SOVEREIGN DEBT RATING

What does sovereign debt rating mean?

For investors who plan to invest abroad, sovereign debt rating is taken as an indicator of the risk involved in investing in bonds issued by the national government of a country. Unlike corporate, the central government has powers like the ability to raise taxes and control money supply.

That’s why they have to be rated separately and typically, the ratings of a government of a particular country are higher than other sectors in the same regime.

The rating scale that is currently being quoted in the media is devised by credit rating agency Standard & Poor and according to it AAA is the best rating for any country. On this scale, the ratings go down to AA+, AA, AA-, A+ and so on till the worst rating which is D, which means the government is in default. Downgrading on the scale means that the risk in investment in that country’s debt is assessed to have increased and because of this, existing investors might withdraw their money while future ones might prefer to invest in safer venues.

How often have national governments defaulted on their debt?

As a national government controls most of its affairs, in the case of default, it can’t in practice be forced to pay back its debts. Some part of its overseas assets might get seized and political pressure may be applied on it, but all of that gives little relief to the investors. The government also faces pressure from domestic investors. Governments rarely default. Typically, a government on the verge of a default enters into negotiations with the investors to try and reschedule the debt or roll them over.

The market is driven by sentiments and in many cases, suspicious investors demand higher returns. There have been many incidents of sovereign debt crisis in the past. Recently, Greece, Ireland and Portugal were swallowed up by a crisis when the governments were unable to pay back investors. Similarly, in the early 1980s, Latin American countries were caught in a debt crisis as the foreign investments grew higher than their incomes and the governments were unable to pay back. Similar situations have also occurred in Mexico, Russia and Argentina.

How is rating scale devised?

The most important element in devising the scale is an analysis of the history of sovereign defaults. According to S&P, most of the defaults since the 19th century have occurred because of past policies which keep a government ill-prepared for sudden events like war, regime change or changes in trade patterns. There are essentially five key factors in determining the government’s rating.

These factors are Institutional effectiveness and political risk; economic structure and growth prospects; external liquidity and international investment position; fiscal flexibility and performance combined with debt burden; and monetary flexibility.

While some of these can be measured quantitatively, others are more qualitative in nature and hence the agency has devised scales to quantify them. For instance, political stability is rated on the basis of effectiveness, stability, and predictability of the sovereign’s policy-making, transparency of political institutions and so on.

Rule of law binds Parliament: SC

’Rule of law’ is an integral part of the basic structure of the Constitution and cannot be abrogated by Parliament which is bound by it, the Supreme Court has held.

"Rule of law as a concept finds no place in our Constitution, but has been characterized as a basic feature of our Constitution which cannot be abrogated or destroyed even by Parliament and in fact, it binds it," a five-judge constitutional bench headed by Chief Justice S H Kapadia said. "In Kesavananda Bharati’s case, this Court enunciated rule of law as one of the most important aspects of the doctrine of basic structure. Rule of law affirms Parliament’s supremacy while at the same time denying it sovereignty over the Constitution," the bench said. It added that "any law, which deprives a person of his private property for private interest, will be unlawful and unfair and undermines the rule of law and can be subjected to judicial review." The constitutional bench held that rule of law is an "implied limitation" on Parliament’s powers to legislate. The bench, however, cautioned the constitutional courts from considering the doctrine of rule of law as an absolute principle and said the doctrine can be applied in rare cases to undo laws which are tyrannical and in violation of the basic structure of our Constitution. "Rule of law as a principle, it may be mentioned, is not an absolute means of achieving equality, human rights, justice, freedom and even democracy and it all depends upon the nature of the legislation and the seriousness of the violation," it said. The bench, which also included justices Mukundakam Sharma, K S Radhakrishnan, Swatanter Kumar and Anil R Dave passed the judgment while upholding the Roerich and Devika Rani Roerich Estate Acquisition Act, 1996, enacted by the Karnataka legislature to protect the 465-acre estate of the famous Russian painter Svetoslav and his wife, in Bangalore. Svetoslav had sold a part of the estate to K T Plantation before dying but the state government took over the estate in 1996, through the act, to preserve the valuable trees, paintings and arts gallery of the artist couple. The bench while dismissing the plea of K T Plantation had said that private land of individuals can be acquired for public purpose only and with due compensation. The court also mentioned in its 122-page judgment that land acquisition becomes a matter of concern in the area of foreign investment but it should be clear to all that rule of law exists in the country. "Let the message, therefore, be loud and clear, that rule of law exists in this country even when we interpret a statute, which has the blessings of Article 300A (Persons not to be deprived of property save by authority of law). Deprivation of property may also cause serious concern in the area of foreign investment, especially in the context of International Law and international investment agreements. "Even, if the foreign investor has no fundamental right (in the host country), let them know, that the rule of law prevails in this country," the bench said.

GAMBLE IN LITIGATION

The SC finds that petitioners do not always come with clean hands

Most sane people prefer to stay away from the painfully slow and overcrowded courts. It is a misfortune to be dragged to a court, especially when one is an ordinary law-abiding citizen. Theancient Chineseswore at a foe, “let you be hauled to a court even if you’re innocent!”

