of whether he
retains the selfsame proceeds of his wrongdoing.87 In any event, the
risk of uncertainty in calculating the amount of disgorgement always
falls on the wrongdoer.88

Illustration: Mr. A buys 100 shares of company X in 2001 at $10

per share. On 30 January 2004, he sells all his shares at $15 per
share, while in possession of material non-public information relating
to certain fraudulent activities taking place in the company. This
information becomes public on 7 February 2004 at 8.00 p.m., and
on 8 February 2004, the price of shares of company X drops to $3
per share. Hence, disgorgement here, will be the loss averted, which
is the difference between the value of shares on the date of sale and
its value, a reasonable time after public dissemination of the insider
information.

(The reason why we will not opt for the first method (cost basis) is
that there is no rational relation between the cost of acquisition of

82 SEC v. Common Wealth.

83 SEC v. Happ.
84 See SEC v. Banner Fund Int’l, 211 F.3d 602, 617 (D.C. Cir. 2000).
85 SEC v. Banner Fund Int’l, 602.
86 SEC v. Banner Fund Int’l, 617.
87 SEC v. Banner Fund Int’l.
88 SEC v. Patel 61 F.3d 137, 139-142 (2d. Cir. 1995).
158 The Law Review, Government Law College [Vol. 10

shares in 2001 and its selling price in 2004. In three years, due to
constant movements in the securities market, a plethora of changes
may occur in the valuation of shares.)

Market value of
Cost of acquiring Value of shares at the shares, a reasonable
shares in 2001 time of sale on 30 time after public
January 2004 dissemination of
insider information

$10 $15 $3

Disgorgement = $15 - $3 = $12 per share

Total amount of disgorgement = $1200
(for 100 shares)

In the given instance, if the share price further falls to $2.5 on 10

Feb 2004 on account of such fraudulent act, the defendant may
have to disgorge a greater sum ($15 - $2.5 = $12.5 per share) unless
he can prove that the further decline was not on account of the
fraudulent activity in the company. As explained above, in calculating
disgorgement, the risk of uncertainty is to be borne by the wrongdoer.

It would be useful to note that if we use the first method (cost basis),
the amount of disgorgement would be quantified at $15 - $10 = $5
per share. Accordingly, the total amount of disgorgement under the
first method would be $500 and under the present method, it has
been valued at $1200. Hence, the method employed in the calculation
of disgorgement can significantly impact the final quantification, which
is why, it becomes very important to use the most equitable method
in view of the facts of each case.

3. Percentage basis

This method requires the application of the following two steps:

a) Calculation of the percentage by which the value of shares

increased or declined after the material non-public information
became known to the public.

b) Application of the derived percentage to the total value of sale

or purchase of shares to determine disgorgement.
2019] Determining Disgorgement in Securities Law 159

This method was applied in SEC v. Patel 89 and affirmed by the

Appeals Court.

Illustration: A is an executive director in company X and holds 100

shares in the company at $2000 ($20 per share). He becomes aware
of material non-public information regarding falsification of accounts
in company X, and he sells his entire holding on 10 September 2016
for $2000. On 19 September 2016, the share price of company X was
at $15 per share. This information became public on 20 September
2016. The price dropped to $5 per share.

Solution: The following table demonstrates the method to be

employed in calculating disgorgement in the given illustration using
the percentage method:

Step 1:
Drop in the shares of company 66.67%
X from 19-20 September 2016
Step 2:
Disgorgement amount = 66.67% $1334.40
of $2000

Thus, the aforesaid are three methods, which have been employed by
the SEC in ascertaining the disgorgement amount, as is evident from
various judgments.

