Navigating Judicial Activism: Corporate Perspectives and Other Concerns?”

“Judicial activism is a necessary adjunct of the judicial function because the protection of public interest, as opposed to private interest, is the main concern.” [1]

– Justice A. H. Ahmadi, the former Chief Justice of India

Today, the judiciary has been taking a more proactive role in interpreting the laws as the polity has grown more complex, and where there are no laws, the court has expanded the application of existing laws to decide on issues that are brought before it for decisions. However, the intellectual elites prefer to use the phrase “Judicial Activism” in recent years to describe their level of unhappiness with the judiciary’s increasing role in India’s legislative democracy.  The fundamental focus of the complaint is that the court is running the nation and, in the opinion of some, damaging it through interfering with legislative and executive responsibilities through its orders. One of their defenses is that the courts’ scope for judicial review has been extended as a result of the broadened definition of locus standi, especially when it comes to PIL.[2]  This article attempts to demonstrate how judicial activism is a fundamental aspect of the judicial system and develops as a result of several factors. It also tries to investigate if the growing trend of judicial activism could indeed be a cause for concern within the corporate world.

As courts become more actively involved in shaping and interpreting laws, it introduces an element of uncertainty for businesses. Judicial decisions may have a significant impact on corporate operations, regulations, and legal landscapes. For corporations, this increased judicial intervention means they need to stay vigilant and adaptable to evolving legal interpretations. It might also lead to more complex compliance requirements, potential legal challenges, and a need for strategic adjustments in business practices. But judicial activism, when viewed positively, can be seen as a force for justice and societal progress. Rather than being a source of worry, it can contribute to a fair and equitable legal environment.

Democratic politics operate very similarly to a market. It functions best when there is fierce competition among the players, which encourages them to adapt to customer preferences. But when rulers suppress competition and try to bend the norms of political activity in their favour, the system becomes “dysfunctional”. It is essential that all state organs operate within their sphere of responsibility inside the framework of our constitution, which places a premium on the separation of powers. A few intrusions may occur, but that is to be expected when the “domains overlap” and the invisible line of control is quite hazy.[4]  However, the argument that the judiciary is running the country and, in the opinion of some, damaging it by dictating policy to the executive branch is couched in idealistic thinking that ignores the “real-world pressures” that drive judicial decisions.

The best case to illustrate this point is the Supreme Court’s well-known ruling in the Vishakha case[5], where the court had set down regulations to safeguard women from sexual harassment at work after being horrified by the rising number of crimes against women and the lack of adequate legislation. In a typical instance of judicial legislation, the judges established a law and endeavoured to enforce it, but they also made it clear that the rules would only be regarded as law until the legislature enacts a proper statute on sexual harassment. This occurred in 1997, and until a decade of this judgement, our politicians had not passed a legislation on the matter! If the Supreme Court’s method was “appropriate” or whether “judicial excess occurred” is a matter that demands an answer from the critiques.[6]

The question of “judicial activism or overreach” must thus be examined in its political setting. The “public’s confidence in and credibility” with the political elite has reached an all-time low today. Anyone can see how “cynical” the public is becoming and how the political elite has failed miserably to live up to expectations. The courts must step in to uphold the grandeur of the law as it must be upheld under such circumstances, and the public’s weakening trust in justice must be preserved. It is correct to note that the “inaction” of the other branches of the state in most instances leads to what is termed “judicial activism”.

The “executive class’s lack of compassion” and “indifference” cannot be ignored by the courts of justice. When the court is informed of and satisfied with grave abuses of fundamental human rights, it cannot throw up its hands in defeat” and turn a blind eye. The judicial system cannot dodge or delay decisions. Citizens who believe the legislative is unresponsive and the administration is uncaring would descend on the streets if the judiciary closed its doors to them, which would be detrimental to both the rule of law and the democratic operation of the state. Hence, it’s safe to say that the judiciary in our nation has and must consistently stand up for democracy, democratic principles, and constitutionality. [7]

The extended notion of “locus standi” concerning “PIL”, critics claim, has occasionally broadened the jurisdictional scope of courts conducting judicial review. However, it’s crucial to realize that the Supreme Court has created this tool that allows it to consider issues, particularly unconventional and unpopular ones pertaining to the poor, the underprivileged, and the deprived who, in the absence of a platform, to seek redressal of their grievances. They now have immediate access to the supreme court. This is the public interest litigation or social action litigation instrument, according to Upendra Baxi. Numerous topics, including “bonded labour”, “prison conditions”, the “education of prostitute’s children”, etc., have been examined by the Supreme Court as a result of PILs.

