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Social Stock Exchanges: How far effective in promoting the social sector?

The Supreme Court, while hearing a petition in September 2016, mandated the government to audit and keep a check on the use of public funds, by NPOs. These entities, based on their nature, are required to be registered under law to obtain specific tax incentives, under Section 12A and 80G of the Income Tax Act, 1961.

Poornima Advani



The Securities and Exchange Board of India (SEBI), set up a working Group, under the chairmanship of Ishaat Hussain, seeking to assess the viability of establishing a Social Stock Exchange (SSE). The Working Group has recently submitted its report which describes in detail the possible modes of investment, listing mechanisms, instrumental layout, personnel changes, rules, and policies that will go into making SSEs a market reality.

SSEs are listing forums that seek to serve as a bridge between the private sector and the non-profit sector, by channelling greater capital to volunteer organizations. In layman’s terms, it means that an individual can buy shares in a social enterprise, if they wish to contribute to the cause or mission they align with. At the outset, this may sound as an incredibly noble initiative. The biggest question that is posed is why can’t an individual simply donate to a charitable organisation of their choosing which aligns with the same social mission? Why does the need for commercialized forums such as stock exchanges arise in in promoting social goals? How would investing in non-profit organizations, prove different from donating for one? Predominantly, Non Profit Organisations (NPOs) in India are either set up as Societies, Trusts or Not-for-profit companies under Section 8 of the Companies Act. A sizeable chunk of fund raising for such NPOs is via donations, foreign contributions, CSR grants or from various government schemes.

 As the Working Group Report notes, India is home to over 3.3 million nonprofit organisations, nearly one NPO for every 400 Indians. The Supreme Court, while hearing a petition in September 2016, mandated the government to audit and keep a check on the use of public funds, by NPOs. These entities, based on their nature, are required to be registered under law to obtain specific tax incentives, under Section 12A and 80G of the Income Tax Act, 1961. As per the CBI report filed before the Supreme Court, out of 3.3 million NGOs, only 0.3 million filed necessary accounts and expense statements with the ministries. This provides a brief overview of the gigantic number of NPOs at one hand, and the sparsity of their sources of funding, expenses, and management on the other hand. Effective social impact by these NPOs is largely dependent on adequate funding. Conversely, the ability to attract funds is contingent on evidence of impact and outcomes. Funders require bare basic information about financial reporting, governance structures and indicators of social impact. SSEs act as an efficient filter for organizations that create and report social impact, as well as follow best practices of financial reporting. Listing on SSEs would also necessitate proper registration and governance structures, providing an adequate cheque on financial activities of NPOs. As an added upside, enlisting NPOs on an accessible public forum, such as an exchange, accomplishes the task of public-visibility, crucial to attracting funds.

One of the glaring deficiencies in the report is its conscious reluctance to define ‘social enterprises’. This reluctance directly leads to the inclusion of FPEs for listing on the exchange as well, which seems hardly remedial in the effort to promote the social sector. Considering that the FPEs are inherently revenue-generating entities, it begs the question that at what point do you cap the absorption of this revenue by an enterprise to make the rest available for their social work. This remains conveniently unanswered in the absence of a definition to eke out the requisite social mandate of organizations.

The question of accountability is paramount while creating any mechanism through which to channel private money into the development of the social sector. In this regard, the Report devises a pay-forsuccess model. This system envisages a system of outcome-funding for the listed entities incentivizing investment based on the fulfilment of social welfare targets. The mandatory social-impact reporting requirements proposed for the SSE-listed bodies and their inclusion in the Information Repository (IR), generate increased credibility among social enterprises. These are two laudable steps in the establishment of a need-based self-reporting and auditing regime. The culmination of this robust framework lies in the guidelines of accreditation and creation of the NITI Aayog’s DARPAN. At last, the repeated directions of a tired old Judiciary to step up regulatory framework for such organisations have gradually taken off.

In the aftermath of COVID-19, the need for mobilising funds into the social sector to repair the widespread financial damages can’t be stressed enough. Impactinvestment, a concept that has been in financial parlance, is often regarded as a medium of attracting private equity capital into social development initiatives. A manifestation of this concept was seen in the world’s first SSE in Brazil (BOVESPA) in 2003. Within a year, the total investment in social shares at the exchange was R$1.1 million. The exchange had managed to help as many as 38 NPOs in their development work, thus gaining acclaim from the UN Global Impact for its contribution. Building on the same, the London SSE (NEX) devised its own form of listing. Organizations, whether for or without a profit-making intention were allowed to access financial markets and raise funds at the exchange, as long as their activities are focused on social and environmental missions. Such listing requires them to comply with a strict reporting standard in terms of their actions. The USA has no active SSE. However, there is a platform called Mission Markets, which connects high net-worth individuals and institutional investors with enterprises that are directly addressing social and environmental issues. As of now, it has 140 investment-ready offerings worth US$ 336 million. This affirms the fact that SSEs are in fact, tried-and-tested instruments in fund-raising. Also, they have efficient parameters of disclosure and accountability, via industry-mandated reportage which is essential for generating much-needed investor-awareness.