V. Constituents ofDisgorgement and its Quantification by

Sebi and Courts in India

A. Constituents of Disgorgement in India

In India, S E B I does not include taxes in the computation of

disgorgement. The amount disgorged is exempt from income tax

89 SEC v. Patel.
160 The Law Review, Government Law College [Vol. 10

as well. Alternatively, if income tax has already been paid on the

amount, the solution would be to claim a refund of the income
tax from the concerned income tax authorities.90 Further, where an
argument was made before both SEBI and SAT to exclude ‘other
expenses’ from the ambit of disgorgement, such an argument was
dismissed at the very threshold.91 On these lines, one could possibly
argue that in India, expenses such as brokerage or relevant business
expenses incurred for the purpose of contravening the law would
not be excluded while calculating the amount of disgorgement. It
also appears unlikely that inclusion of non-monetary benefits (like
improved reputation) will be accepted by Indian law courts for the
purpose of quantifying disgorgement.

In the given context, it would help to note that interest, which is

awarded on disgorgement, is not a constituent of disgorgement.
While SEBI directs disgorgement under section 11B of the SEBI Act,
interest is ordered in terms of section 28A(1) of the SEBI Act92 read

90 Purshottam Budhwani v. SEBI (SAT Appeal No. 91 of 2013) Order dated 15.01.2015.

91 See Purshottam Budhwani v. SEBI and SEBI order in the matter of IPO irregularities:
Dealings of Purshottam Budhwani in IPOs dated 23.05.2011.

92 Income Tax Act, 1961, section 28A(1): Recovery of Amounts (Only the relevant part
of the section has been carved out hereunder) ‘If a person fails to pay the penalty
imposed by the adjudicating officer or fails to comply with any direction of the Board
for refund of monies or fails to comply with a direction of disgorgement order issued
under section 11B or fails to pay any fees due to the Board, the Recovery Officer
may draw up under his signature a statement in the specified form specifying the
amount due from the person (such statement being hereafter in this Chapter referred
to as certificate) and shall proceed to recover from such person the amount specified
in the certificate by one or more of the following modes, namely:—
(a) attachment and sale of the person’s movable property; (b) attachment of the
person’s bank accounts; (c) attachment and sale of the person’s immovable
property; (d) arrest of the person and his detention in prison;
…
(e) appointing a receiver for the management of the person’s movable and immovable
properties,
and for this purpose, the provisions of sections 220 to 227, 228A, 229, 232, the
Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax
(Certificate Proceedings) Rules, 1962, as in force from time to time, in so far
as may be, apply with necessary modifications as if the said provisions and the
rules made thereunder were the provisions of this Act and referred to the amount
due under this Act instead of to income-tax under the Income-tax Act, 1961.’
2019] Determining Disgorgement in Securities Law 161

with section 220 of the Income Tax Act, 1961.93 Alternatively, awarding
interest on disgorgement does not make the latter penal in nature

93 Income Tax Act, 1961, section 220: When tax payable and when assessee deemed in
default (Only the relevant part of the section has been carved out hereunder)
‘(1) Any amount, otherwise than by way of advance tax, specified as payable in a
notice of demand under section 156 shall be paid within thirty days of the service
of the notice at the place and to the person mentioned in the notice:
Provided that, where the Assessing Officer has any reason to believe that it will
be detrimental to revenue if the full period of thirty days aforesaid is allowed,
he may, with the previous approval of the Joint Commissioner, direct that the
sum specified in the notice of demand shall be paid within such period being a
period less than the period of thirty days aforesaid, as may be specified by him
in the notice of demand.
(1A) Where any notice of demand has been served upon an assessee and any appeal or
other proceeding, as the case may be, is filed or initiated in respect of the amount
specified in the said notice of demand, then, such demand shall be deemed to
be valid till the disposal of the appeal by the last appellate authority or disposal
of the proceedings, as the case may be, and any such notice of demand shall
have the effect as specified in section 3 of the Taxation Laws (Continuation and
Validation of Recovery Proceedings) Act, 1964 (11 of 1964).
(2) If the amount specified in any notice of demand under section 156 is not paid
within the period limited under sub-section (1), the assessee shall be liable to
pay simple interest at one per cent for every month or part of a month comprised
in the period commencing from the day immediately following the end of the
period mentioned in sub-section (1) and ending with the day on which the amount
is paid:
Provided that, where as a result of an order under section 154, or section 155,
or section 250, or section 254, or section 260, or section 262, or section 264 or
an order of the Settlement Commission under sub-section (4) of section 245D,
the amount on which interest was payable under this section had been reduced,
the interest shall be reduced accordingly and the excess interest paid, if any,
shall be refunded:
Provided further that where as a result of an order under sections specified in
the first proviso, the amount on which interest was payable under this section
had been reduced and subsequently as a result of an order under said sections
or section 263, the amount on which interest was payable under this section is
increased, the assessee shall be liable to pay interest under sub-section (2) from
the day immediately following the end of the period mentioned in the first notice
of demand, referred to in sub-section (1) and ending with the day on which the
amount is paid:
Provided also that in respect of any period commencing on or before the 31st
day of March, 1989 and ending after that date, such interest shall, in respect of
so much of such period as falls after that date, be calculated at the rate of one
and one-half per cent for every month or part of a month.
162 The Law Review, Government Law College [Vol. 10