Not only that, but there have also been cases involving the pavement in Mumbai (Olga Tellis v. Bombay Municipal Corporation[8])”, Delhi hawkers and street vendors (Saudan Singh v. NDMC & others[9]), free and mandatory education for all children, and the eviction of people from their natural habitats as a result of enormous civil projects (dams, etc.). The court has demonstrated foresight and a progressive agenda in this regard. It has aided such underprivileged people in their endeavors to achieve some measure of justice and dignity. According to Baxi, “activism” has helped to “defend, promote, and preserve human rights” as well as “redemocratize the Indian polity.”.[10]

One of the main justifications for exercising restraint in judicial orders is that judicial activism may negatively influence the independence the judiciary enjoys, according to Justices AK Mathur and Markandey Katju, whose comments on this drew a lot of public attention. As stated by the judges: “The lesson of this tale is that politicians and others will inevitably respond if the court does not show discipline and overstretches its bounds. When this happens, politics will intervene and limit the judiciary’s authority or even its independence.” But are they really advocating judicial restraint or literally calling for a “submissive judiciary”?[11] The social, economic, and political facets of justice” should, in theory, be left primarily in the hands of legislators, and it should be assumed that the “entire legislative process influenced by ideas of justice, reason, and fairness. But as was previously mentioned, idealism is regrettably ineffective in a society that is rife with entrenched interests, corruption, and poverty. Consequently, it only seems sensible that the court plays a relatively proactive role in interpreting the true meaning of the law in the greater advantage of the public. [12]

The ‘Basic Structure Doctrine’s’ usefulness is also disputed by academics because of its anti-democratic underpinnings. It is true that a constitutional tool for reform is required for the Constitution’s orderly development, which leads to the process of constitutional amendment. But there is always a chance that the government might abuse its power and become an autocratic tyranny when it is endowed with such unchecked power. For some, it might be acceptable to utilize the amending authority to make appropriate adjustments in order to fulfil the promise made by the enlightened luminaries who serve as the people’s representatives in constituent bodies. However, it would be abhorrent and unequivocally condemnable to seek to utilize such a process to repeal or overturn the Constitution’s fundamental foundation. Indeed, one can even view the situation as a great hoax against the people who gave themselves this Constitution.[13]

It will be a show of submission to the whims of majoritarianism if a constitutional change is blindly accepted with the broadest possible significance. The current legislature may abuse its power to violate the Constitution due to “individual”, “group”, and “institutional interests”. Since history has repeatedly shown that unlimited power leads to absolute corruption, allowing it to act arbitrarily, as was shown during the declaration of a national emergency in 1975, would effectively entail legitimising “constitutional hara-kiri”. Therefore, it’s crucial to implement certain protections, such as refraining from arbitrary or superficial constitutional amendments.[14]

As Justice Chandrachud had exquisitely laid down,

“Amend as you may even the solemn document which the founding fathers have committed to your care, for you know best the needs of your generation. But, the Constitution is a precious heritage; therefore, you cannot destroy its identity”.[15]

Then criticisms also raise the question of how an unelected entity like the court can have such authority when the legislative majority reflects the will of the people. It is important to understand that in India, even without obtaining a majority of votes, a party or coalition of parties can win a legislative majority and establish the government. The logic goes that such a “coalition” shouldn’t be permitted to change the “fundamental provisions of the Constitution”, which the Constituent Assembly enshrined after extensive discussion and debate.

The parliament has occasionally veered off course and begun misusing the amending powers given to it in the past and even in the present. The Indian Constitution is a wonderful gift to “We the People,” but the Parliament has abused it to forward its own agenda at the expense of the will of the populace. Due to the amending power granted by Article 368, the Parliament made several unfavourable adjustments.

The internal emergency declared by Indira Gandhi in 1975, after she had been unseated by the Allahabad High Court for violating an electoral law, helps to the judiciary’s success in addressing the aforementioned issue. The 39th Constitution Amendment Bill was passed in part to overturn this decision and in part to preserve more authority for the Parliament. In Indira Gandhi v. Raj Narain[16], this amendment was contested on the grounds that it upset the Constitution’s fundamental structure. Although Indira Gandhi’s election was affirmed based on merits, the Supreme Court invalidated the amendment on the grounds that it was incompatible with the fundamental principles of the Constitution. Another justification for the court’s activism’s validity was this verdict.[17] The “poor and disenfranchised”, for whom the legal system is their final line of defense, would prefer that it be “more activist”.

Today, it is believed that the Supreme Court, rather than the Parliament or the government, is more sympathetic to the concerns of the oppressed and more indicative of a consensus in a multicultural society made up of many “cultures”, “traditions”, and “competing interests”. The former two are seen to be split by “casteism”, “regionalism”, and “communalism”, and are “political and opportunistic”, but the court is thought to be relatively more unbiased and above these difficulties.[18]

Critiques also claim that the term “basic structure” has a very broad definition and that not defining it would contradict the point of having one. Although it is true that the term or the phrase basic structure has not really been defined by the courts, but the judiciary has repeatedly provided the fundamental components that make up basic structure. It’s also critical to keep in mind that constitutional provisions cannot simply be separated into those that express rights in general terms and those that express non-rights in particular terms. It should not come as a surprise that such characteristics exist. Any regulation must be somewhat general or broad, and the wording of the constitution is under special pressure to be as broad as possible.

