WHY SENIOR ADVOCATE INDIRA JAISING THINKS YOU SHOULD READ THIS ARTICLE
This article raises troubling legal questions.
The first one is: Does the Companies Act, 2013 (of India) recognise a “Golden Share”?
In India’s Companies Act, 2013, there is no mention of a “Golden Share”, but at the same time, there is neither any prohibition, obviously because there’s no mention.
The accompanying article exposes how there’s no clear logic for the Government of India to be holding a “Golden Share” with close to zero investment in CSC e-Governance Services India Limited, a Special Purpose Vehicle (SPV) — [CSC SPV]— and supposedly a “government company”.
In any event, it can be safely said that holding a “Golden Share” (one single share out of all) of the value of 0.000001% of the overall shares does not make the CSC SPV a government company.
Section 2(45) of the The Companies Act, 2013 defines “Government company” as follows:
(45) “Government company” means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company;
By this definition, CSC SPV is clearly not a government company. Thus, having a Golden Share which at best enables the shareholder to have additional voting rights beyond the value of investment, does not make the Golden Shareholder the owner of the company.
The website address of CSC e-Governance Services India Limited is https://www.csc.gov.in/.Since CSC SPV isn’t a government company, can it use the domain name of the government as it is currently doing?
The guidelines clearly forbid the use of the domain name by any non-state actor, as CSC SPV clearly is. If CSC SPV has been using the government domain name —gov.in — it would be a very serious case of passing off and misrepresentation. The fact that they have been doing so openly suggests a permissive user. In this context, one may note that the Government has no authority in law to permit a non-state actor, or any business entity, from using the domain name that only government entities can legitimately use.
Hence the second question is: If CSC SPV is not a Government company, then why it is being allowed to use the domain name of the government — gov.in — the usage of which amounts to passing off and misrepresentation on the part of a non-governmental company?
The Supreme Court has held that government contracts of a commercial nature cannot be given to any party except by way of auction, preceded by a tendering document and a bid being made so as to assure not only fair competition but also the best price. However, CSC SPV has been awarded contracts without floating a tender and inviting a bid, thus violating the law.
Hence the third question is: Why has CSC SPV been awarded contracts of a commercial nature without the Government of India floating tender inviting bids from prospective vendors? And how has the clearly misleading self-projection on the part of the CSC SPV (passing itself off as a government company) impacted the awarding of these very contracts by the Government of India, if at all?
Now the fourth question: Was the Government of India aware that CSC SPV has been using the government domain while being a non-governmental company? If so, did it take note of it? And, if it did take note of it, what did the Government of India do to rectify that situation?
The fifth question: Since CSC SPV continues till date to use the government domain name — gov.in — and Union Minister Ravi Shankar Prasad has been present at multiples programmes sponsored by CSC SPV, can it then be concluded that the use of the government domain name by CSC SPV is occurring with the knowledge and consent of the Government of India?
The sixth question: Why has the Government of India turned a blind eye to CSC SPV gaining an unfair and monopolistic advantage over potential competitors, eliminating competition and thus violating the law, as per the Competition Act, 2002? Even though there was a CSC Forum case in 2015 that went to the Competition Commission and was dismissed — on the ground that the parties should approach the appropriate authority — can we choose to ignore the issues that have come to light since then? The decision by the Competition Commission does not conclude the issue.
The seventh question: What prompted companies such as — Srei Sahaj e-village Ltd— to file and then subsequently withdraw cases alleging monopolistic position of CSC SPV and misuse of the government domain name in Delhi High Court? Why did CSC Forum approach the Competition Commission in the first place?
Add to this the fact that CSC SPV was awarded a contract by UIDAI for collecting biometric data for Aadhaar cards. It is worth recounting that UIDAI cancelled the contract upon receiving several complaints of leaks occurring at CSC SPV’s end. And there is a possibility of the leaked data being misused.
But that leads to the eighth and final question: Why, despite the UIDAI cancelling the contract with CSC SPV, after several complaints of leaks and misuse, do Government functionaries including Union Minister Ravi Shankar Prasad, continue to publicly associate with CSC SPV? Why hasn’t the Prime Minister’s Office shown any ethical objection to CSC SPV tweeting about PM Modi’s Mann KI Baat episode, effectively using the Prime Minister’s voice to advertise itself on social media?
At the very least, it can be said that the issue requires investigation, as to why the SPV, CSC e-Governance Services India Limited, wants us to think it’s a government company? Do read the article carefully to understand why The Leaflet is raising these questions in public interest.