However, there is a deviant species who attempt to gamble withlaw suits. They use the system to settle political scores or subdue business rivals. TheSupreme Courtspotted this class two years ago in the caseDalip Singh vs State ofUttar Pradeshand remarked: “In the last 40 years, a new breed of litigants has cropped up. The quest for personal gain has become so intense that those involved in litigation do not hesitate to take shelter in falsehood, misrepresentation and suppression of facts. Those who attempt to pollute the stream of justice or touch the pure fountain of justice with tainted hands are not entitled to any relief.”

The Supreme Court decided a few cases of this variety last week and even imprisoned one petitioner who lacked bona fides. One petition was moved by vocal politician Amar Singh. It was his constant whine that his political opponents in power are tapping his phones and his private conversations with friends in high places and celebrities were aired in the media. Therefore, he moved the Supreme Court invoking his fundamental right to privacy. But the court rejected his petition, calling it “an attempt to mislead the court on the basis of frivolous allegations and by suppression of material facts.”

Chastising those who move courts with such dubious motives, the judgment said: “This court wants to make it clear that an action at law is not a game of chess. A litigant who approaches the court must come with clean hands. He cannot prevaricate and take inconsistent positions.” Since the Amar Singh petition was vague, not conforming to the rules of procedure and riddled with inconsistencies, the court did not go into his main grievance — infringement of privacy.

The only positive outcome of the case was the court’s request to the government to “frame certain statutory guidelines to prevent interception of telephone conversation on unauthorised requests.” In this case, Reliance Infocom acted on a forged request from the police.

In another judgment,Kalyaneshwari vsUnion of India,the court deprecated misuse ofpublic interest litigationto wage business battles. A writ petition was filed in theGujarat High Courtseeking the closure of asbestos units, alleging that the material was harmful to humans. The high court dismissed it, stating that the petition was filed at the behest of rival industrial groups that wanted to push their products as substitute for asbestos. Undaunted, a similar petition was then moved in the Supreme Court. The plea was not only dismissed, but the person who mooted it was asked to pay cost of Rs 1 lakh and sit in the court for a whole day.

The judgment said: “The petition lacks bona fide and in fact was instituted at the behest of a rival industrial group, which was interested in banning of the activity of mining and manufacturing of asbestos. A definite attempt was made by it to secure a ban on these activities with the ultimate intention of increasing the demand of cast and ductile iron products as they are some of the suitable substitute for asbestos. Thus it was litigation initiated with ulterior motive of causing industrial imbalance and financial loss to the industry of asbestos through the process of court.”

The court declared that it was its duty in such circumstances to punish the petitioners exercising its power under the Contempt of Courts Act. The court must “ensure that such unscrupulous and undesirable public interest litigation be not instituted in courts of law so as to waste the valuable time of the courts as well as preserve the faith of the public in the justice delivery system.”

This variety of cases is not entirely new. They come with apparently laudable motives, but if the veil is removed they expose the real intentions. In the case,Subhash Kumar vs State of Bihar(1991), the complaint was that effluents released from theTata Iron and Steel Company’s washeries were not only contaminating the Bokaro river but also ruining agricultural land. Later the court found that the petitioner was an influential businessman who was buying the slurry from the company for several years. His private interest was hurt when the company refused to provide him more slurry. Hence his public interest litigation. Such instances have occurred despite the stringent reaction of the courts at all levels and guidelines set by theapex courtin some judgments.

SC FOR DEATH PENALTY FOR COPS IN FAKE ENCOUNTER CASES

Fake encounter killings by cops are nothing but "cold-blooded brutal murder" which should be treated as the "rarest of rare" offence and police personnel responsible for it should be awarded death sentence, the Supreme Court has ruled.

Dismissing a bunch of bail applications by a group of police officials who allegedly acted as contract killers, a bench of justices Markandeya Katju and Gyan Sudha Mishra said in a judgement that fake encounters were cold-blooded murders by the men in khaki.

"We are of the view that in cases where a fake encounter is proved against policemen in a trial, they must be given death sentence, treating it as the rarest of rare cases.

"Fake encounters are nothing but cold-blooded, brutal murder by persons who are supposed to uphold the law. In our opinion, if crimes are committed by ordinary people, ordinary punishment should be given but if the offence is committed by policemen much harsher punishment should be given to them because they do an act totally contrary to their duties," Justice Katju writing the judgement said.

The apex court said it would not brook any excuse from policemen that they were acting at the behest of their superior officers.

"We warn policemen that they will not be excused for committing murder in the name of ’encounter’ on the pretext that they were carrying out the orders of their superior officers or politicians, however high. In the Nuremburg trials, the Nazi war criminals took the plea that ’orders are orders’ but nevertheless they were hanged.