In a similar line, generality encourages the longevity of constitutions. Due to the intricacy of governance, it would be challenging to properly define all of the government’s powers even if it were wanted. Because of this, constitutions are full of ideas that are expressed in general or abstract words and to which judges are required to add further elements, even in matters of structure.[19]

As a result, we might draw the conclusion that judicial activism in India covers a legislative gap. Judicial activism strengthens democracy and restores the confidence of the general public in the rule of law. But at the same time I do agree that judges must strike a delicate balance between activism and excessivism while still becoming activists which means that they must try to refrain from taking on subjects that, although being urgent, are outside the purview of the court. The practice may be broadened, but it should stay within the boundaries of the courts. They must only be “activists”.[20] In the words of Upendra Baxi, too little activism would signify under-enforcement of constitutional notions of good governance, rights, and justice. Too many results in over-enforcement of these ideals, imperiling the legitimacy and efficacy of judicial power.

REFERENCES:


[1] A.M. Ahmadi, Judicial Process: Social Legitimacy and Institutional Viability , 4 S.C.C. J. v.1, 1-10 (1996).

[2] SK Patnaik and Swaleha Akhtar, JUDICIAL ACTIVISM IN INDIA : MYTH AND REALITY, 58 Indian Journal PS 88, 79–92 (1997)

[3] Shouvik Kumar Guha & Moiz Tundawala, Constitution: Amended it Stands?, 1 NUJS L. Rev. 533 (2008)

[4] Sidharth Sharma, Myth of Judicial Overreach, 43 Economic and Political Weekly 17, 15–18 (2008)

[5] 1997 ALD CRI 2 604

[6] supra note 4

[7] A. S Anand, , JUDICIAL REVIEW – JUDICIAL ACTIVISM – NEED FOR CAUTION, 42 Journal of the Indian Law Institute 157, 149–59 (2000)

[8] 1985 SCC 3 545

[9] 1992 AIR SC 1153

[10] Ravi P Bhatia, EVOLUTION OF JUDICIAL ACTIVISM IN INDIA, 45 Journal of the Indian Law Institute 267, 262–74 (2003)

[11] supra note 4

[12]Id.

[13] supra note 3

[14] Id.

[15]Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225.

[16] 1975 AIR SC 2299

[17] Id.

[18] supra note 10

[19] Adrienne Stone, Judicial Review without Rights: Some Problems for the Democratic Legitimacy of Structural Judicial Review, 28 Oxford JLS. 1, 9 –10 (2008)

[20] supra note 10

Commercial Implications: Evaluating the Success or Failure of Abolishing the Intellectual Property Appellate Board

  1. Introduction

The “World Trade Organization’s agreement on trade-related aspects of intellectual property rights” (TRIPS) gave rise to the IPAB. According to the terms of this agreement, all participants agreed on the need of robust intellectual property rights protection and enforcement. As a signatory to the TRIPS agreement, India formed a specialised board, with specialised brains in the field of intellectual property rights, to deal with intellectual property issues, namely the Intellectual Property Appellate Board. [1] Prior to the founding of the IPAB, the High Courts had yet to resolve around 599 intellectual property disputes. A few of them had been pending for quite some time. “The need for the establishment of a specialized Board to deal with IP appellate matters was to ease the burden off the shoulders of the various high courts before which, such appellate matters previously, would lie.”[2] The abolition of the tribunal resulted in a rise in the total amount of matters to be handled by the commercial courts and the high courts, bringing legal management back to the beginning because the courts were already overloaded by the the amount of cases leading to pendency, and now the courts have to cope with more cases requiring special expertise. This abolition also had a negative worldwide impact. The main question now is whether it was a wise decision or a blunder by the lawmakers. [3]

  1. Did IPAB completely failed to perform its duties?

One of the primary concerns for corporations revolves around the effective protection of their intellectual property. But the manner through which the abolition brought about change is unusual. It amends the Trade Marks Act of 1999 and the Patents Act of 1970 by inserting a series of forum substitutes. The phrase ‘Appellate Board’ in these two acts was primarily substituted by ‘High Court’. [4] It simply transfers traffic from the Appellate Board down to the High CourtsIt leaves the existing jurisdiction and functions of the recipient forums untouched, with no effort made to restructure or incorporate this workload. Instead, the receiving forums were simply left to manage and conclude this task independently. [5]

But, did the board entirely fail to discharge its obligations over its almost 17-year tenure? Before addressing, it is important to recognise that every coin has two sides. It is also important to note that, despite the fact that the board or tribunal was formed with the mandate of resolving disputes with effectiveness and efficacy, the board didn’t have a chairperson for a total of 1130 days.