The origin of CSCs: Background to the story
The erstwhile National e-Governance Plan (NeGP) — which has since 2014 reincarnated as Prime Minister Narendra Modi’s flagship “Digital India” — was approved on May 18, 2006 by the United Progressive Alliance (UPA-I) government. The vision statement of NeGP says: “Make all government services accessible to the common man in his locality, through common service delivery outlets, and ensure efficiency, transparency, and reliability of such services at affordable costs to realise the basic needs of the common man”. With this worthwhile aim was born the scheme that came to be known as CSC, or the Common Service Centres.
As explained in the guidelines for implementation of the CSC in various Indian states, the CSC Scheme has a three-tier execution framework:
A. At the first CSC level, are the local Village Level Entrepreneurs (or VLEs, loosely analogous to a franchise), to service the rural consumer in a cluster of five-six villages.
B. At the second or middle level, is an entity termed the Service Centre Agency (SCA, loosely analogous to a franchiser) to operate, manage and build the VLE network and business. An SCA would be identified for one or more districts (one district would cover 100-200 first level CSCs, i.e., VLEs).
C. At the third and highest level, is the State Designated Agency (SDA) to facilitate implementation of the CSC scheme within the state and to provide requisite policy, content and other support to the SCAs.
Other than the CSCs, a National Level Service Agency (NLSA) and a Special Purpose Vehicle (SPV) had to be there under the Department of Information Technology (DIT). The role of NLSA was defined in the guideline document:“There are significant challenges in exploiting opportunities to achieve economies of scale in the identification, customisation and implementation of the physical and digital infrastructure required for the project. Further, many of the potential citizen-centric services would lend themselves to aggregation at the national level. To enable the state-specific implementation plans to benefit from such economies of scale, aggregation of best practices, content providers, etc., the DIT would be appointing a National Level Service Agency (NLSA).”
The same document defines SPV and its scope in the following words: “In addition to the NLSA, an SPV has been proposed for the day-to-day monitoring of the CSC scheme, in terms of channeling government support, content aggregation, etc. While the SPV is proposed to be set up during the initial implementation phase of the scheme, it is essentially an entity created to be an integral part of the CSC.”
The role of the NLSA was supposed to be a temporary one. It had to help the DIT to rollout the programme and manage it, including assisting the states to create request for proposals (RFPs) and help them in the bidding process to appoint State Level Agencies. Once the programme was completely rolled out, NLSA’s work was supposed to be over and the role of SPV would start. The UPA government selected IL&FS (Infrastructure Leasing & Financial Services) as the NLSA in 2006 through a tender.
Special Purpose Vehicle
Now we come to what is called the Special Purpose Vehicle, or the SPV, and its role was defined as follows: “A number of activities such as channeling government support, national level content aggregation, monitoring of operations, etc. would need to be undertaken beyond the period of existence of the NLSA. Some of these activities may need to continue in perpetuity, even after expiry of the period of guaranteed government support. Hence, in addition to the NLSA, a Special Purpose Vehicle (SPV) is intended to be established to perform these roles/tasks. The SPV would be set up during the initial implementation phase of the scheme and would be an integral part of the CSC framework in perpetuity.”
It was added:
“The SPV would perform the following key roles:
a) Lay down operating and financial disciplines within the CSC system;
b) Provide a framework for collaborative decision making;
c) Catalyse content aggregation on an on-going basis;
d) Build a common ‘identity’, like a common logo, etc.”
CSC e-Governance Services [CSC SPV]
CSC e-Governance Services India Limited was incorporated in July 2009 under the Companies Act, 1956. The company website says it was formed “to oversee implementation of the CSC scheme”. It further adds: “CSC SPV provides a centralised collaborative framework for delivery of services to citizens through CSCs, besides ensuring systemic viability and sustainability of the scheme.”
Now comes something very interesting about CSC e-Governance Services India Limited. As per the initial documents, an SPV was incorporated “with broad-based equity investment from various state governments, banks, financial institutions and Service Centre Agencies (SCAs)”. The Memorandum and Articles of Association of July 2009 shows the share-holding pattern. Six shares, out of 500, were held by individuals, one by each of them.
Those individuals were: 1) the then secretary, 2) the joint secretary and 3) the deputy secretary —of the Ministry of Electronics &Information Technology (Meity), 4) Gobinda Banerjee — a general manager at Punjab National Bank, 5) Rajprit Inderjit Singh Sidhu — general manager at the IT division of the Punjab National Bank, and 6) Girish Chandra Sharma —general manager at the Agri Banking Division of Bank of Baroda— each one of them held one share each in CSC e-Governance Services India Limited.