The United Nations Environment Programme Finance Initiative (UNEP-FI 2005) Report emphasised that there is good evidence to suggest that Environmental and Social Governance (ESG) issues could have an impact on financial returns. To that effect, SSEs are promising undertakings with expected results (if properly allowed to scaleup) — the proposal to create a capacity-building fund worth Rupees one hundred crores, as suggested in the Working Committee’s Report. However, a heightened due-diligence framework of compliance is necessary before filing. The SelfRegulating Organizational (SRO) structure that has been suggested for day-today administration of the exchange must be improved upon by conferring the SRO, with greater adjudicatory powers to oversee and monitor malpractices.

 Using private money to aid social development is going to be an established norm in the years to come. It is not desirable for the Government to always be expected to shell out taxpaying monies for their funding. Moreover, funding from the Government would be only a fraction of what could potentially be available from the capital markets. The lucrative quantum of funding attracts enhanced responsibilities of registration and compliance with audit/ reporting standards. As of now, NPOs continue to thrive in regulatory wilderness. For the sake of sociomoralistic commitment, it is essential to ensure that not a single penny attributed to the cause of the needy, goes unaccounted for. In an unending pursuit of Sustainable Developmental Goals (SDG), SSEs open a window to the gates of new-age philanthropy in an everdeveloping world of social growth.

 Dr. Poornima Advani is Partner, The Law Point, a law firm with offices in Mumbai and New Delhi. She has served as the Chairperson of National Commission for Women.

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Legally Speaking

Supreme Court live-streaming hearings for first time today




The Supreme Court went live for the first time on Tuesday when the cases’ hearings, which were planned to be livestreamed during the day, could be viewed online. One of the three cases slated for live streaming was from Maharashtra and pitted Team Uddhav Thackeray against Team Eknath Shinde over a dispute over the Shiv Sena’s symbol, with the Election Commission already involved. This was the second live hearing where the attorney, Kapil Sibal, could be seen arguing.

Live broadcasting was recommended by the Supreme Court around four years ago.

The former chief justice of India, Dipak Misra, had passed the landmark ruling on September 27 on the live telecast of important proceedings, saying “sunlight is the best disinfectant”.

Following discussion on the issue by the whole top court on September 20, it was decided to begin live-streaming constitutional bench hearings this week. Chief Justice of India (CJI) Uday Umesh Lalit presided over the whole court meeting, and all the judges agreed that constitutional matters should be the first to be streamed live on a regular basis.

A bold plan to integrate the use of information and technology with India’s judiciary, the e-courts project’s third phase included the proposal to have an exclusive platform for live-streaming Supreme Court sessions.

The high courts in Gujarat, Orissa, Karnataka, Jharkhand, Patna, and Madhya Pradesh are some of the high courts that broadcast hearings live as well.

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Dipankar Dutta, Chief Justice of the Bombay High Court, recommended his elevation to the Supreme Court



Supreme Court

Following a flurry of deliberations, the Supreme Court collegium has recommended Bombay High Court Chief Justice Dipankar Dutta for appointment as a judge to the highest court.

According to a resolution posted on the court’s website, Justice Dutta’s name was finalised at the collegium meeting on Monday.

The collegium is currently led by Chief Justice of India Uday Umesh Lalit and includes justices Dhananjaya Y Chandrachud, Sanjay Kishan Kaul, SA Nazeer, and KM Joseph, the Supreme Court’s first five judges.

This is the collegium’s first recommendation since Justice Lalit took over as CJI on August 27.

The top court currently has 5 vacancies despite having a sanctioned strength of 34 judges.

On September 23, Justice Indira Banerjee was the last judge to resign.

Following back-to-back meetings in the last week, the collegium could decide on a name for elevation to the Supreme Court, according to people familiar with the situation. While the collegium members were unable to reach an agreement in the three meetings held last week, justice Dutta was a unanimous choice on Monday.