It is also worth noting that the board was missing a technical member in 2016 and no endeavours were made to appoint one. Furthermore, following the merger of the copyright board and the IPAB, it was agreed upon that a technical member to deal with copyright infringement issues would be appointed; however, no such person was recruited. The problem of appointment was raised by the Delhi High Court in the case of Mylan laboratories limited v. Union of India[6], in this instance, the Hon’ble court emphasized “the absence of technical members appointed specifically for copyright cases, as well as the prolonged vacancy of technical members in the realms of trademarks and patents. This extended period of vacancy has led to a backlog of cases, causing significant delays that have negatively impacted the rights of intellectual property holders”.[7]

  1. Arguments against the abolition of the IPAB

Its also important to note that the 161st report of the Parliamentary Standing Committee on Commerce, which assessed India’s Intellectual Property Rights framework, was submitted to both the Rajya Sabha and Lok Sabha on July 23rd, 2021. Here, the committee itself admitted that elimination of IPAB may create a void in the “appellate resolution of cases,” potentially necessitating the transfer of cases to “commercial or High Courts,” thereby exacerbating case backlog. The Committee also noted that prolonged delays in appointing higher-level officials, coupled with the resulting suspension of IPAB operations, had hindered its optimal functioning. Consequently, the Committee recommended to the government that IPAB should be “reconstituted” with enhanced structural autonomy and reinforced capabilities, alongside the implementation of infrastructure and administrative improvements. Additionally, the prompt “appointment of officials and experienced personnel” was advocated to address these issues effectively.[8]

Specialized IP courts hold the promise of enhancing the caliber of justice, as their specialized competence empowers them to adjudicate disputes drawing from their extensive experience in resolving previous intellectual property conflicts. This specialized expertise assumes heightened significance in intellectual property disputes, where courts frequently face requests for expedited interim relief decisions.

Another benefit of specialized IP courts lies in their ability to stay current with and promptly adapt to evolving intellectual property legislation. Additionally, the court’s specialized proficiency is regarded favorably, given the potential risk in non-specialized courts, where, due to the “technical complexity of disputes,” decision-making responsibilities might be delegated to specialized professionals (appointed by the court or even by the parties), who ultimately assume the role of decision-makers instead of the judges.[9] This factor merits consideration as it appears to be crucial in maintaining the proficiency of a specialized IP court, potentially offering an advantage over non-specialized courts. It plays a pivotal role in preserving the specialized court’s expertise, ensuring that the presiding judges stay well-informed about the latest developments in the legal domain.

  1.  Arguments In Favor Of The Abolition Of The IPAB

Several drawbacks to creating dedicated IP courts have been noted. For starters, the expenses of establishing and maintaining dedicated IP courts are seen as a disadvantage, particularly in nations with a “general lack of resources, a low IP case load, and little IP expertise.”The validity and appropriateness of such expenditures are determined primarily by the caseload and the extent to which these costs may be met by existing resources. The prospective expenses of establishing a dedicated IP court should also include an assessment of the costs of selecting, recruiting, and retaining judges.[10]

Another issue of concern is the susceptibility of a specialized court to potential political or economic influences. This vulnerability arises from the perception that generalist courts often maintain greater independence compared to specialized courts. This risk could materialize even before a judge’s appointment to the specialized court, during the selection process. From this standpoint, it is proposed that generalist courts can serve as a potential safeguard or “antidote” against this risk.[11]

For instance, the IPAB powers grew to be concentrated primarily in the hands of one person, the Chairperson of the IPAB, who was normally a retired judge of a High Court. With the ability to form benches to hear cases and assign cases to benches, the Chairpersons wielded enormous authority over the results of all IPAB litigation. The apparent concern with such concentration of power is that the ideological bent of the IPAB’s Chairperson might determine all IP law flowing from the IPAB for a three-year period (i.e. their statutory tenure). During the IPAB’s existence, there were relatively few situations in which any member of the IPAB disagreed or dissented from the Chairperson’s judgement. Due to administrative issues, the IPAB was unable to carry out its adjudicatory powers. [12]

It is also argued that “judicial specialization diminishes the cross-fertilization of legal concepts.” This aspect of specialized courts has garnered significant attention and has been extensively examined by scholars, who have debated whether and in what circumstances such specialization can be justified. In this context, some argue that the absence of centralization could foster a more vibrant “marketplace of ideas,” while decentralization and diversity might offer more effective conflict resolution mechanisms. [13]

There is also an argument suggesting that if non-specialized judges struggle to grasp the intricacies of IP law, the response should not necessarily be the creation of specialized IP courts but rather reforms to the substantive IP law itself. Furthermore, specialized IP courts have the potential to promote consistency and uniformity in legal interpretations, ultimately benefiting future litigants and society by offering more predictable court decisions and enhancing overall efficiency. However, it’s important to note that uniformity alone should not be the ultimate objective, as “uniformity says nothing about quality or accuracy.”[14]

  •  Intellectual Property Division of the Delhi High Court: The way forward?