The majority shareholding was with a Calcutta-based company called Srei Sahaj e-village Ltd, amounting to 494 shares.
At the time of the incorporation of the company, it was clear, as per the available documents in the public domain, that the CSC SPV model “was adopted was in the nature of Public Private Partnership and, therefore, the SPV was to have equity partners who would invest in the SPV, such as the Department of Electronics and Information Technology, the Ministry of Communication, Government of India, NLSA and strategic investors”.
As per the existing rules and Companies Act 1956 (according to which the CSC SPV was formed in 2009), the definition of a government company is explained in Section 617 and it reads: “For the purposes of this Act, Government company means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary of a Government company as thus defined.”
This government file from 1966 explains: “This Department had advised in the above Office Memorandum that shares in a Government company can not be registered in the name of a public office which is not a corporation sole as understood in law. Thus, the shares in a Company can not be held in the name of the Collector of Central Excise or a Secretary to the Government of India, etc.” [emphasis added]. Further, “The acquisition or holding of shares in a company by the Government of India or a State Government is “executive action” as contemplated by Articles 77(1) and 166(1) of the Constitution and can, therefore, be made in the name of the President of India or the Governor of the State, as the case may be.”
What (and why) is a ‘Golden Share’?
The Golden Share is a concept which was widely used in the United Kingdom in the early 1980s. The Government holding a single share without much investment, but voting right equivalent to 51% in private companies, is basically the idea behind the Golden Share. Investopedia defines “Golden Share” as follows: “A type of share that gives its shareholder veto power over changes to the company’s charter. A Golden Share holds special voting rights, giving its holder the ability to block another shareholder from taking more than a ratio of ordinary shares. Ordinary shares are equal to other ordinary shares in profits and voting rights. These (Golden) Shares also have the ability to block a takeover or acquisition by another company.”
[As explained in this essay by comparative law scholars Stephan Grundmann and Florian Moslien, the Golden Share is illegal in European Union as a whole. But, individual countries can pass the laws if the involved companies’ business is limited within their national sovereign territories. But valid legal sanctity is a must.]
The legal permission for having a Golden Share was inserted in the Companies Acts of individual countries where they still exist through amendments of the laws, starting with the UK in 1979.
However, India doesn’t yet have any such amendment to the Companies Act (i.e., neither in the original 1956 Act, nor in any of the amendments, the latest and one of the most rigorous one being in 2013) that allows the holding of the Golden Share. The Companies Act 1956 and successive amendments in India till today (latest being in 2013) never explained or defined this concept. So, the expert opinions about the government holding a Golden Share is divided. However, the consensus among them is that this is a grey area.
Some opine that there is nothing in the Company’s Act which prohibits a company from issuing a Golden Share, while others take a different view. For example, an article by C R L Narasimhan published in the year 2000 with The Hindu (during the time of NDA-I) suggests that the Golden Share has no legal sanctity and the then disinvestment minister Arun Shourie supported this view. Many senior lawyers who practise corporate law say, even if the government followed the Golden Share route, that doesn’t automatically give it legal sanctity. An article published by Financial Express in 2011 (during UPA-II) strengthens this view that the Golden Share is beyond the purview of Companies Act. Moreover, the Golden Share does not give the ownership of the company to the government, but the voting rights and thus, a big say in the running of the business.
Who holds the ‘Golden Share’ in CSC CPV? And does that make CSC SPV a ‘government company’?
CSC e-Governance Services India Limited has the distinction of being the first Indian company which had a Golden Share of the Government of India.
And the MOA of the CSC SPV specifies that the share holding pattern should be 44.5% each to State Governments and theService Centre Agents (SCAs) and the rest (11%) for banks and non-bank financial companies(NBFCs). A single share — or 0.000001% of the shares— called the “Golden Share”, is held by the Secretary, the Department of Information Technology, and not the President of India as stipulated by the law. Whatever be the legality of the Golden Share, one has to have a clear rationale for giving an investor who does not hold the majority shareholding the right to out-vote/veto other shareholders.
The Company’s Memorandum of Association (MoA) specifies two things. One, by virtue of holding the Golden Share, the Government of India (GoI) will have two directors on board; and two, the GoI will hold the right to veto any decision and/or resolution proposed and/or passed by the board of directors. But these clauses in the MoA do not give the ownership of the company to GoI, nor do they make CSC SPV a “government company”.