Other names for the apex court were also discussed during the meeting, and the collegium may recommend more names during the week, according to people in the know. Furthermore, the collegium deliberated on a few names for the appointment of high court chief justices, and some of them may be approved by the collegium soon.

In June 2006, Justice Dutta, 57, was appointed to the Calcutta High Court.

In April 2020, he was appointed Chief Justice of the Bombay High Court.

If the collegium’s recommendation is approved by the union government, Justice Dutta will be appointed to the Supreme Court for an eight-year term.

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Delhi High Court orders AAP leaders to remove posts defaming the Lieutenant Governor



Delhi high court

The Delhi High Court has ordered AAP leaders to remove posts defaming Lieutenant Governor Vinai Kumar Saxena as an interim measure. A detailed order is awaited on this.

LG Saxena sought to restrain the ruling Aam Aadmi Party in Delhi, its leaders Atishi Singh, Saurabh Bharadwaj, Durgesh Pathak, Sanjay Singh, and Jasmine Shah, who was appointed by the Government of NCT of Delhi as vice chairperson of the Dialogue and Development Commission, from deleting or removing the alleged false and libellous posts, tweets, or videos circulated and issued on social media.

The AAP and its members claimed that Saxena and his family were involved in a Rs. 1400 crore scam while he was the chairman of the Khadi and Village Industries Commission (KVIC). The party and its leaders claimed, citing the statements of two former KVIC employees, that as KVIC chairman, his daughter was given a contract, which was against the rules.

“I have passed an ad interim order in favour of plaintiff and a takedown order. You can see detailed directions.” justice Amit Bansal said.

Last Thursday, the court reserved its decision on LG Saxena’s interim application, which sought the removal of defamatory content from social media and other online portals.

The L-G, seeking damages of Rs 2 crore, told the court that the party made these allegations with a carefully planned motive in order to divert public attention away from the action being taken by law enforcement agencies against its senior leaders.

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In a single day, an Orissa High Court judge issues 32 decisions



A senior judge of the Orissa high court delivered 32 judgments in a single day, amidst large-scale pendencies in high courts across the country.

Officials from the Orissa High Court said on Monday that a single judge bench led by Justice Debabrata Dash delivered judgement in 32 cases, the majority of which were second appeals challenging the decrees of the state’s appellate civil courts.

Thirty-one of the 32 cases were related to the second appeal, with many dating back to 1988 and 1990.

In a second appeal case filed by Gangadhar Pradhan in 1990, the judge upheld his claim of status quo in the sale of land to Saraswati Shishu Vidya Mandir in Balasore district.

Pradhan filed an appeal with the High Court in 1990, claiming that his opponent had sold some of the property to Saraswati Shishu Vidya Mandir office bearers.

In another case, the HC judge upheld the appeal of the district collector of Kalahandi, who had petitioned the Orissa high court in 1999 against the encroachment of government land by Prahallad Aghria and others.

According to Samaresh Jena, additional standing counsel in the Orissa High Court, the passing of 32 judgments in a single day should be emulated and would go a long way toward reducing the pendency in the High Court.

“Till September 23, at least 1.72lakh cases were pending in the high court of which over 67,000 cases are civil writ petition cases. Nearly 20,000 criminal appeal cases are pending. The courts need to clear the backlog quickly,” said Jena.

In August of this year, Union Law Minister Kiren Rijiju told the Rajya Sabha that 59.5 lakh cases are pending in 25 high courts across the country, with a backlog of 4.13 crore in subordinate courts.

More than 71,000 cases are pending in the Supreme Court.

In June of this year, the Orissa High Court became the first in the country to publish an annual report on the state’s judiciary’s performance.

“The greatest challenge to the judiciary is docket explosion i.e., increase in the pendency of cases. While the increase in the institution of cases reflects people’s faith in the judiciary, it also poses challenges,” the report said, adding that the judiciary “appears to have fallen short of expectations”.

According to the annual report for 2021, the high number of cases pending is due to a low judge: population ratio (the number of judges per million people).

Odisha has a judge-to-population ratio of 20.52, compared to the national average of 21.03.

It also stated that, while the sanctioned number of judges in the high court was 33, the current working strength was only 21.

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SC notifies Centre on plea against amendments to Juvenile Justice Act





The Delhi Commission for Protection of Child Rights (DCPCR) petition, which questioned 2015 amendments to the Juvenile Justice Act, has resulted in a notice from the Supreme Court to the Center. The panel argued that it was against the interests of the children to classify as non-cognizable certain serious offences committed against them.