Promoting IP expertise within non-specialized IP courts has been proposed as a constructive approach, especially in developing nations. This approach might eventually lead to the creation of specialized IP divisions within conventional courts. An example of this approach is the US Patent Pilot Programme (PPP), which directed patent cases in 14 pilot districts to judges who volunteered to handle them, thus enhancing these judges’ specialization in patent-related matters. This case illustrates that the process of familiarizing and specializing judges in IP matters does not always necessitate the establishment of dedicated IP trial courts. Therefore, training judges in intellectual property issues can be achieved without the need for the formation of dedicated IP courts. The pivotal focus in IP disputes should be on cultivating judicial expertise, with this endeavor being the primary objective.[15]

In this regard, the Delhi High Court is regarded as a major forum in India for resolving IP rights issues. As after the elimination of the Intellectual Property Appellate Board (IPAB) in April 2021, the IP Division was announced in July 2021 and commenced operational on February 28, 2022.In its first year, the division resolved approximately 600 of the 2,000 cases received by the IPAB. There were 200 original trademark application cases decided, and about 40% of all transferred trademark appeals were resolved. In its first year, the division received 628 new commercial IP claims, while over 500 IP rights issues covering other categories (e.g., cancellations or appeals) were initiated. More than 700 cases were resolved in total, with just 60 appeals filed against these rulings, which might be read as litigants’ acceptance of the quality of decisions delivered. However, as of March 31, 2023, there were over 4,000 IP rights complaints pending, indicating that the first year was both inspirational and problematic. [16]

One characteristic of the IPD Rules is that if the same “trademark or patent” is involved in several lawsuits, the court can combine the procedures into a single trial. In Octave Apparels v. Nirmal Kumar trading as Apricot Fashion Alloy & Anr. [C.O. (Comm.IPD-TM) 352/2022], the IPD bench directed that “a lawsuit filed before the district court pertaining to an identical trademark between the same parties be transferred to the High Court of Delhi to be tried alongside the cancellation action filed before it”. Consolidation minimises court time and expenses for litigants while without jeopardising either party’s rights. A recent case involving copyright (Phonographic Performance v. Lookpart Exhibitions and Events; CS(COMM) 188/2022) highlighted “another unique feature under the IPD Rules through which the court can seek the assistance of an independent expert(s) relating to the subject matter of a dispute.”[17]

  •  Conclusion

The establishment of such a court serves a dual purpose beyond just enhancing intellectual property protection. It also aims to guarantee an efficient and equitable dispute resolution process, overseen by seasoned judges, to the advantage of all involved parties, including “intellectual property proprietors,” “consumers of products and services,” and “society at large.” With governments and businesses forging international connections and collaborations, stakeholders are increasingly becoming both holders of intellectual property rights and consumers of “third-party intellectual property rights,” underscoring the necessity for a “well-balanced system.”

The government’s commitment to specialized intellectual property tribunals conveys a clear message to the public: intellectual property rights will be upheld and enforced. The establishment of such specialized courts raises the prominence of intellectual property rights within a nation, signifying that the government recognizes it as a vital area deserving protection. This heightened awareness of intellectual property rights can lead to the stigmatization of individuals who intentionally infringe upon them, creating social pressure that discourages infringing behaviors. Rights holders can have greater confidence that their intellectual property rights will be safeguarded, thereby fostering artistic creation and innovation. Investments in the arts and innovation benefit society as a whole by instilling confidence in the business and corporate sectors, enhancing the prospects for foreign investment, and ultimately contributing to economic growth.[18]

In conclusion, there is no convincing evidence that specialist IP courts foster innovation more effectively than non-specialized courts in all circumstances. However, it is obvious that adequate knowledge and expertise among courts and judges may considerably improve the quality of justice in intellectual property conflicts.[19] India currently lacks a unified intellectual property court system. With the demise of a tribunal that has rendered important judgements on several occasions, a consistent Intellectual Property redressal system is urgently required. In more recent developments, the High Court of Madras has announced the establishment of an intellectual property division in April 2023. Furthermore, the High Courts of Gujarat and Calcutta have issued particular nomenclature for intellectual property issues. All of these instances point to a shift in the country’s IP jurisprudence. It is genuinely desired that other high courts in the nation would adopt the Delhi IPD approach to guarantee consistency in the adjudication of intellectual property disputes throughout India.


[1] Zimmer, Markus. Overview of Specialized Courts. International Journal for Court Administration. (2009https://www.researchgate.net/publication/285741895_Overview of Specialized Courts/citation/download

[2] Roy, M., & Manchikanti, P. (2017). Analysis of the disposition of IP cases by the Intellectual Property Appellate Board of India.

[3] Khushbu & Akshit Narula, Need for Specialised IPR Courts in India, 5 INDIAN J.L. & LEGAL Rsch. 1 (2023).

[4] Eashan Ghosh, A Case for Tethering Intellectual Property Appellate Board Cases to a Designs Act-Style Framework, 3 NAT’l L.U. DELHI Stud. L.J. 43 (2021).

[5] Id.

[6] Mylan laboratories limited v. Union of India, W.P. (C) 5571/2019 & C.M. Application 24540/2019 26833/2019.