CSC SPV’s self-projection as a government company
The Ministry of Corporate Affairs (MCA) website says CSC SPV is registered as a non government company.
But interestingly, this company uses the government domain for its website — www.csc.gov.in — and the company’s registered address is the same building as the Ministry of Electronics and Information technology (Meity) and the Department of Information Technology (DIT).
None of the autonomous bodies, societies, SPVs or statutory organisations under the Meity — other than CSC SPV — had the web hosting in government server till 2015. In 2017, Media Lab Asia, a Section 8 company which was incorporated under the Department of Telecom in 2003, was renamed “Digital India Corporation” and changed their web address from www.medialabasia.in towww.digitalindia.gov.in. Before the present government came into power, in all the documentsCSC SPV’s e-mail id was[email protected]. Change in Media Lab Asia web address and email can still be justified because it is a Section 8 company owned by Meity, but CSC SPV is not.
In addition, according the guidelines provided for allocation of registration under gov.in domain, only the following can apply:
Hence, the question arises:
Why was CSC SPV allowed to use the government domain name?
Use of the domain name gov.in would give the impression that the company is a government company. No person or entity can use the domain name and logo of the Government of India, unless the enterprise actually belongs to the Union of India. All assets and shares or any such enterprise are held in the name of the President of India as envisaged in Article 299 of the Constitution and the same is read as follows:
“(1) All contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President, or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorise.”
In government companies, all contracts are entered into in the name of the President of India. Hence, for any non-government entity to use the domain name — gov.in — would amount to passing off and misrepresentation of a serious nature. Now the question that follows is this: It must be assumed that the Government of India, with full knowledge of the fact that CSC SPV is not a registered government company, has allowed it to use the domain name of the Government of India openly and consistently.
There are a lot of interesting things happening around this particular company in the ministry. The company paid dividend over the years to the shareholders, starting from 6% in 2013-14 to 8% in 2014-15 and 2015-16. CSC SPV’s annual reports mention this in clear terms. In 2016-17, the company decided not to pay any dividend and to re-invest the profit for further business expansion. But, the annual reports of Meity show ministry has a renewed interest in this particular company since 2015-16. Till then, as a private company CSC SPV never appeared in the organisational structure of Meity. But in 2016-17, it appeared dramatically in the list under “Section 8 Companies”.
In the very next year, i.e. 2017-18, it appeared under a new column which was never there in the organisational structure before — “Company Registered Under Company Act 1956”. Here, we are not discussing about any other document, but the annual report of one of the very important ministries of the Union of India.
Even if for a moment if we consider that the company was changed in to a Section 8 company in 2015-16 for it to appear in the Meity annual report 2016-17, not a single document related to that is visible in Ministry of Corporate Affaires (MCA) website.
And, interestingly, after a year, the same company is mentioned as a “Company Registered Under Company Act 1956” in Meity annual report 2017-18.
Government’s inexplicable (undue?) favour to CSC SPV
CSC SPV was formed mainly “to oversee implementation of the CSC scheme”. As mentioned before, the website says: “CSC SPV provides a centralised collaborative framework for delivery of services to citizens through CSCs, besides ensuring systemic viability and sustainability of the Scheme.” But, what has happened in the last three and half years raise a lot of questions.
The Ministry of Electronics and Information Technology (Meity) has been nominating CSC SPV — a private company — to undertake government projects/schemes. For example, “Wi-fi Chaupal” is the initiative of CSC e-Governance Services India Ltd to enable the wi-fi services in all the villages across the country. There was no tender invited to award the contract to CSC SPV, no bid document was issued. This led to another contract to implement another government project —Pradhan Mantri Digital Sakshsrata Abhiyan. Here is the notification from MeitY. Again, no tender, no bidding, no competition. Another government contract awarded to the same private company projecting it as a government company.
This is another example where CSC SPV has been nominated for a government project implementation in Maharashtra. In this case, CSC SPV not only got to implement the project, but also bagged the Annual Maintenance Contract (AMC) of the hardware, supplying the paper ink used in the printers across the state of Maharashtra. (Read page number 19 of the agreement).
This gazette notification is another interesting case in point. A company incorporated to monitor and manage the implementation and successful running of an ambitious government programme applied for the license to sell insurance schemes and act as an insurance broker!