because interest is not a constituent of disgorgement and the two

remedies are directed under independent provisions of the SEBI Act.

B. Quantification of Disgorgement in India

It was nearly a decade ago that SEBI’s power to disgorge unlawful

gains came to be recognised by SAT. Consequently, disgorgement as
a directive power of SEBI is still in its nascent stage.

Interestingly, in Dushyant Dalal v. SEBI,94 a case dealing with the

abuse and misuse of the Initial Public Offer (IPO) allotment process
by cornering of shares in the retail category, SAT reaffirmed SEBI’s

(2A) Notwithstanding anything contained in sub-section (2), the Principal Chief

Commissioner or Chief Commissioner or Principal Commissioner or
Commissioner may reduce or waive the amount of interest paid or payable by
an assessee under the said sub-section if he is satisfied that—
(i) payment of such amount has caused or would cause genuine hardship to
the assessee ;
(ii) default in the payment of the amount on which interest has been paid or
was payable under the said sub-section was due to circumstances beyond
the control of the assessee ; and
(iii) the assessee has co-operated in any inquiry relating to the assessment or
any proceeding for the recovery of any amount due from him:
Provided that the order accepting or rejecting the application of the assessee,
either in full or in part, shall be passed within a period of twelve months from
the end of the month in which the application is received:
Provided further that no order rejecting the application, either in full or in part,
shall be passed unless the assessee has been given an opportunity of being heard:
Provided also that where any application is pending as on the 1st day of June,
2016, the order shall be passed on or before the 31st day of May, 2017.
(2B) Notwithstanding anything contained in sub-section (2), where interest is charged
under sub-section (1A) of section 201 on the amount of tax specified in the
intimation issued under sub-section (1) of section 200A for any period, then,
no interest shall be charged under sub-section (2) on the same amount for the
same period.
(2C) Notwithstanding anything contained in sub-section (2), where interest is charged
under sub-section (7) of section 206C on the amount of tax specified in the
intimation issued under sub-section (1) of section 206CB for any period, then,
no interest shall be charged under sub-section (2) on the same amount for the
same period…’
94 Dushyant Dalal v. SEBI (SAT Appeal No. 182 of 2009) Order dated 12.11.2010.
2019] Determining Disgorgement in Securities Law 163

stance that to compute disgorgement, unrealised gains on a notional

basis can be included, even if there has been no real sale of the
shares and therefore, no actual profits have been realised. In the case
concerned, it further indicated its intention to abstain from interfering
in the appropriate method to be adopted by the concerned Whole
Time Member of SEBI in the quantification of disgorgement, unless
the method applied was arbitrary or unfair in nature. Moreover, the
SAT also upheld equal apportionment of the disgorgement amount,
calculated on a fair and reasonable basis, ‘in the absence of material
as to how the illegal gains were distributed’ between two persons.95

In India, the quantification of disgorgement by SEBI, ordinarily

proceeds in the following manner:

(i) Amount of Disgorgement = Value of Sale – Cost of Acquisition

(ii) Amount of Disgorgement = Listing Price – Cost of Acquisition (useful

to determine notional profits, where sale has not occurred)

The aforementioned method (ii) has been adopted, inter alia, in

Himani Patel v. SEBI,96 Dhaval Mehta v. SEBI,97 and Dushyant Dalal v.
SEBI.98

(iii) Amount of Impounding = Value of shares on the date of sale – Value

of shares a reasonable time after the negative UPSI becomes public.