[7] supra note 3

[8] Lamba, H. (2022). Parliamentary Standing Committee Report On India’s Intellectual Property Rights Regime. Mondaq Parliamentary Standing Committee Report On India’s Intellectual Property Rights Regime – Patent – India (mondaq.com)

[9] de Werra, Jacques, Specialised Intellectual Property Courts – Issues and Challenges (March 23, 2016). published in: Specialised Intellectual Property Courts – Issues and Challenges, Global Perspectives for the Intellectual Property System, Issue Number 2: CEIPI-ICTSD. 2016, p. 15-41 , Available at SSRN: https://ssrn.com/abstract=2761209

[10] IBA Survey, p, 37; IIPI Study, p. 7; see also Zimmer, ‘Overview of Specialized Courts’, p. 4; this difficulty may potentially be managed by making it possible for the court to sit and hold hearings in other places so that the court and the judges can move to the place where the litigants are located.

[11]  Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 839 (2002) (Stevens, J., concurring) (‘occasional decisions [on issues of patent law] by courts with broader jurisdiction will provide an antidote to the risk that the specialized court may develop an institutional bias’).

[12] Reddy, P. (2021). The End of the IPAB and Lessons on Concentration of Judicial Powers. SpicyIP. URL The End of the IPAB and Lessons on Concentration of Judicial Powers – Spicyip

[13] supra note 8

[14] Diane P. Wood, ‘Keynote Address: Is It Time to Abolish the Federal Circuit’s Exclusive Jurisdiction in Patent Cases?’, Chicago-Kent Journal of Intellectual Property 13.1 (2013): 1–10, at 3 (http://scholarship.kentlaw.iit.edu/ckjip/vol13/iss1/1); see also Craig Allen Nard and John F. Duffy, ‘Rethinking Patent Law’s Uniformity Principle’, Northwestern University Law Review 101 (2007): 1619–75 (http://scholarlycommons.law.case.edu/cgi/viewcontent.cgi?article=1590&context=facul ty_publications), at 1620: ‘Yet uniformity is not a proxy for quality. That a policy is uniformly applied says very little about its soundness or desirability.’

[15] supra note 8

[16] Kaur, B. (2023). The Delhi High Court IP Division’s First Year Has Transformed Indian IP Jurisprudence. Remfry and Sagar https://www.remfry.com/publications/the-delhi-high-court-ip-divisions-first-year-has-transformed-indian-ip-jurisprudence/

[17] Id.

[18] Zuallcobley, R. W. (2012) Study on Specialized Intellectual Property Courts. International Intellectual Property Institute.

[19] supra note 8

THE NEED FOR SHAREHOLDER ACTIVISM IN INDIA’S CORPORATE GOVERNANCE:  A COMPARATIVE ANALYSIS WITH OTHER COUNTRIES

  1. Introduction

The debate over shareholder activism is essentially a debate over the balance of power between shareholders and management in public companies. But over the years shareholder activism has turned out to be crucial for promoting transparency and accountability in corporate governance. (Bebchuk & Weisbach) However, the absence of effective shareholder activism in India’s corporate landscape remains a significant concern. This paper critically examines the legal and regulatory framework governing shareholder activism in India, and talks about other countries to identify the gaps and challenges. The paper concludes with recommendations for reforms to promote effective shareholder activism and ensure better corporate governance in India.

  • Shareholder activism is crucial for promoting transparency, accountability, profitability, and higher valuations

Shareholder activism is crucial for promoting transparency. In 2017, Infosys, one of India’s largest IT companies, faced criticism from institutional investors over its executive compensation practices. The company had granted a large severance package to its former CFO without disclosing it to shareholders. Institutional investors such as HDFC Asset Management and ICICI Prudential Asset Management used their voting power at the AGM to demand more transparency about executive compensation. (Shingade et al., 2022) The pressure from institutional investors led Infosys to revise its executive compensation policy and disclose more information about executive pay in its annual report.

Due to an increase in transparency and accountability within firms, it can improve investor confidence and lead to higher valuations as it should be noted that when firms are more transparent about their operations and financial performance, investors are more likely to invest in them. This can lead to higher valuations over time.

Shareholder activism can help to address environmental and social issues that may be important to stakeholders, which can improve the reputation of the firm and lead to increased profitability. They note that firms with strong environmental and social policies tend to have better reputations among consumers and investors. This can lead to increased profitability over time.

Shareholder activism can help to address agency costs within corporations. Agency costs refer to the costs associated with conflicts of interest between managers and shareholders. When managers prioritize their interests over those of shareholders, agency costs can arise. Shareholder activism can help to reduce these costs by providing a mechanism for shareholders to hold managers accountable for their actions. (Shingade et al., 2022)

Shareholder activism can help to address issues related to executive compensation, board composition, and other aspects of corporate governance that may be important for firm performance. This is because when shareholders are actively engaged in monitoring the actions of managers and directors, they are more likely to demand greater transparency and accountability from these individuals. (Shingade et al., 2022) For example, shareholders may demand more frequent reporting of financial information or greater disclosure of executive compensation packages.

  • The Absence Of Effective Shareholder Activism In India’s Corporate Landscape Remains A Significant Concern

There is still an absence of effective shareholder activism in India’s corporate landscape which remains a significant concern, although there has been a rise over the years. While shareholder activism has become increasingly common in other countries, such as the United States and Europe, it remains relatively rare in India.