Legal challenges to CSC SPV getting GoI favour
As on January 31, 2018, 300 services (50 G2C and 250 B2C) have been delivered by CSC. There were cases filed by different SCAs in Delhi and Calcutta High Courts against the government favouring CSC SPV in the matter of awarding contracts, change of objects, projecting the company as a government entity thereby giving CSC SPV undue business advantage, and creating a monopolistic situation. However, no fresh information on those cases is available in public domain.
A source close to the directors of one of the SCAs (Srei Sahaj e-Village Ltd) — which was one of the original shareholders and held 494 shares — told The Leaflet on the condition of anonymity that Srei Sahaj e-Village has withdrawn the case challenging the monopolistic position of CSC SPV and the misuse of the government domain name, which they filed in the Delhi High Court in 2017, after two years of witnessing CSC SPV being given special favours. “Having a stake in CSC and opposing MeitY and CSC is suicidal”, he said.
Here is a case which went to the Competition Commission and the allegations raised are noteworthy, irrespective of the outcome of the case.
The CSC SPV link to Aadhaar
Why did this company become so important to MeitY after the NDA-II government came to power in 2014? The CSC SPV was awarded a contract by UIDAI to enrol for Aadhaar cards. In 2012, the CSC SPV was appointed as aregistrarby UIDAI to enrol for Aadhaar cards.
Over a period of time, Aadhaar enrollment by CSC SPV became so riddled with complaints and allegations of corruption that — by the end of 2016, only 39.37% of the Aadhaar created by them did have valid supporting documentary proof as opposed to 60.27% of the cases which didn’t have any.
As explained in these YouTube videos posted by the VLEs themselves, how the CSC SPV appointed VLEs without proper verifications after 2014 in order to expand their network, which led to the rampant corruption and malpractices. For example, this video put up by a VLE called Net Jugad Tech, explains casually how one can bypass essential documentary proof in order to enrol for Aadhaar and obtain an Aadhaar number thereby. All these happened when CSC SPV started illegally projecting itself as a government company.
An insider put it in simple words: “SPV was the single largest private Aadhaar enrolment agency because of its large network and wide reach. UIDAI, this February, cancelled the agreement with CSC SPV because of numerous complaints of malpractices and leaks. Just imagine the kind of human touch points they enjoy. Projecting it as a government company gives it more credibility. That is why CSC is very important for the BJP [government].” To clarify it further, he added: “Till now no one from the Union cabinet spoke about CSC other than [Union Law & IT minister] Ravi Shankar Prasad. But now, on Mann ki Baat, PM Modi himself spoke about CSC and how it is giving employment opportunities to rural people and empowering them with easy access to government services. In the coming months, you may hear of that even more.”
Screenshot of advertisement that appears on the home page of CSC e-Governance website, last accessed at 6:15 pm on July 11, 2018.
[On the 45th episode of his monthly radio programme Mann KI Baat, Prime Minister Narendra Modi spoke of CSCs, on June 24, 2018. CSC itself put out this tweet drawing our attention to the attention that the Prime Minister showering on companies such as theirs.]
And as seen in the video below posted by CSC’s own YouTube channel, Union Minister Ravi Shankar Prasad praises CSC SPV profusely in a “government programme” sponsored by CSC SPV, where he talks about how Prime Minister Modi’s Digital India is “changing” the country.
In addition, Union Minister Ravi Shankar Prasad had also promoted CSC SPV in September 2016 — six months before the 2017 Assembly elections in Uttar Pradesh, and just after the then UP CM Akhilesh Yadav had launched his “Samajwadi Smartphone Scheme” to increase his party’s digital outreach. In fact, the report in the Indian Express reads:
“Ahead of the Uttar Pradesh Assembly elections, politics in the state seems to be headed the digital way. Minister of Electronics and Information Technology Ravi Shankar Prasad on Tuesday announced a review of the rural digital infrastructure in the state alongside a slew of initiatives to be undertaken by CSC e-Governance Services India Ltd (CSC).”
This may be the first time in the history of India that our government is misleading the population by projecting a private company as a government company to enhance the political reach of the party they belong to.
Using a registered non-governmental company like CSC SPV to reach out to the people is a smart move. Projecting it as a government entity gives more credibility to the company and the people who represent the company for the government. At the same, as a non-government entity, CSC SPV is not under the scrutiny of CAG or any other government agency who can check their profit and loss accounts and balance sheets. Even in the Ministry of Corporate Affairs(MCA) filings, the company has not segregated the sources of income.