BusinessPublications4 Constitutional Court Judgments Relevant to Business Matters

 

In the Indonesian judiciary, the Constitutional Court (Mahkamah Konstitusi) and the Supreme Court (Mahkamah Agung) are two separate judicial bodies that have different functions and powers. These courts have the authority to conduct judicial review. The Constitutional Court has the power to decide whether a law (undang-undang) or its provisions are constitutional. In contrast, the Supreme Court has the power to decide whether there are hierarchical regulations under the law that conflict with the law. This article will only focus on the Constitutional Court.

During 2018-2020, various interesting cases related to business have been reviewed by the Constitutional Court, such as (1) taxation issues, (2) mandatory suspension issues; (3) authority of the Deposit Insurance Corporation (Lembaga Penjamin Simpanan); and (4) enforcement of fiduciary security.

 

Taxation Issue

Case number 80/PUU-XV/2017 was brought by APINDO (Indonesian Employers’ Association).

APINDO asked for a judicial review of Article 1 section 28, Article 52 (1) and (2), Article 53 (1) and (2), and Article 55 (3) of Law No. 28 of 2009 concerning Regional Tax and Retribution (“Law 28/2009”), which imposes a tax on self-generated electricity for industrial self-consumption. APINDO was of the opinion that such a tax was unjust and not in accordance with the principles of legal certainty, justice, and expediency. APINDO considered the phrases “pajak penerangan jalan” (street lighting tax) in Article 1 section 28 of Law 28/2009 as confusing and improper, and also “sumber lain” (other sources) in Article 52 (1) as too broad and uncertain. Therefore, APINDO argued that those articles under Law 28/2009 had violated Article 28D of the 1945 Constitution. Furthermore, APINDO argued that, considering its members’ contribution to the economy and the Government inability to provide electricity, self-generated electricity for self-consumption by industries would better be incentivized than taxed, and that this tax only added unnecessary financial burdens and production costs.

In its judgment, the Court considered the tax and “sumber lain” as constitutional, on the ground that Article 23A of the 1945 Constitution sets no limits of taxable objects. The Court was of the opinion that any tax could be imposed upon any legal objects and be borne by any legal subjects insofar as they were set out in a law (undang-undang). However, the Court deemed the use of the phrase “pajak penerangan jalan” as improper and confusing. The Court ordered the House of Representatives to amend the law within a maximum of 3 (three) years after the judgment was announced by replacing it with another proper phrase to make it more explicit and unambiguous.

The judgment essentially made no changes to the previous practice; therefore, such the tax was still imposed. To this date, the House of Representatives has yet to promulgate the amendment.

 

Mandatory Suspension Issue

This case was brought by 3 (three) Indonesian citizens from 3 (three) different companies in Indonesia, all of whom brought separate judicial review cases challenging the validity of Article 44 (1) and (2) of Government Regulation No. 78 of 2015 concerning Remuneration to the Supreme Court, but they were then rejected.

Further, in the Constitutional Court, they challenged the constitutionality of the interpretation of Article 55 of Law No. 24 of 2003 concerning Constitutional Court as amended by Law No. 8 of 2011 (“Law 24/2003”). Article 55 of Law 24/2003 provides the ground for the Supreme Court to refuse or terminate the judicial review process of regulations if the related law is in the process of judicial review in the Constitutional Court. The claimants argued that the interpretation of Article 55 of Law 24/2003 had violated the principle of simple/modest, prompt, low-cost judiciary as established under Law No. 4 of 2004 concerning Judicial Power since each case submitted to the Supreme Court required them to pay the cost of the case submission. Therefore, the interpretation of Article 55 of Law 24/2003 was contrary to Article 24D of the 1945 Constitution.

In judgment number 93/PUU-XV/2017, the Court was of the opinion that common understandings on the judicial review between the Constitutional Court and the Supreme Court had to be established. The Constitutional Court also expressed that judicial review between the Constitutional Court and the Supreme Court was interconnected. Therefore, any confusion or inconsistency had to be settled.

On the merit, the Court agreed that the interpretation of the phrase “dihentikan” (stopped/terminated) created uncertainty, for it could also be interpreted as “dihentikan sementara” (suspended). Therefore, by considering the principles of simple/modest, prompt, low-cost judiciary, the Court ruled that Article 55 had to be interpreted as a suspension by the Supreme Court when the related law was challenged at the Court until the Court issued its judgment.

The effect of this judgment is that anyone who will bring up their judicial review case to the Supreme Court will not be required to resubmit their submission when the relevant law as an object of judicial review is being challenged at the Court.

