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The Securities and Exchange Board of India (SEBI) is reported to have proposed to the finance ministry to amend the Securities and Exchange Board of India Act, 1992 (SEBI Act) to enable senior officials of SEBI to become members of the Securities Appellate Tribunal (SAT), the special court that hears appeals against orders passed by SEBI.
The SEBI Act imposes a cool-off period of only two years from the cessation of office for an officer of SEBI to be considered for appointment as a member of the SAT. Media reports about such a proposal may just be a trial balloon engineered to see if there is any outrage or acceptance. Of course, they could be completely baseless rumours, which one hopes they are.
SEBI is a rare institution that does not have the conventional division of powers between law-making, law-enforcement and quasi-judicial determination. The special statutory right to appeal provided to persons who can be aggrieved by usage of such power is a critical check and balance envisaged in the law. Such a check and balance has to be independent and fair. Bringing in SEBI officials into the SAT without a reasonably long cool-off period would take the absence of separation of powers to a new low.
Many regulatory actions taken by SEBI relate to facts that occurred several years ago — periods much longer than the present cool-off period. Clearly, if these come up in appeal, it would be odd for a member of the tribunal to comp-rise of a person who was involved in an executive capacity with the attendant views on the case.
Now, his views need not necessarily be wrong, but it would patently be wrong for someone holding any pre-formed view to be a part of the tribunal.Even if such a person were to recuse himself, his proximity and access to the tribunal would be to bar justice from being seen to be done. Indeed, such a person can represent SEBI as a lawyer or a representative in proceedings before the SAT as a paid professional, but by no stretch can be part of the judicial decision-making mechanism.
The process could also be unfair to SEBI. While there are former SEBI officials now either defending SEBI or the appellants who challenge SEBI orders, there are also instances of former officials becoming severe and trenchant critics of SEBI and its functioning. Clearly, the experience while working with SEBI, if it turns bad, leads to bitterness and bias, some of which is perhaps only a sub-conscious emotion rather than spite. However, for a judicial body that has to dispassionately and unwaveringly dispense justice, such a personality too would be a disaster. Bitterness over a former employer could colour judgement and even if judgement is only perceived to be coloured, the faith of society in a judicial body would be besmirched.
In India, the role of institutions has never mattered as much as icons have.We do not recognise institutions, we recognise icons.For us, it is Narayana Murthy who has an aura, not Infosys, the institution he created. If he were to start a new software company after retirement, our media would go gaga over that new company and how Infosys will have a run for its money from its erstwhile mentor. A young Republic (hardly six decades old), we still seek out "empires" presided over by emperors with royal quirks rather than faceless and boringly consistent institutions, with some of their servants being noted for greater contribution than others.
The so-called IPO scam and its handling is a classic example of how personalities matter above all else and the extent to which the image of institutions can be tarnished in the process. (Disclosure: the author represents the National Securities Depository Ltd. in the defence against regulatory action by SEBI). The reams of newsprint and electronic media air time spent on covering the messy handling of the IPO scam by SEBI, and even the lament about the inadequacy of media coverage, all points to how much personalities matter more than institutions, and how the reputation of one of the best institutions in the capital markets can be tarnished by the sweep of the regulatory pen.
The cool-off period of two years for a person from shifting from his erstwhile role of lawmaker-enforcer-quasi judge to a full-fledged appellate judge is too low. It is no argument to say that under the tax laws, officers of the revenue departments become members of the appellate tribunals – a bad precedent does not make good policy. All that is needed in appellate bodies like the SAT is a simple fundamental understanding of the first principles of law, justice and equity, and a personality that is not swayed by the extensive media coverage of the capital markets. Any other prior bias of experience would threaten the onset of prejudice. (The author is a partner of JSA, advocates & solicitors. The views expressed herein are his own)