The aforesaid method (iii) has been adopted by SEBI in relation to

certain recent interim orders for impounding and may find acceptance
in the final disgorgement order.99

95 Dhaval Mehta v. SEBI (SAT Appeal No. 155 of 2008) Order dated 08.09.2009.
96 Himani Patel v. SEBI (SAT Appeal No. 154 of 2009) Order dated 7.09.2009.
97 Dhaval Mehta v. SEBI.
98 Dushyant Dalal v. SEBI.
99 Prakash Shah v. SEBI (SAT Appeal No. 170 of 2017) SAT Order dated 10.08.2017
and SEBI order dated 02.08.2017 in the matter of Joseph Massey and 7 other persons
for insider trading in MCX scrips.
164 The Law Review, Government Law College [Vol. 10

Illustrations:

a) A owns 100 shares of company X as on 19 January 2016. On

this date, he becomes privy to UPSI regarding company X’s
takeover of a reputed company Y. He buys 100 shares on 20
January 2016 at INR 80 per share and a further 100 shares on
23 January 2016 at INR 100 per share. The UPSI becomes
public on 10 February 2016. The market responds positively to
the news of such takeover and the share price of company X
booms to INR 150 per share on 11 February 2016. Immediately,
A sells the shares of company X to make profits.

Hence, disgorgement can be calculated in the following manner:

Date Price/ Number of shares Cost of

share bought acquisition
20.01.2016 INR 80 100 INR 8,000
23.01.2016 INR 100 100 INR 10,000
11.02.2016 INR 150 Value of 200 shares, INR 30,000
which were purchased
while in possession of
UPSI

Hence, disgorgement = Selling Price – Cost of Acquisition

= INR 30,000 – (INR 8, 000+INR 10,000)
Disgorgement = INR 12,000

b) A company X makes a series of misleading corporate

announcements from 2015-2016, which artificially increases
the price of its shares and traded volume in the market. M, a
director of company X, holding 70,000 shares in the company
offloads his shareholding in the open market during the same
period. In such a case, disgorgement may be calculated as
follows:
2019] Determining Disgorgement in Securities Law 165

Dates Shares Purchase Purchase No. of Selling Sale con-

ac- Price/ consider- shares Price sideration
quired share ation per sold per per trans-
from transaction share action
market
02.01.2015 5,000 INR 0.8 INR 4,000
06.01.2015 3,500 INR 0.8 INR 2,800
01.02.2015 5,200 INR 1 INR 5,200 2,000 INR INR
1.05 2,100
13.02.2015 5,000 INR 0.95 INR 4,750
25.04.2015 17,500 INR 1.2 INR 21,000
03.05.2015 10,000 INR 1.25 INR 12,500
08.08.2015 500 INR 1.3 INR 650 12,500 INR INR
1.32 16,500
10.11.2015 1,500 INR 1.35 INR 2,025
05.01.2016 20,000 INR 1.60 INR 32,000 38,200 INR INR
1.60 61,120
27.05.2016 1800 INR 1.72 INR 3096 8,000 INR INR
1.7 13,600
29.06.2016 9,200 INR INR
1.65 15,180
TOTAL INR 88,021 INR
1,08,500

Now using the weighted average method,100 we find:

Weighted average purchase price per share = 88,021/70,000 = INR

1.25
Weighted average sale price per share = 1,08,500/70,000 = INR 1.55
Disgorgement per share = Weighted average selling price per share –
weighted average price per share = INR 0.3
Total disgorgement = 70,000 x 0.3
Disgorgement = INR 21,000

Normally, when there are multiple transactions in the same scrip at different price
100

points or the same scrip is traded on different stock exchanges, the weighted average
method is better suited to secure accuracy.
166 The Law Review, Government Law College [Vol. 10

c) Mr. A, the promoter of Company X subscribes for 100 shares

in the retail category of the IPO through a façade of benami or
fictitious accounts. The issue price of shares is INR 60 per share.
Pursuant thereto, he is allotted 100 shares in the retail category.
Their closing price on the first day of listing, 9 July 2013, is INR
62 per share. He then sells all 100 shares at INR 63 per share
on 10 July 2013.

