Thursday, November 1, 2012

Petition on Composition of the Securities Appellate Tribunal

(The following guest post is contributed by Amit Agrawal, Advocate, regarding a petition filed before the Delhi High Court. Amit is representing the petitioner, although the litigation and its outcome will likely have a broader impact)

A public interest litigation (PIL) has recently been filed before the Delhi High Court inter alia questioning the functioning of the Securities Appellate Tribunal (SAT) in the absence of its Presiding Officer (PO), and the on-going selection process of a member of SAT. It was covered briefly here and here.

Soon after the retirement of former Karnataka Chief Justice Sodhi on 28 November last year, the Central Government on 5 December 2011 directed the senior member of SAT to preside over the sittings. Since then, SAT, in the absence of a judicial member, has been entertaining and disposing of the matters. SEBI Act, 1992 requires SAT to comprise three members, and the PO has to be a former Chief Justice of a High Court or a former Judge of the Supreme Court. It is contended that the presence of such a person is not optional but mandatory for valid functioning of the tribunal, and till appointment of a PO the proceedings of SAT should come to a halt.

Such an argument is based on two reasons. First is the mandate of the statute itself. Section 15P of SEBI Act, 1992 reads:

“[I]f, for reasons other than temporary absence, any vacancy occurs in the office of the Presiding Officer or any other member of a securities appellate tribunal, then the Central Government shall appoint another person in accordance with the provisions of this Act to fill the vacancy and the proceedings may be continued before the Securities Appellate Tribunal from the stage at which the vacancy is filled”.

The Central Government, treating the absence of PO as ‘temporary absence’, directed under applicable rules that the senior member of SAT should act as temporary/officiating presiding officer. It is contended that such a rule is not attracted for the absence of the PO in the instant case is not of a temporary nature. The absence, which entitles appointment of a new person can only be in case of certainty regarding non-resumption of work by the previous person. In such case, the absence is a ‘vacancy’ not being a temporary absence. Such vacancy may arise on account of four reasons i.e. resignation, retirement, death or removal.

Second, it is contended that the order dated 5 December 2011 in so far as it directs the continuance of adjudication process by a board comprising only of (technical) ‘members’ both of whom are former bureaucrats (being a former Indian Revenue Service Officer and former Indian Legal Service Officer) is violative of constitutional provisions enshrining the principles of rule of law, separation of powers, independence of judiciary and law declared by the Supreme Court. Reliance in this regard is inter alia placed on the judgement of the Constitution Bench of the Supreme Court in Union of India v. R Gandhi (2010) 11 SCC 1 given in the context of setting up of NCLT/NCLAT, and recent judgment of Namit Sharma v. Union of India dated 13 September 2012 in the context of Right to Information Act. It is contended that SAT in certain ways substitutes (even though in law it cannot) the jurisdiction of a High Court as appeals lie directly to Supreme Court, therefore it must resemble a forum of exacting status and not a bureaucratic board.

The petition does not challenge the validity of orders passed by such a two-member tribunal during the period following the retirement of Justice Sodhi. It proceeds on the basis of - thus far no further.

The selection process initiated by issuance of a circular dated 30.08.2012 due to ensuing retirement of one of the current members of SAT on 27 December 2012 has also been challenged in the PIL. Under the provisions of the applicable rules the committee for selection of a ‘member’ of SAT comprises of 3 persons i.e. Presiding Officer of SAT, RBI Governor (or his nominee), and Finance Secretary/Secretary, Department of Economic Affairs. It is stated that ‘Presiding Officer’, to be a part of the selection committee, cannot be any ‘officiating presiding officer’ but has to be a former Chief Justice of a High Court or a Judge of the Supreme Court, and such a provision serves the purpose of judicial consultation in the matters of appointment of members of tribunals (which are equivalent to courts in terms of their function). Continuance of the selection process, without any judicial consultation, is argued to be an invasion on independence of judiciary. To illustrate, SEBI functions under the aegis of Ministry of Finance. A majority of the SEBI’s Board is appointed by Ministry of Finance. SEBI is a major litigant before SAT. Therefore, a free hand to Ministry of Finance in appointment of members of the tribunal is susceptible to great mischief and in these circumstances the need for judicial consultation is pronounced. The on-going selection process is also contended to be geared towards civil servants as it contains not a single word as to how non-civil servants can apply. It perhaps cannot be anyone’s case that civil services form the sole repository of experts in securities markets. The Standing Committee on Finance in para 31 of its report presented to Parliament had also noted previously that selection of Members of SAT is by and large restricted to or weighed towards selecting retired civil servants. It is contended that tribunal posts are not to be treated like post retirement havens for former civil servants.  

The matter was adjourned on the last date of hearing with a direction to Central Government to expedite the selection of the PO.

(The above guest post must be read with the caution that it may not be the most objective account of the matter because of where I stand during the court hearings. I accepted the invitation to write the above post even though the matter is still pending since the matter raises purely questions of law and has no disputed facts.)

- Amit Agrawal


vswami said...

1. “In such case, the absence is a ‘vacancy’ not being a temporary absence. Such vacancy may arise on account of four reasons i.e. resignation, retirement, death or removal.....”
True, from a purely technical viewpoint, the said primary contention cannot be faulted to be without merit. But, fundamentally, common sense questions requiring be addressing and imperatively dealing with are these:
(A) Is it not the law ministry/ the minister-in-charge and the principal secretary, who are, justifiably barring the protection often sought by raising the bogie of 'public servant', individually as well as collectively, responsible and answerable (this being an instance of flagrant disregard.violation of duties/constitutional responsibilities?
(B) Even if it were to be regarded a case of ‘absence’, is it at all, on the facts, fit enough to be construed as a ‘temporary’ one?
2. “The petition does not challenge the validity of orders passed by such a two-member tribunal during the period following the retirement of Justice Sodhi. It proceeds on the basis of - thus far no further.”
Why should that be so; does not the absence of such a challenge bear out a self-contradiction, and in a way, not compatible with but runs counter as to whittle down THE primary contention (point 1 above) itself?
It is for legal pundits to explore and enlighten!

vswami said...

To quickly add on>

On point 2. above, of course, another angle calling for consideration is, the concept of ‘balance of convenience’ . In a way, however remote it be, that entails or rather is driven by the same practical wisdom as underlying / akin to the age old doctrine/legal concept of - ‘Stare Decisis’.

For an understanding in proper light, attention is invited to the SC judgment delivered not long ago. Going by recollection, that ruled categorically against the patent illegality of the till then followed atrocious practice of using an instrument of so called GPA for ‘transfer’ of property rights. The court, as is observed, has had no iota of doubt or reservation in holding that such ongoing transactions over the past several decades were illegal in every sense. The ground of the verdict was that, thereby there had been a gross breach and violation of the mandatory requirements of law, though commonly well known and in force for long, namely, -execution of a conveyance ( sale ) deed and its registration , after paying stamp duty. In the context herein, however, what calls for a focused attention is that, as specifically added in the judgment, the verdict could have force and would require to be compulsorily acted upon only prospectively (that is, ‘thus far no further’).

vswami said...

For not an unrelated story , read itatonline,Link-

Law Ministry’s Explanation For Non-Appointment Of Permanent ITAT President
(November 16th, 2012)