One reason for the absence of effective shareholder activism in India is the concentration of ownership among a small number of large shareholders as many Indian companies are family-owned or controlled by a few large institutional investors, which can make it difficult for minority shareholders to have their voices heard. (Shingade et al., 2022) And also, many Indian companies have complex ownership structures that can make it difficult to identify who holds significant voting power.

Another factor is that while Indian law provides some protections for minority shareholders, these protections are often weakly enforced. A study by the World Bank found that India ranked 163rd out of 190 countries on its ease of enforcing contracts index. (The World Bank) This suggests that even when minority shareholders do have legal recourse, they may face significant challenges in enforcing their rights. This index is important for investors and businesses because it indicates the strength and effectiveness of a country’s legal system in resolving disputes and enforcing contracts. (Sharma) In the context of minority shareholder rights, the enforcing contracts index is particularly relevant because it measures the ease with which minority shareholders can enforce their legal rights.

More importantly, small shareholders in India tend to rely on regulatory bodies, major competitive shareholders, and financial institutions for their protection. (Sharma) This makes them docile investors who would prefer to exit or remain loyal rather than resorting to shareholder activism.

Lack of effective shareholder activism in India is also due to cultural factors like there is a general reluctance among Indian investors to engage in public disputes with company management or other stakeholders. This reluctance may be due to concerns about damaging relationships or reputations, or simply a lack of familiarity with activist strategies (Shingade et al.)This is also due to several other factors, including cultural norms that prioritize harmony and consensus-building over confrontation, as well as concerns about potential retaliation or negative publicity.

  • Opposing View

There is an opposing view that the profitability of target firms decreases in the short term after an activist campaign, which suggests that these campaigns impose costs on companies as per an author who used a unique dataset of US activist campaigns from 2002 to 2017 to analyze the effects of different types of activist interventions on target firms.

But the study does not provide a detailed explanation of how exactly shareholder activism leads to decreased profitability, rather it suggests that these interventions may disrupt the firm’s operations, create uncertainty and distraction for management, and increase costs associated with responding to shareholder demands and some proposals put forward by activists may not be value-enhancing or may have unintended consequences that harm the firm’s performance. (Barros et al., 2022)

Other arguments put forth were as follows: Firstly, activist campaigns may disrupt the firm’s operations and create uncertainty and distraction for management. This can lead to decreased productivity and increased costs associated with responding to shareholder demands. Secondly, some proposals put forward by activists may not be value-enhancing or may have unintended consequences that harm the firm’s performance.

Thirdly, the short-term focus of some activist investors may lead managers to engage in earnings management practices to increase their pay-for-performance compensation, which can harm the long-term interests of the company and its shareholders. (Barros et al., 2022) Finally, even if shareholder activists possess appropriate information and knowledge, they may be pursuing their own personal agendas and short-term gains rather than acting in the best interests of all shareholders.

Therefore, while shareholder activism can have positive effects in some cases, there is an argument that its impact is complex and depends on various factors that need to be carefully considered.

  • How to minimize the risk of being targeted by shareholder activists?

Maintaining good relations with shareholders: The board needs to balance its role between legislative compliance, corporate strategy, and policy-making. Clarity on the role of the board and its members helps maintain a good relationship between the management and shareholders, which builds shareholder confidence.

Effective communication: Companies should communicate effectively with their shareholders to ensure that they are aware of the company’s strategy, performance, and governance practices. This can help build trust and reduce the likelihood of activist campaigns.

Proactive approach: Demonstrating a proactive approach to addressing shareholder concerns can help build confidence among shareholders and reduce the likelihood of activist campaigns

Strong governance practices: Companies should have strong governance practices in place, including independent directors, effective risk management systems, and transparent reporting

Engagement with stakeholders: Companies should engage with stakeholders beyond just their shareholders, including employees, customers, suppliers, and communities in which they operate. This can help build support for the company’s strategy and reduce the likelihood of activist campaigns. (Khaitan et al.)

  • Lessons Can Be Learned From other Countries To Improve and Promote Effective Shareholder Activism In India

Cross-border comparison of shareholder activism in developed countries can help identify gaps and challenges in India’s legal and regulatory framework as there have been successful activist campaigns in other countries, such as the United States, where shareholder activism has become an established force.

Policymakers can study how other countries have balanced the interests of shareholders with those of other stakeholders, such as employees or creditors. For example, some countries have implemented “stakeholder-oriented” corporate governance models that prioritize the interests of all stakeholders rather than just shareholders. . (Bebchuk & Weisbach  By studying these models, policymakers can gain insights into how to create a legal and regulatory framework that promotes effective shareholder activism while also protecting the interests of other stakeholders.