"If a policeman is given an illegal order by any superior to do a fake ’encounter’, it is his duty to refuse to carry out such illegal order, otherwise he will be charged for murder and, if found guilty, sentenced to death. The ’encounter’ philosophy is a criminal philosophy and all policemen must know this. Trigger happy policemen who think they can kill people in the name of ’encounter’ and get away with it should know that the gallows await them, the bench said.

The apex court passed the judgement while dismissing the appeal filed by head constable Prakash Kadam and other police personnel challenging their bail cancellation by the Bombay High Court.

The prosecution had argued that so-called encounter specialist Pradip Sharma, Inspector Pradip Suryawanshi, Kadam and about a dozen policemen abducted a real estate operator Ramnaryan Gupta on November 11, 2006 and shot him dead in a fake encounter.

It was alleged that the accused policemen resorted to the crime by acting as contract killers for main accused Janardan Bhange, an estranged colleague of the deceased.

Bhanged is alleged to have utilised the services of the police personnel following his differences with the deceased in real estate operations.

SC CANT REFUSE INFO IF PLEA FILED UNDER RTI, SAYS CIC

Commission Overturns Its Earlier Decision On Judicial Matters

The Central Information Commission (CIC) has overturned its own decision and ruled that the Supreme Court cannot deny information on judicial matters if an applicant has asked for it under the Right to Information Act.

As of now, information disclosure related to a person’s own case could be applied to the Supreme Court under the Right to Information Act. But in case the information related to judicial matters of a third party, the Supreme Court had ruled that application must be made under court rules. Rule 2 of theSCRules says the applicant must establish “good cause’’ before disclosure is made, which according to the CIC goes against the Right to Information Act.In his order, information commissioner Shailesh Gandhi said that he disagreed with former chief information commissioner Wajahat Habibullah’s decision.

His order said, “This bench further rules that all citizens have the right to access information under Section 3 of the Right to Information Act and PIOs shall provide the information sought to the citizens, subject always to the provisions of the Right to Information Act only.’’He added, “It is the citizen’s prerogative to decide under which mechanism, that is under the method prescribed by the public authority or the RTI Act, he would like to obtain the information.’’

The decision came after Gurgaon resident R S Mishra had asked for information related to letters he had written to the Supreme Court. The apex court had denied the information on the argument that theSChad a specific provision by which information was furnished under Order XII of the Supreme Court Rules and hence, information relating to judicial matters could be provided only under that provision. The Supreme Court PIO further argued that since the then chief information commissioner had upheld this contention, their arguments before this commission were already covered under the said decisions.

INDIA RATIFIES UN CONVENTION AGAINST CORRUPTION

India on Thursday ratified the United Nations Convention against Corruption — a politically correct move that ought to take some heat off a government battling serious corruption charges and seen as unwilling to crackdown on black money stashed away abroad.

Indeed, in recent days a question often asked was why India had not ratified the Convention when asset recovery is stated explicitly as a fundamental principle of the Convention. Besides, member-countries are bound by the Convention to render mutual legal assistance towards prosecution of offenders as well in tracing, freezing, and confiscating the proceeds of corruption.

The Prime Minister’s explanation for the delay was that the ratification had been under active consideration since September 2010 and a Group of Ministers was deputed to oversee the process. In a statement issued before his departure for Kabul, the Prime Minister further said: “….the ratification is a reaffirmation of our government’s commitment to fight corruption and to undertake vigorously administrative legal reforms to enable our law-enforcement agencies to recover the illicit assets stolen by corrupt practices.”

The text of the United Nations Convention against Corruption was negotiated during seven sessions between January 21, 2002 and October 1, 2003. The Convention was adopted by the General Assembly by Resolution 58/4 of October 31, 2003 and it entered into force on December 14, 2005.

IRAN PLANS DEATH BY STONING FOR ADULTERY

Britain urged Iran to halt the execution of a woman who a rights group says faces death by stoning for adultery.

British Foreign Secretary William Hague commented on the case of 43-year-old Sakineh Mohammadi-Ashtiani, saying it would"disgust and appal" the rest of the world.

"Stoning is a medieval punishment that has no place in the modern world and the continued use of such a punishment in Iran demonstrates in our view a blatant disregard for human rights commitments which it has previously entered into," Hague told a news conference.

Turkish Foreign Minister Ahmet Davutoglu said, "We’re trying to work and consult on all these issues with our neighbour Iran, of course we have to see the file."

The case was also raised in Britain’s House of Commons, prompting speaker John Bercow to describe it as "a horrific, truly horrific matter".

"We in this house, I hope, are in favour of human rights, not of their grotesque abuse," he added. Human rights group Amnesty International said last week it feared that Sakineh Mohammadi Ashtiani, who has two children, could be "at imminent risk" of execution by stoning at any time for adultery.

It said she was convicted in 2006 of having had an "illicit relationship" with two men and received 99 lashes as her sentence.

The rights group said that, despite this, Mohammadi Ashtiani was subsequently convicted of "adultery while being married", which it said she denied, and was sentenced to death by stoning. Hague called on Iran to put an immediate stay on the execution and review the process by which Mohammadi Ashtiani was tried.