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

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

3 comments

  • 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!

  • 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’).

  • For not an unrelated story , read itatonline,Link-

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

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