Policymakers can examine how other countries have addressed issues such as executive compensation, board composition, and risk management. For example, some countries have implemented regulations or guidelines on executive pay to ensure that it is aligned with long-term value creation rather than short-term profits. Other countries have implemented rules on board composition to ensure that boards are diverse and independent. By studying these approaches, policymakers have already gained and can gain more insights into how to address similar issues in their own country. Policymakers can learn from the experiences of other countries in implementing corporate governance reforms. For example, some countries have implemented reforms through legislation or regulation, while others have relied on voluntary codes or market-based mechanisms. . (Bebchuk & Weisbach) By studying these approaches and their outcomes, policymakers can gain insights into which approaches are most effective in promoting effective shareholder activism and improving corporate governance.

  • Lack of indigenous development?

On the contrary it can also be argued that there is lack of indigenous development of corporate governance principles in India may be one of the reasons why India has not been able to avoid corporate scandals like Harshad Mehta, Ketan Parekh, and Satyam. This argument is that because these principles were not developed specifically for the Indian context, they may not be well-suited to addressing the unique challenges faced by Indian companies.

For example, Indian companies may face different cultural, social, and economic factors than companies in other countries. These factors can affect how companies operate and how they are governed. If corporate governance principles are not tailored to these specific factors, they may not be effective in preventing corporate scandals. (Singh, 2017)

In addition, the approach to corporate governance in India has been contractual and economic, which is similar to the approach taken in countries like UK and US. This approach focuses on legal compliance and financial performance as measures of good governance. However, this approach may not take into account other important factors such as ethical behaviour and social responsibility.

Therefore, it is argued that there is a need for more research and development of indigenous corporate governance principles in India. (Singh, 2017) This would involve taking into account the specific cultural, social, and economic factors that affect Indian companies and developing governance norms that are tailored to these factors before taking inspiration from other countries.

  • Suggestions to Promote Effective Shareholder Activism And Ensure Better Corporate Governance

While there is no denying that India has some governance norms in the corporate sector but still it has not been able to avoid corporate scandals like Harshad Mehta, Ketan Parekh, and Satyam. There is a need for more research and development of indigenous corporate governance principles in India. This would involve taking into account the specific cultural, social, and economic factors that affect Indian companies and developing governance norms that are tailored to these factors

There is a need for greater awareness among shareholders about their rights and responsibilities. Many shareholders are not aware of their rights as investors or how they can exercise those rights effectively. (Singh, 2017) This paper suggests that more education programs could be developed to help shareholders understand their rights and how they can engage with companies to promote better corporate governance practices

There is a need for large investors to take up a more activist role in the corporate governance of Indian companies. This is necessary to protect the rights of minority shareholders. Additionally, having a substantial equity stake gives financial institutions more power to influence corporate decisions and push for changes that can improve company performance. (SARKAR & SARKAR)Therefore, it is suggested that large shareholders, such as financial institutions, can play an important role in promoting good corporate governance practices and improving company performance.

There are many examples of successful shareholder activism in India, such as the case of Satyam Computers, where institutional investors played a crucial role in exposing the accounting fraud. It is one of the most high-profile cases of corporate fraud in India’s history. In 2009, it was revealed that the company’s founder had inflated profits and assets for years, leading to a massive loss of investor confidence. (Singh, 2017) This case illustrates the need for greater transparency and accountability in corporate governance, as well as the importance of shareholder activism in uncovering fraudulent practices.

Small shareholders can also still play a role in promoting good corporate governance practices by advocating for greater transparency and accountability in corporate decision-making This can include supporting initiatives that promote shareholder rights and protections, such as the right to vote on important issues or the right to access information about the company’s operations. (SARKAR & SARKAR) Small shareholders can also work together to form coalitions or alliances with other investors to increase their collective bargaining power and influence over corporate decisions.

  • Conclusion

In conclusion, effective shareholder activism is essential for promoting transparency, accountability, and profitability in India’s corporate governance landscape. While there have been some successful examples of shareholder activism in India, such as the Satyam and Tata cases, there is still a long way to go to ensure that companies are held accountable for their actions and that shareholders are able to exercise their rights effectively.

To achieve this goal, it is necessary to strengthen the legal and regulatory framework governing corporate governance in India, increase shareholder participation in company decision-making processes, enhance board independence and improve disclosure practices. Additionally, institutional investors should be encouraged to take a more active role in promoting good corporate governance practices (SARKAR & SARKAR).

By implementing these reforms, India can create a more transparent and accountable business environment that benefits all stakeholders. It is our hope that this paper will contribute to the ongoing discussion on how best to promote effective shareholder activism and ensure better corporate governance in India.

  1. REFERENCES
  1. Bebchuk, L. A., & Weisbach, M. S. (n.d.). The state of corporate  governance research . Harvard Law School . Retrieved April 9, 2023, from http://www.law.harvard.edu/programs/olin_center/papers/pdf/Bebchuk_652.pdf
  • Shingade, S., Rastogi, S., Bhimavarapu, V. M., & Chirputkar, A. (2022, March 23). Shareholder activism and its impact on profitability, return, and valuation of the firms in India. MDPI. Retrieved April 5, 2023, from https://www.mdpi.com/1911 8074/15/4/148