On Monday, a bench of justices Dhananjaya Y. Chandrachud and Hima Kohli also sought the Attorney General of India’s assistance in the case. Initially, it was inclined to urge the petitioner to approach the Supreme Court.

But advocate Prateek K Chadha, who represented the panel, told the bench that five state commissions have written to the Centre expressing reservations over the amendments. He added a high court decision will have limited territorial application while this law is applicable across India.

Due to the amendments, several offences against minors are no longer punishable by law, and as a result, police cannot look into them unless given permission to do so by a magistrate. Some of these offences carried punishments of three years or even up to seven years behind bars. These included buying and selling children, abusing them as workers, and using them for child begging, among other things. The law’s amendments were passed in Parliament last year.

In its plea filed in May, the DCPCR said the amendments have resulted in “denuding the police of powers to investigate and arrest the offenders” and place an “undue, unfair and unjustifiable burden on minor victims to come forward and report the commission of a serious offence.”

A police officer was given the authority to conduct an investigation and make arrests after learning of a cognizable offence under the 2015 Act. Police lack this authority when investigating non-cognizable offences unless it has been given permission.

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ITAT: No TDS on payment of FTS to non-resident not having PE in India



The Kolkata Bench Income Tax Appellate Tribunal (ITAT) in the case M/s Forum Projects Pvt. Ltd. Versus DCIT(IT) observed and has ordered that no TDS on payment of fees for technical services (FTS) to non-residents not having a Permanent Establishment (PE) in India.
The two-member bench comprising of Vice President, Rajpal Yadav and the Accountant Member, Rajesh Kumar has observed that the payment made to non-resident recipients not having any permanent establishment in India and also that the services being provided are not in the nature of royalty and fee for the technical services.
The assessee/appellant is a company registered and incorporated in India and engaged in the business of construction and development of projects during the year. Thus, the assessee was engaged in a construction and development project called Atmosphere in Kolkata during the instant year. An agreement was entered by the assessee company with M/s Web Structures Pte. Ltd., to have a registered office at 146, Robinson Road, Singapore.
However, M/s Web Structures Pte. Ltd. is a structural engineering consultancy firm and the services provided to the assessee company were in the nature of concept and schematic design, detailed design, contract documentation, tender and recommendation, design development and the construction etc.
During the year, a sum of Rs. 1,552,56,351 was paid by the assessee to the consultancy company as a consultancy fee for providing the above services. However, the said company is the non-resident company and incorporated in Singapore and did not have any permanent establishment in India, according to the assessee. Since the resident does not have any permanent establishment in India and is a non-resident, the provisions of Section 195(1) of the Act are not applicable.
It was observed that according to AO, the assessee was liable to deduct tax at source from the payment made to the company. Further, the payment of the foreign company is covered under Article 12(3)(a) of the Treaty and constitutes a payment towards royalty. As per AO, the services rendered by the M/s Web Structures Pte. Ltd. to the assessee other than the supply of drawings/ design are subsidiary and ancillary to the application and enjoyment of rights, property, or information for which payment described in Article 12(3)(a) of the Treaty is made to the foreign company, and thus a portion of the payment relating to the supply of managerial consultancy and technical services under the Agreement entered between both the companies falls under this category.
It was stated that the entire payment under the Treaty to M/s Web Structures Pte. Ltd. is in the nature of a payment for royalty and the fee for technical services. It was observed by AO that since there was no information available about M/s Web Structures Pte. Ltd. being the beneficial owner of the payment and received by it under Article 12(2), subsequently, the domestic tax rates were provided and the tax payable was computed.
The Order of AO was confirmed by CIT(A) by holding that the payment made to the foreign company by the assessee falls within the meaning of Article 12 of the DTAA between India and Singapore and therefore was liable for deduction of tax under section 195 of the Income Tax Act, 1961.
It was submitted by the assessee that since the assessee did not have any permanent establishment in India and was providing the service only from Singapore, the provisions under Section 195 of the Income Tax Act, 1961 provides that the same are not applicable.
Further, the department contended that the assessee has received services in lieu of royalty and fee for taxes paid to the foreign company which are covered under Article 12(4)(a) of Treaty. However, the appeal of the assessee may be dismissed.
It was ruled by the ITAT that the conditions set out in Article 12(4)(a) of the Tax Treaty are not met, and the services are not provided under technical knowledge, skill, etc. by using them independently in the future, nor has any design or drawing been provided to the assessee that can be used independently.
Accordingly, the ITAT directed the AO to delete the demand.

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