SEBI, SAT Spar Over Technical Member Vacancy
An empty chair. (Photographer: Andrew Harrer/Bloomberg)

SEBI, SAT Spar Over Technical Member Vacancy

Today, Securities and Exchange Board of India has raised an objection. Tomorrow a private litigant would. It would be a never-ending process. This issue needs to be resolved on the judicial side as well.

In saying so, the Securities Appellate Tribunal has referred the question of its functioning without a technical member to the Chief Justice of India.

Here’s how it came to this.

On March 31, SAT’s technical member demitted office. Since then, the bench has been functioning with the Presiding Officer and a Judicial member. Appeals against SEBI’s orders lie at the tribunal. In several matters since then, the securities regulator raised a concern that until a technical member is appointed by the government, SAT should not hear appeals.

This prompted the SAT to rule on its own jurisdiction. Last week, in Axis Bank Ltd.’s case, the appellate tribunal said it can function without a technical member.

SAT has incorrectly interpreted the provisions of the law to come to this conclusion, Jayant Bhushan, senior advocate practicing in the Supreme Court told BloombergQuint.

The legislative intent, he pointed out, is to have at least one judicial and one technical member because for matters of securities law, both kinds of expertise is required. Having said so, Bhushan added, the fault lies squarely at the doors of the government.

For appointment of the technical member, the provisions of the SEBI Act make it clear that the judiciary is not involved. They don’t need to appoint a technical member in consultation with the Chief Justice of India, which is the case with the presiding officer and the judicial member. Therefore, the government should have put their house in order and filled these vacancies.
Jayant Bhushan, Senior Advocate, Supreme Court

Since it does not have writ jurisdiction, SAT cannot direct the government to appoint a technical member, and so they have rightly referred the matter to the Chief Justice of India and asked him to treat it as a sort of a public interest litigation and proceed with the matter, Bhushan explained.

But Vikram Nankani, senior advocate, Bombay High Court opined that SAT rightly invoked the principle of necessity to come to the conclusion on its functioning. Maybe it's not an open and shut case on either side, but in the circumstances, SAT has really tried to keep the institution alive, Nankani said.

I recall in Mumbai, the sole chairman of DRAT was absent for a very long time and the high courts were flooded with litigation. High courts would direct parties to go before the alternative benches which were a toss of a coin depending on where the registrar found availability of the member. So, either we were driven to Allahabad or we were driven to Calcutta, and it was a complete mess.
Vikram Nankani, Senior Advocate, Bombay High Court

So, litigants had to face extreme hardship. Overall, SAT’s order will certainly require scrutiny at a higher level, but at the end of the day what's more important in public interest is to keep the institution on.

Watch the full interview with Bhushan and Nankani

Technical Member: SEBI Vs SAT

The market regulator had relied on section 15L of the SEBI Act which lays down the composition of SAT. It says

  • SAT shall consist of presiding officer and such number of judicial members and technical members as the central government may determine.

  • Every bench constituted shall include at least one judicial member and one technical member.

But SAT pointed out that if literal interpretation defeats a statute’s purpose, purposive interpretation should be adopted. It relied on several provisions to say that the legislature didn’t intend to stall or render the appellate tribunal non-functional in the absence of a technical member. And so harmonious construction of several provisions is required:

  • Section 15-PA which allows SAT’s functioning even in the absence of the presiding officer. In such an event, the senior-most judicial member can act as presiding officer. If a vacancy of a member occurs - whether judicial or technical - and if there is a coram, it can hear matters, SAT said.

  • 15R says no proceedings before SAT can be questioned merely due to defect in its constitution.

  • And, section 15L which says every bench ‘shall’ consist of a judicial and technical member has to be read as ‘may’. This section starts with the language ‘subject to the provisions of the Act...”, and so the requirement of a technical member is not mandatory but directory in nature, SAT held.

Would you agree with SAT’s conclusion that a purposive and not literal construction is required to address the issue of technical member?

Bhushan: Strictly speaking, I would not agree with the SAT view.

First, if you look at  section 15L, it makes it very clear that every bench must have at least one judicial member and at least one technical member. Therefore, I think their reasoning is a little stretched.

Second, ‘shall’ can be read as ‘may’ in very exceptional circumstances. Here the provision is absolutely crystal clear. I don’t think that principle has been correctly applied here.

Third, SAT relied upon section 15-PA. Now,15-PA only says that in the absence of presiding officer, the next senior-most judicial member can officiate as presiding officer. That has nothing to do with whether judicial member can officiate as a technical member. So, therefore, to invoke 15-PA is neither here nor there.

Fourth, this doctrine of necessity. I ask myself this question - suppose the situation had been that there were only two technical members left. Would the tribunal have come to the same conclusion that the doctrine of necessity has to be invoked otherwise it have to stop functioning? In my view, absolutely not.

And finally, even if the tribunal is non-functional, it’s not that SEBI’s orders cannot be challenged. Every order is amenable to writ jurisdiction. If the tribunal is non-functional because of the absence of a technical member, then a writ petition can be maintained against SEBI orders before high courts. So, it’s not as if everything will come to a standstill.

If there is an alternate remedy for appeals against SEBI orders, was SAT right in pointing to legislative intent, doctrine of necessity, purposive rule?

Nankani: I think this is where the irony of the situation is. There have been similar instances in the past. I remember a case of the advanced ruling authority under the Income Tax Act where a technical member continued to preside for a long time and so was the case with the appellate authority for foreign exchange where the technical member continued to be the chairman for a very long time. At the time, PILs were filed saying these forums are not properly constituted.

Those PILs were not entertained on the basis of doctrine of necessity. So, yes Article 226 is the ultimate punisher for every illegality or violation of any legal right. But there is absence of technical expertise on the high court bench as well.

I think SAT has drawn inspiration from the opening words of section 15L which says ‘subject to other provisions of the Act’. As you know, the law of interpretation is such that you will get six of one, half a dozen of the other. You will get judgments which will equally say that the word ‘may’ should be read as ‘shall’, and vice versa. This is where the entire law on the interpretation of statute is very contextual.

Finally, it’s bewildering that day in and day out, there are several other cases where SEBI is happy to proceed and there they haven’t raised this objection. So, there’s this lack of consistency in SEBI’s approach which also throws the whole matter into a different spin altogether.

Why are you cherry picking to raise this objection in a particular case and not in some others? So, are you really not concerned about the tribunal as an institution or you’re concerned about a particular case because if you consistently apply this objection across the board, then really you’re shutting down the tribunal and that is where the doctrine of necessity comes in.

I think SAT did right in invoking the doctrine of necessity and proceeding with the matter.

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