Price Price/share Number Total value of

of shares shares
acquired/sold
Issue Price INR 60 100 INR 6000
Selling Price INR 63 100 INR 6300

Issue price of shares in June 2013 = INR 6000

Sale value of shares = INR 6300
Disgorgement = Selling Price – Issue Price of shares
Disgorgement = INR 300

d) Mr. A, the promoter of Company X subscribes for 100 shares

in the retail category of the IPO through a façade of benami or
fictitious accounts. The issue price of shares is INR 60 per share
on 1 July 2013. Pursuant thereto, he is allotted 100 shares in the
retail category. Their closing price on the first day of listing, 4
July 2013 is INR 62 per share. He then sells 50 shares at INR
63 per share on 5 July 2013.

Date Price/share Number of Total value of

shares issued/ shares
sold/retained
1 July 2013 INR 60 100 INR 6,000
4 July 2013 INR 62 100 INR 6,200

(INR 3,100 for

50 shares)
5 July 2013 INR 63 50 INR 3150
2019] Determining Disgorgement in Securities Law 167

Issue price of 50 shares = INR 3,000

Sale value of 50 shares = INR 3,150

Disgorgement in respect of the 50 shares sold = Selling Price –

Issue Price

= INR 3,150 – INR 3,000

Disgorgement in respect of the 50 shares sold = INR 150

Number of shares retained = 50

Notional profits in respect of the 50 shares retained = Closing

price of shares on the first day of listing – Issue Price

Notional profits = INR 3,100 – INR 3,000

Disgorgement in respect of the 50 shares retained = INR 100

Total disgorgement amount = Actual wrongful gains + notional

wrongful gains

= INR 100 + INR 150

Total disgorgement amount = INR 250

It may be noted that for the purpose of example (d) mentioned

hereinabove, we have followed the stance taken by SAT in Dushyant
Dalal v. SEBI.101 In respect of the 50 shares retained, even though no
actual profits have been realised by Mr. A and considering that there
is no selling price to determine profits, the amount of disgorgement
would be equal to the notional profits made by Mr. A in the given
situation. Such determination of notional profits takes into account the
difference between the closing price of the shares on the first day of
listing and the Issue Price.

101 Dushyant Dalal v. SEBI.

168 The Law Review, Government Law College [Vol. 10

VI. Standards for Quantifying Disgorgement

With due regard to the fact that it may not be possible to establish
a straitjacket formula, which can be used to determine and quantify
disgorgement in every situation, this article seeks to develop certain
standards for computing disgorgement in case of a violation of
securities law with particular focus on the cash segment of the stock
market. Though such standards may not cover every probable
situation or may be inapplicable to an ordinary violation on account
of the peculiar facts and circumstances of that case, they seek to
serve as general standards for easy computation of disgorgement by
securities commissions. These standards are characterised by a relative
mixture of the computation methods discussed in the course of this
article.

They are as follows:

(i) In case of insider trading, where the UPSI is of a positive

nature, which boosts the market value of securities of a
particular company, and shares are purchased before such UPSI
becomes public knowledge, the clear motive seems to be making
of unlawful profits.

Here,

Disgorgement = Sale Value of Shares (in case of a sale) or value of

shares, a reasonable time after the information becomes public – Cost of
Acquisition

(ii) In case of insider trading, where the UPSI is of a negative

nature, which leads to a decline in the value of securities of a
particular company, and securities are sold before such UPSI
becomes public knowledge, the intention is to avert losses.
However, it could also be argued that the motivating factor for
such sale is to make profits from the artificially high value of
securities.

