COVID-19 PANDEMIC : A TEMPORARY SETBACK OR DEATH FOR MID-SIZED INDIAN BUSINESSES? By Yash Mishra, Nidhi Jaswal, Bhavya Singh and Manyaa Chandok of Alliance Law Group

We the people, are facing an unprecedented situation with the outbreak of a global pandemic of COVID-19 or Coronavirus, wherein the lives of lacs have been lost, and still, million other lives are at stake. Given the gravity of the situation, sovereign governments around the world have called for a complete/partial lockdown and India too, has been shut down, wherein the businesses especially the life of daily wage workers, contractual employees etc. has come to a standstill. This has caused the world economy to experience a sudden halt and the countries are struggling to contain the domino effect of this virus. In words of the International Monetary Fund, the economic impact of this virus is likely to bring the worst downturn since the Great Depression of 1930. In fact, the RBI Governor has himself predicted a global recession, to which India will not be immune, but the effects can be mitigated depending upon the response by the Indian Government. 

IMPACT ON SMALL AND MID-SIZE BUSINESS OWNERS

One of the biggest blows, resulting from this pandemic, is being felt by the small and mid-size business owners, firms, and establishments, since they have either already closed down, or are on the verge of closing, as a result of running into grave losses and irrevocable financial conditions.

With the onset of the lockdown in parts of India early March 2020, the Ministry of Labour and Employment of India published an advisory on 20.03.2020 urging all the employers of the private and public establishments to not terminate the employment of their employees, whether casual or contractual workers, or reduce their wages. Acting contrary to the same, would only deepen the crisis but also weaken the financial condition of the employees. 

This was followed by an order dated 29.03.2020 published by the Ministry of Home Affairs stating that “All the employers, be it in the industry or in the shops and commercial establishments, shall make payment of wages of their workers, at their work places, on the due date, without any deduction, for the period their establishments are under closure during lockdown period.” A writ petition (civil) titled as Nagreeka Exports Ltd. v. Union of India & Ors., has been filed against the said order of the Ministry of Home Affairs, before the Hon’ble Supreme Court of India, by a textile export firm based in Maharashtra, which is pending decision.

Though the aforesaid advisory and the following order seems to be fair towards the employees, but it seems not a lot of thought has gone behind the responsibilities it puts on the employers/business owners who are not earning any revenue and yet are required to pay salaries, pay rent, electricity dues, taxes, school fees, bank interest, EMI etc. No tax/interest liability has been cut or waived off for this time, but merely a moratorium/ extension of time-period to pay the same has been put in place. 

ACTION INITIATED BY THE INDIAN GOVERNMENT

It is well understood, that the in this unprecedented situation, the Government of India has undertaken humongous task for the survival of the economy. A look at the measures taken by the Indian government, show us that as per the first stimulus package announced by the Finance Minister, a total liquidity of Rs.3.74 Lakh Crore will be injected by the Government into the economy. Out of this, Rs.1.7 Lakh Crore has been dedicated to the first economic relief package under the PM Garib Kalyan Yojana, for the poor. This package includes cash transfer and food security. Other than this, MNREGA wages have been increased, beneficiaries of the Ujjwala scheme will get free gas cylinders for the next three months, women having Jan Dhan accounts, will get Rs.500 per month for next three months, ex-gratia of Rs.1,000 to 3 crore poor senior citizen, poor widows and poor disabled, women in self-help groups will get up to Rs.20 lakh collateral-free loans under the Deen Dayal Upadhyaya National Rural Mission scheme, and several other measures have been taken.

Furthermore, it has been decided to raise the threshold of default under Section 4 of the IBC 2016 to Rs.1 crore (from the existing threshold of Rs.1 lakh). This will by and large prevent triggering of insolvency proceedings against MSMEs. The Government has also extended the due date of payment of most taxes and a three-month moratorium on loans announced by the Reserve Bank of India. This moratorium is on all term loans and credit card dues on instalments due between March 1, 2020 and May 31, 2020. 

As per the latest news, a second stimulus package is underway to tackle the problem being faced by most companies which is paying salaries to their employees without generating revenue. In addition to this, RBI has come out with some more reliefs for the corporate industry to increase the liquidity in the economy and incentivise the loan facilities offered by commercial banks.

