The Supreme Court last Friday allowed two weeks to the central government to respond to a public interest suit seeking to quash a notification of last year that allegedly subverts the process of selection of chairman and members of the Securities and Exchange Board of India (Sebi).
The case will now come up for hearing on November 21. The case was listed before a bench headed by Chief Justice S H Kapadia, which deferred it after Attorney General G E Vahanvati said the Centre would file an affidavit after two weeks. The government is likely to file its response by the coming Friday. The court did not issue notice to the government.
The petitioners include some noted names, such as former Indian Air Force chief S Krishnaswamy and ex-director-general of police Julio Ribeiro. Their counsel, Gopal Subramanium, told the court the petition was not against any individuals, but it raised important questions of law.
The case has been built on the provision of the Sebi (Terms and Conditions of Service of Chairman and Members) Rules, 1992, as amended on October 7, 2010. The change authorised the finance minister to appoint any two persons in the panel for selection of chairman and members. This also changed the constitution of the selection panel from a three-member to a five-member committee.
“(This) reconstitution of the search-cum-selection committee for recommending the name of the chairman and every whole-time member of Sebi for appointment directly impacts its crucial balance, which will compromise the role of Sebi as a watchdog. It is the only instance of its sort where the minister concerned has placed two members of his own choosing in the search-cum selection committee,” the petition says.
It cites a finance ministry notification on July 23, 2009, whereby the Sebi (Terms and Conditions of Service of the Chairman and Members) Rules, 2009, were promulgated and the term of office of the chairman and whole-time members increased from three years to five years. It has further said a note was put up for extension of the tenure of the office of chairman and members. On this, the finance minister noted that before making the offer of extensions, the performance of the officials ought to be appraised.
Subsequently, the finance secretary categorically recorded on October 8, 2009, that the performance of the chairman and the whole-time members was very good and the ministry decided to move the proposal to seek the willingness of the incumbents for the extension. The then chairman, C B Bhave, duly gave his consent to be considered for the extended tenure of two years, the petition outlines.
It further says that on December 15, 2009, the director, capital markets, made a noting that the file be sent for perusal of the advisor to the finance minister.
STOPPED
“On December 12, 2009, the finance minister noted that there was no need for any action at that stage because the tenure of the then chairman was up to February 2011. The tenures of the other three members were beyond the middle of 2011. The finance minister noted that the appropriate time for moving for any extension would be six months from before the end of the existing tenures,” the petition mentions.
The entire initiative came to naught, with the noting on the file that since Bhave’s tenure was coming to an end on February 17, 2011, action was to be initiated for fresh selection for the post of chairman, the petition adds.
As noted before, a new clause was inserted in October 2010 on the changed composition of the selection panel, giving the finance minister a decisive say. The search-cum-selection committee thereafter recommended the name of U K Sinha, current incumbent, for appointment as the chairman.
Quoting a letter sent by former wholetime member K M Abraham on June 1, 2011, to the prime minister, the petition says Abraham had categorically stated that a deep malaise was setting into the functioning of Sebi and four cases were cited by him where clear indications were given by Sebi Chairman U K Sinha that the regulator was to go easy on some corporate houses engaged in wrongdoing and that these were instructions from the ministry of finance.
The conclusion in this regard is inescapable, the petition notes, detailing why. It has also said that in June 2011, the process for selection of two wholetime members was initiated and the interview of two shortlisted candidates was taken by a sub-committee headed by Sinha and attended by Bimal Zulka, additional secretary in the finance ministry, but functionally unconnected with Sebi.
“There is no provision for delegation of the search-cum-selection process to any member of the search-cum-selection committee by the chairman of the said committee under the rules. Thus, the selection process for wholetime members also suffers from legal infirmity,” the petition notes.