Disgorgement = Market Value of Shares on the date of Sale/Trade

– Value of Shares, a reasonable time after such information becomes
public
2019] Determining Disgorgement in Securities Law 169

(iii) In case of cornering of shares in an IPO to derive an unfair

advantage of a higher listing price, the clear intention is to make
unlawful profits.

a) Disgorgement = Value of Sale – Cost of Acquisition

Or

b) Disgorgement = Listing Price – Cost of Acquisition (to determine

notional profits, where sale has not occurred)

(iv) In case of a fraudulent advertisement, announcement or notice

for buyback of securities or bonus issue of shares, the following
method can be used to determine the amount of disgorgement:

Disgorgement = Average traded price a reasonable time after the

announcement – Average traded price a reasonable time before such
announcement.102

(v) In case of an unlawful preferential allotment (for instance, when

the company itself provides capital for subscription to its shares
in the garb of preferential allotment)

Disgorgement = Value or the amount contributed towards the legal

contravention.103

For instance, in the above example, where the company

itself has provided capital to the allottee for the purpose of
subscribing to its shares, the company will be liable to disgorge
the amount which has so been contributed towards its capital.

102 SEBI sought to adopt this method, as evinced from the order of SEBI in the matter
of Harishchandra Gupta dated 01.04.2016. However, the matter was remanded to
the Adjudicating Officer for the purpose of determining the exact figures of the ill-
gotten gains.
103 Order of SEBI in the matter of Harishchandra Gupta.
170 The Law Review, Government Law College [Vol. 10

(vi) In a recent case on front running,104 B was an employee in A’s

company. A communicated his trade orders to B who placed
them with the stock broker. B immediately purchased a certain
quantity of shares for himself (lesser in quantity than A’s order)
in the same scrips for which the trade orders were placed with
the broker on behalf of A and he sought to match the trade.
Consequently, a majority of his trades matched with A’s whereas
some of them were offset in the market at large.105

Here, considering that front running is a fraud against the

securities market as a whole, the profits accrued to B from
squaring off shares in the market would be determined as the
unlawful gain and not merely the profits accrued from the
matched trades with A.106

Hence, in cases of front running and subject to the peculiar facts

of each case, disgorgement may be quantified as:

Disgorgement = Profits accrued by squaring off shares in the securities

market, which shares were acquired by way of front running.

(vii) Where shares of a company are offloaded in the market by a

person/entity involved in issuing false corporate announcements
or disseminating any false news in respect of such company

104 Bryan A Garner, Black’s Law Dictionary (10th edn Thomson Reuters 2014) 784:
‘Front running: n. Securities. A broker’s or analyst’s use of non-public information to
acquire securities or enter into options or futures contracts for his or her own benefit,
knowing that when the information becomes public, the price of the securities will
change in a predictable manner. This practice is illegal. Front-running can occur in
many ways. For example, a broker or analyst who works for a brokerage firm may
buy shares in a company that the firm is about to recommend as a strong buy or in
which the firm is planning to buy a large block of shares.’
In SEBI v. Kanaiyalal Baldevbhai Patel (2017) 15 SCC 1, the Supreme Court refers
to the definition of ‘front running’ as used in the Black’s Law Dictionary.
105 SEBI order in front running transactions of Kamal Jitendra Katkoria dated 8.05.2018.
106 SEBI order in front running transactions of Kamal Jitendra Katkoria (Since A would
have bought a bigger quantity, his trade would have a positive impact on the price
of the scrip. Having knowledge of this trade, B bought shares from the market at a
lesser price from common investors and reserved the price advantage for himself by
incidentally or deliberately setting a last traded price in the scrip. For A’s order to
match, the price should be equal to or more than the last traded price and hence, B
succeeded in gaining profits wrongfully).
2019] Determining Disgorgement in Securities Law 171

