The need for a proper regulatory body

LEGAL EYE

An overview of Indian regulations and regulators highlights the absence of a proper regulatory philosophy, coupled with an ad-hoc approach, based often on short-term considerations.

The transition from total state control to an independent transparent regulator, not being a sectoral player, with an adjudicatory mechanism totally independent of the administrative arm, is what a regulatory body should really be.

A regulatory body is created under a statute, thereby making the regulator autonomous, but accountable to the legislature. The regulations have to be structured and enforced in a manner that is in public interest, aiming to create an effective regulatory and policy environment.

The process of having independent sectoral regulators was initiated in the 1990's, when various sectors were being liberated from government monopoly. The telecom sector was the earliest to have an independent regulator. TRAI was established in 1997, but it was DOT which continued with existing operations and policy making activities, and TRAI was manned mainly by DOT staff. In a potential competitive situation, DOT, MTNL and VSNL were threatened. The turf wars became serious with the Government-owned enterprises aggressively resistant to change, and DOT took the position that it was not amenable to Trai's jurisdiction, when its unilateral revision of tariff was challenged by the private operators.

TRAI was not armed with adequate legislation and legal battles between DOT and TRAI ended up delaying decisions on Internet services.

Yet, TRAI has emerged as one of the better regulators: The sector is booming, a level playing field has been achieved, and India's telecom market is the third largest in the world. TRAI and TDSAT are indicators of the maturity of the sector and the regulator.

Recently, the knowledge sector regulators have taken to the battlefield. The Knowledge Commission has recommended the setting up of an Independent Regulatory Authority as a nodal body observing that currently, AICTE's focus is more on punitive measures on those activities and institutions not having its approval, rather than on programme development and quality enhancement. The commission has recommended a separate regulator for management education, with all management institutes being granted autonomy; restricting AICTE to technical education.

Coming in the wake of the Delhi High Court decision in the CFA case, this observation is a welcome relief. AICTE issued a 'show cause' notice to the US-based CFA Institute for conducting its program in India without AICTE affiliation and requiring cessation of the activities with immediate effect. AICTE's position was that CFAI was imparting management education, since the curriculum covering items such as corporate finance, debt and equity markets amounted to business management and registration requirements would apply to distance learning also. The court accepted these views, holding that CFA's course came under the scope of the generic domain of business management.

A pre-independence regulator, AICTE has been recently tightening its norms, and the withdrawal of its approval and closure of Amity School of Business in Delhi on the ground that it was collaborating with foreign universities had caused immense disruption. Last week, the Bombay High Court has ordered the closure of 20 colleges, disrupting the future of hundreds of students.

The highly rated Indian School of Business (ISB) does not have AICTE recognition till date, but has collaborations with Kellog & Wharton. Does that mean it is not providing quality programs "" or is it that AICTE is more prone to witch hunting.

The ICAI is in the habit of invoking a penal provision, Section 24A of the Chartered Accountants Act and was recently criticised by the Supreme Court for doing so against its members, holding them guilty of professional misconduct if they seek to qualify with ICFAI. In dismissing ICAI's case, the Court found it strange that ICAI, renowned in its field and a regulator to boot, should take such an unreasonable attitude to stop its members from enhancing their knowledge. The Supreme Court also held that the growing professional needs of the finance industry requires training in accordance with international norms and standards and practices.

Obviously, reform is the need of the hour and should be initiated before a sense of dejà vu prevails and disregard of the existing regulations become the norm for survival and growth.

Kumkum Sen is a Partner at Rajinder Narain & Co.

kumkumsen@rnclegal.com