Though further measures may be underway, as on this date, no direct relief exists for the small and medium business owners/lawyers/independent professionals,  who are required to incur so many monetary liabilities, including full wages to all employees, and no waivers have come up from the Government to ease their financial burden.

LEGAL BACKGROUND 

The Indian Government has not resorted to declaration of any financial or national emergency as under the Constitution of India. Instead, the only two legislations under which the State and the Central Governments are working are the ‘Disaster Management Act, 2005’ and the ‘Epidemic Diseases Act, 1897’ and all actions are being taken under the umbrella of these two acts. However, the lockdown due to the pandemic is somehow contravening the Directive Principles of State Policy, particularly Article 38 (1) & (2), Article 39 (b) & (c) of the Constitution of India. These call upon the state to promote the welfare of the people, minimise inequalities, and direct its policy towards ownership of material resources for common good and an economic system which does not lead to concentration of wealth with a few. Furthermore, Article 19 (1) (g) of Constitution of India read with Article 21 provides the freedom to all citizens to carry on any occupation, trade or business and earn livelihood. Though this freedom can be curtailed and restricted reasonably by virtue of Article 19 (6) of the Constitution of India, the hardships of small and mid-size businesses cannot be ignored altogether and a balance must be maintained to support such businesses, which form the backbone of not just our economy, but of millions of families.

Infact, with the extension of the lockdown till 03.05.2020, the Ministry of Home Affairs has come out with a list of services, vide order dated 15.04.2020, which can re-commence from 20^th April 2020, by adhering to reasonable sanitization measures. This move was made to ensure that the labor class and the daily wage workers, who are the worst hit, can recover steadily.  This move would help start production and manufacturing once again to move to a step closer to normalcy. Hence, it cannot be said that infringement of the right to livelihood is in absolute terms and completely arbitrary. 

REASONABLENESS OF THE MINISTRY OF HOME AFFAIRS ORDER DATED 29.03.2020

However, the legal standpoint changes the moment we look closely at the advisory of Ministry of Labour and Employment, which was followed by the order of the Ministry of Home Affairs. The order dated 29.03.2020 states that the employers shall make payment of wages of their workers, at their work places, on the due date, without any deduction, for the period their establishments are under closure during lockdown period, in all the industries or in the shops and commercial establishments. However, the order dated 29.03.2020, has several legal infirmities which are listed herein below: 

Thus the Government while performing the duties at this juncture and in the extra ordinary situation,  must therefore, take measures which are not impossible, must strike a balance between the rights of the employers and the employees, and support not just the weaker sections, but also the mid-size sections in overcoming this unprecedented situation.

CONCLUSION AND SUGGESTIONS

In terms of simple economics, COVID-19 is both a demand and supply shock. It is a demand shock because people have reduced the consumption of non-essentials. At the same time, it is a severe labour supply shock, as people are feared for life and voluntarily or involuntarily (by government order) not going to work. Government has to do two important things, the adverse impact of negative labour supply shock should be compensated by cash transfer and second the supply of essentials must be maintained at normal levels. 

The Government also has the responsibility to inject more liquidity into the economy and suggestions for the same include, but are not limited to the following:

The State, being the parens patriae of all the citizens, cannot provide relief to one citizen at the cost of the other and must equally protect all its citizens, especially in times of crisis and unprecedented situations, like the present one. Without a doubt, the Indian Government has taken actions to combat the financial burden and released a stimulus package for the poor and the weaker sections of the society, however, no waivers or reliefs have been announced in favour of small business owners/firms and how they will face their challenges in making ends meet with their financial obligations. So the question arises to the general public at large, what will be the fate of the small and mid-sized Indian businesses, a temporary setback or death?

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 AUTHORS: Ms. Manyaa Chandok (Associate), Ms. Bhavya Singh (Senior Associate), Ms. Nidhi Jaswal (Principal Associate), Mr. Yash Mishra (Partner) and Team of Alliance Law Group, New Delhi.

Disclaimer: The views or opinions expressed are solely of the author.