which results in an artificial increase in the price of the

concerned scrip, the amount of disgorgement may be calculated
as follows:
Disgorgement = Closing price of scrip on the day before such
announcements were made or information was disseminated to the
public – average traded price of the shares sold by the concerned person/
entity until the falsity of such information or announcement is brought
to public notice.107
It would be useful to consider an example to understand the
above method.
A person ‘M’ holding 12 per cent shares in a company X (listed
on BSE) colludes with a stock market blogger and a media
agency to write and publicise that inside sources have leaked
that one of the top 50 listed companies in India is in talks with
Company X for a proposed acquisition. The blog was published
on 6 December 2015 and the media agency featured it in the
newspaper on the morning of 7 December 2015. The price of
the scrip increased by almost 20 per cent. By 10:30 am, M
offloaded 11 per cent of his shareholding in the market and
fetched a lucrative amount for the same. At 10:40 am, the Board
of Company X issued a public statement through Bombay Stock
Exchange (BSE) to the effect that there were no such ongoing
talks between Company X and any other company. Pursuant
thereto, the price of the scrip fell.
In such a scenario, the unlawful gains could be calculated as the
difference between the closing price of the scrip on 6 December
2015 and the average price at which M traded his shares till
10:40 am multiplied by the total number of shares offloaded in
the market. The reason why unlawful gains have been computed
on the basis of trade till 10:40 am only is that, at that point,
the falsity of the proposed acquisition news was brought to the
knowledge of the public at large.
(viii) Interestingly, the percentage method adopted in SEC v. Patel, is
one which can be applied in practically all of the above cases.
However, its employment by the SEC has been rather limited.

107 See SEBI order dated 22.03.2018 in Re: Saimira Pyramid Theatre Limited.
172 The Law Review, Government Law College [Vol. 10

(ix) In case of pledge of shares, while in possession of negative

UPSI, disgorgement would ordinarily be equal to the losses
sustained by the pledgee, and the unlawful gains of the pledger.
However, considering that the growing trend of pledging equity
for the purpose of raising loans is subject to increased criticism
by regulatory authorities in India, especially in the case of
pledge of shares by promoters of companies, SEBI may want
to opt for disgorgement of the entire amount of the loan.108 This
is because, such a loan would not have been granted in the
first place, had the pledgee known the real value of the shares
pledged. Hence, the grant of loan itself could be construed as
an unlawful gain accrued to the pledger. The interesting question
here would be whether disgorgement could be directed when
there is full repayment of the loan. In my opinion, it may not
be possible under the existing provisions of law and precedent,
because though courts have recognised the concept of ‘notional
profits’ to compute disgorgement, they may be reluctant to
acknowledge ‘notional losses’ as a determinant for quantifying
disgorgement.109

108 See Reserve Bank of India, Financial Stability Report (Including trend and progress
of banking in India 2013-14) (December 2014) - Chapter III - Financial Structure
Regulation and Infrastructure, at https://rbi.org.in/scripts/PublicationReportDetails.
aspx?UrlPage=&ID=809. (last visited on 24 February 2019)
109 See Chintalapati Srinavasa Raju & Ors. v. SEBI, SRSR Holdings & Ors v. SEBI

(Appeal Nos. 463, 451-453, 458-462 of 2015) SAT order dated 11.08.2017 read
with Shri B. Ramalinga Raju & Ors v. SEBI (Appeal Nos. 282, 284, 285, 286 and
287 of 2014) SAT order dated 12.05.2017. In these matters, a pledge was made by
the promoters of Satyam Computers Services Limited, Ramalinga Raju and Rama
Raju through an entity called SRSR Holdings for a loan borrowed of approximately
INR 1,258 crores. This pledge was later invoked and a large part of the loan amount
was repaid. In the concerned matter, the SAT and SC upheld SEBI’s findings that
SRSR Holdings would classify as an insider and therefore, relevant provisions of
the Prohibition of Insider Trading (PIT Regulations) and SEBI Act were violated.
However, SAT remanded the calculation of the amount of disgorgement to SEBI
which was earlier quantified by SEBI as the entire loan amount of INR 1,258 crores.
SEBI had ordered this amount to be paid jointly and severally by Ramalinga Raju,
Rama Raju and SRSR Holdings. Hence, while it would be reasonable to presume that
some amount of disgorgement will be awarded in case of pledge of shares while in
possession of UPSI, the method, which will be employed by the regulator to quantify
the amount, remains a question to be answered.
2019] Determining Disgorgement in Securities Law 173

VII. Conclusion

The concept of disgorgement is now recognised in most jurisdictions.