 

Authority of the Deposit Insurance Corporation (Lembaga Penjamin Simpanan)

The Deposit Insurance Corporation (Lembaga Penjamin Simpanan/“LPS”) challenged the interpretation of Article 6 (1) c Law No. 24 of 2004 concerning Deposit Insurance Corporation as amended by Law No. 7 of 2009 (“Law 24/2004”). Article 6 (1) of Law 24/2004 sets out the power of LPS, section c of which provides the ground for LPS to handle its own wealth/assets and liabilities/responsibilities. LPS argued about the interpretation that their power to write off and waive off receivables was limited as only permissible after a financial crisis, as regulated by Article 46 (5) of Law No. 9 of 2016 concerning Prevention and Mitigation of Financial System Crisis. Therefore, LPS had been aggrieved for not having the necessary power in Article 6 (1) c of Law 24/2004 to write off and waive off receivables assigned to them by banks under liquidation at normal times (not in a financial crisis). Then, LPS asked the Constitutional Court to declare Article 6 (1) c of Law 24/2004 to be interpreted as “including the power to write off and waive off receivable assets”.

In judgment number 1/PUU-XVI/2018, the Constitutional Court stated that the LPS power to write off and waive off receivables was not the same as in managing private and personal wealth, considering there were interests and assets of the public and the Government in it. In exercising such that power, LPS must adhere to the principles of transparency and prudence. In other words, the power to write off and waive off receivable assets is only exercised as a last resort (ultimum remedium). On the merit, the Constitutional Court ruled that Article 6 (1) c had to be interpreted as “including the power to write off and waive off receivables as long as it complies with Article 46 (5) of Law No. 9 of 2016 concerning Prevention and Mitigation of Financial System Crisis”.

This judgment makes a clear basis for LPS to conduct the write-off and waive-off as long as they are still related to a post-financial crisis pursuant to Article 46 (5) Law No. 9 of 2016 concerning Prevention and Mitigation of Financial System Crisis.

 

Enforcement of Fiduciary Security

This case was brought by 2 (two) Indonesian citizens as debtors and a married couple. These two claimants had their car under an installment contract, and that made the car an object of fiduciary security. One day, the creditor (as the fiduciary security holder) seized the car from the claimants (as the fiduciary security grantor) for failing to pay in installments. The creditor used a debt collector service to seize the car. The claimants were of the opinion that the creditor did not comply with a legally binding court judgment and rather sought excuses under Article 15 (2) and (3) of Law No. 42 of 1999 concerning Fiduciary Security (“Law 42/1999”). Article 15 (2) and (3) provides a basis for creditors that fiduciary security holders have the right to sell fiduciary security objects on their own behalf if debtors are in default.

In their prayer for relief, the claimants asked the Constitutional Court to declare the executorial power established by Article 15 (2) of Law 42/1999 to be interpreted as “the process equivalent to a legally binding court judgment” and “if there is a legal court judgment concerning both accessory contract and principal contract, the execution of fiduciary objects must be pursuant to that judgment”. Then, concerning Article 15 (3) of Law 42/1999, the claimants asked the Constitutional Court to declare the phrase “cidera janji” (breach of contract) to be interpreted as “determination of breach of contract can be decided by the Creditor if the Debtor raises no objection and legal remedy, or if there is a legal remedy, it must be pursuant to a legally binding court judgment”.

In judgment number 18/PUU-XVII/2019, the Constitutional Court expressed that Article 15 (2) and (3) of Law 42/1999 were intended to provide certainty to creditors but failed to protect the debtors’ rights. Moreover, creditors had the power to unilaterally determine breach of contract, which put debtors’ rights susceptible to violation. Then, the Constitutional Court considered that Article 15 (3) of Law 42/1999 led to uncertainty in determining breach of contract. Furthermore, the Court cited Article 196 HIR and Article 208 RBg (laws on the civil procedure), which set out the procedures for the execution of a legally binding court judgment if objected by the losing party. Finally, the Court ruled that:

  1. Article 15 (2) is constitutional only if, among the parties, there are agreed terms on breach of contract. However, if there are no such agreed terms, and the debtor refuses to hand over the secured object, the enforcement process must undergo a process equivalent to a legally binding court judgment.
  2. Article 15 (3) is constitutional only if the term “cidera janji” (breach of contract) is decided and agreed upon by the parties, not unilaterally by the creditor, or pursuant to a legally binding court judgment.

In contrast to the former interpretations of Article 15 (2) and (3) of Law 42/1999, this judgment now expressly requires agreed terms on breach of contract by the parties within the Fiduciary Security Agreement. It also expressly subordinates any Fiduciary Security Agreement and Fiduciary Security Certificate to a legal court judgment, if any.

 


ADCO Law earns the trust to represent clients from multinational companies to emerging entities across a wide range of industries to achieve their business objectives in Indonesia.

By combining commercial sensibilities and legal expertise, ADCO as a Law Firm Jakarta assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing and securing investments as well as establishing new foreign companies in Indonesia. Should you have more queries regarding this matter, please do not hesitate to contact us.

Dendi Adisuryo
dendi.adisuryo@adcolaw.com

Liza Mashita
liza@adcolaw.com

@2020 ADCO Law. All rights reserved.
This publication has been prepared by Aditya Yudhistira for general informational purposes only to provide clients with information on recent legal developments and is not intended as legal advice or opinion.

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