Securities commissions globally have been employing disgorgement
as an effective and distinct enforcement tool for the dual purpose of
protecting the interests of investors, and preserving the integrity of the
capital markets. It cannot be denied that disgorgement is an equitable
remedy, which has evolved against the background of legal lacuna
that provided for injunctions and debarments but failed to deprive the
wrongdoer of the primary unlawful fruits of his wrongdoing.

The method of computation or quantification of disgorgement differs

not only among different jurisdictions but also within the approaches
developed by a particular securities commission. There is no one
method which can be described as ‘perfect’ or ‘apt’. In light of
judicial pronouncements and legislation, it is pertinent to understand
that a method is acceptable to the extent it performs the function of
accurate estimation of unjust enrichment accrued to the wrongdoer.
However, the method is likely to vary in view of the peculiar facts
and circumstances of every case and the distinct strategies adopted by
the wrongdoers to contravene securities law.

It is imperative that the amount of disgorgement be computed as the

‘reasonably approximate unlawful gains’ made by the party ordered
to disgorge. Disgorgement, quantified as the reasonable approximation
of profits wrongfully gained or losses wrongfully averted, causally
connected to the violation(s), could rightfully be understood as the
general standard to determine disgorgement in securities law.
174 The Law Review, Government Law College [Vol. 10

INDEX OF BACK ISSUES

The Law Review 2017 (Vol. 9)

1. Separatist Regimes and Human Rights Obligations

2. ‘To Be or Not To Be’ – The Conundrum of Arbitrability of

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3. Whose Airspace is it Anyway?: Decoding the ADIZ Enigma

4. Rape as an Atrocity: Analysis of Judgments Delivered by

the District Court of Bilaspur, Chhattisgarh

5. Reverse Patent Settlements in India

6. Why the Net Needs to Forget

7. India: On the ‘REIT’ Path

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1. Vessel Protection Detachments and the Search for Immunity

2. IP, Open Source and the Licensing Paradigm

3. The Civil Liability for Nuclear Damage Act, 2010: Is

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4. The Indian Electoral Process and Negative Voting

5. Terrorism: Its Implication for Human Rights

6. Victims of Persecution in Regional Geopolitics

7. Computing the Tax on Cloud Computing

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The Law Review 2007 (Vol. 7)

The Law Review—Bench Edition provided a unique insight from

the other side of the bar: all the articles in this journal were
authored by members of the higher judiciary and consequently,
they displayed an analysis and depth that comes only with years
of scholarship.

1. Development of Environmental Law

Justice Dr. S. Radhakrishnan

2. The “Business” of Court Management

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3. Judicial Activism
Justice Mr. V. G. Palshikar (Retd.)

4. Is Arbitration Law Required to be Reviewed Urgently?

Suggestions for Law Reforms
Justice D. R. Dhanuka (Retd.)

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The Law Review 2007 (Vol. 6)

1. Globalisation and the Indian Legal Services Sector:

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2. Inventive Step to Innovative Leap: Advocating the Next Big
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1. Genomics – A Brave New World

2. 2(C) Or Not 2 (C): Redefining Minorities under the Indian

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6. Gender Wars: An Identity Crisis

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1. Identity Cards – In Whose Interest?

2. Nanotechnology: Protecting the Next Big ‘Small’ Thing
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6. The Saw Pipes Judgment

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1. Hyperlinks: A Study of the Legal Controversies
2. Amendmenace: The Constitution of India Unveiled
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6. Decriminalisation of Homosexuality in India
7. How Legal is Illegal: Paradoxes in the Indian Drug Laws

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8. Free Trade Today by Professor Jagdish N. Bhagwati

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1. Universal Jurisdiction in International Law

2. The Governor’s Power to Dissolve the Legislative Assembly
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3. Women and the Co- Parcenary Law – Unsolved Questions
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9. Basmati, Turmeric and Neem – Patenting and Related Issues
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11. The Illegal Proliferation of Small Arms – A Global Dilemma
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1. TADA to POTO: From the Frying Pan… Into the Fire!

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184 The Law Review, Government Law College [Vol. 10