Bar&Bench News Network
The SEBI Board has decided that member and Infosys Director, Mohandas Pai will decide on whether or not to implement the order passed by a two member committee of V. Leeladhar and Mohan Gopal, on December 22 (the 'Order').
Pai has an outstanding record as the Chief Financial Officer and member of the Infosys Board, he has been responsible in taking the company to great heights. A graduate of law, he was a member of the Kelkar Committee, constituted by the Ministry of Finance, for reforming direct taxes, the Non-Resident Taxation Committee, the High Powered Committee on e-Commerce and Taxation. He is currently a member of the SEBI Accounting Standards Sub-committee and the Empowered Committee for setting up the Tax Information Network.
Despite his impeccable record, two issues crop up about him deciding on the legality of the quasi judicial orders. Firstly, however clean or complaint Infosys is, it is still governed and regulated by SEBI and the Board of Directors of Infosys are liable to SEBI. Consequently, Pai may be conflicted, especially when the two member committee has been critical about NSDL's role and the role of the then Chairman of NSDL and incumbent Chairman of SEBI, C.B. Bhave. Secondly, Pai's qualification to decide the implementation of the Order is unclear.
The entire matter is not bereft of controversy. Law stipulates an appeal to the Securities Appellate Tribunal in the event of disagreement with an order. It must be pointed out that there is no statutory basis to review the validity of a quasi judicial order. Despite a lack of statutory approval, SEBI's decision to review puts their credibility under doubt.
C. Achuthan, who opined declaring the Order as 'non est', is also on the board of the National Stock Exchange (NSE), promoter and is a significant shareholder of NSDL. When Achutan opined on the issue, there were no disclosures that he is on the Board of NSE. Without questioning the credibility of C. Achutan, ideally SEBI ought to have approached the Attorney General or the Solicitor General on such an important issue.
Former Chief Justice of India, Justice Verma, has in his letter to the media, condemned the action of SEBI in declaring the two orders as 'non est'. In his letter to the media, Justice Verma says, "the recent decision of the SEBI Board to review and declare as "non-est" two quasi judicial orders of SEBI violates established legal and Constitutional principles. These quasi judicial orders may be reviewed only by a judicial forum with requisite jurisdiction, at the instance of a petitioner with standing to seek relief. The decision to declare these quasi judicial orders as void' is meaningless in any absolute sense. Its meaning is relative, depending upon the courts' willingness to grant relief in any particular situation. Even if a decision is 'void' or a 'nullity', it remains in being unless and until some steps are taken before courts to have it declared void".
Petitions questioning SEBI's actions filed by V. Narayana Reddy and Srinivas Podichety are currently pending before the High Court at Hyderabad. Under pressure, the SEBI had released to the public the Order passed by the Committee, but also rejected the same on frivolous grounds.
Recently, several members of the higher judiciary have, in matters of probable conflict, recused themselves from hearing the concerned matter. Be it Justice Raveendran in the Reliance matter, Justice Katju, because his wife held Reliance shares or Justice Mudgal, for inheriting shares.
While Pai may be of impeccable reputation, and may be incapable of compromise, he is also responsible for the operations of Infosys. The adage 'Justice must not only be done, it must also be seen to be done', holds good. While SEBI is out to circumvent the Order of the committee in a convoluted manner, even surprising is the brash and arrogant manner in which they are setting about doing it.
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- 1. "This is contrary to established judicial principles. An order of a quasi judicial order remains in operation unless it is declared to be illegal and is set aside in appellate proceedings or in an action for judicial order. Even an order passed in breach of natural justice or contrary to law remains fully effective and binding on the parties to the lis. SEBI is the creation of a statute and vested with powers of the State. It is surprising as to how such an order could be passed that too without seeking counsel's opinion.". Spectator, Orissa
- 2. "The decision of the Board to make the orders non-est has nothing to do with the statutory power to review because of the simple reason that it is not a ‘review’. All that the SEBI Board has done it to exercise its power as a delegator under section 19 of the SEBI Act and concluded that the terms of delegation have been violated by the two member committee. Without any comment on the merits of such a conclusion, every delegator has the power to ensure that the delegate has acted within the delegated authority. Whether or not the terms of delegation were violated is another question. We can’t blatantly start accusing SEBI without agreeing first that there is weight in this argument, on which, presumably, the opinion of Mr Achuttan was based.". Cormanaz, Suryauday
- 3. "The primary question is whether Leeladhar and Mohan Gopal were acting in a quasi judicial capacity. If they were, then they cannot be delegates of anyone and therefore, interference by the SEBI Board as a "delegator" would be wrong in law. The second consequence of theirs acting in quasi judicial capacity would be that the order passed by them would have to be set aside only by a superior judicial forum. A wrong, even void and non-est order continues to be binding on the parties to the dispute until it is set aside by a superior forum. Even legislation cannot set aside the said order. Please see the case of Madan Mohan Pathak reported in AIR 1978 and many other authorities that follow it.". Anonymous, Orissa
- 4. "Quasi-judicial power must flow from the statute. The relevant statute in this case, the SEBI Act, empowers only the SEBI Board to pass orders. Unless power is delegated to the two member committee, the entire proceedings is vitiated. In order to save the entire SEBI Board (which consists of 9 members in all including 3 whole time members and a chairman) from hearing and passing orders in every case, section 19 gives them the power to delegate. It is the exercise of this very delegated power that would have enabled the two member committee to pass a ‘quasi-judicial’ order. Secondly, the order of the committee has not been ‘set aside’ by the SEBI Board. As stated in the earlier post, only on the basis of violation of terms of delegation, has the order been declared non-est. ". Cormanaz, Suryauday
- 5. "To all intents and purposes,the recent role of SEBI and the Securities Appellate Tribunal as has disenchanted Justice Verma, the former Chief Justice of India as well implanted an unprecedented case study of illegality. Per him, to declare and review two quasi judicial orders as non est by SEBI it has derogated from the established legal and Constitutional principles. In his view, the power of review of quasi judicial order by however its appellate body is not within its own jurisdiction. Such orders whether nullity or void have limited bearing unless and until the said stands the test before being validated in the competent court of law. The other infirmities and aberrations found with the SEBI are 1)its looking forward to Mr. Pai, another member and Director of Infosys to give effect to the order passed by two SEBI regular members Leeladhar and Mohan Gopal, 2)its criticism of the role of the then Chairman of NSDL Mr. Bhave who is the current Chairman of SEBI and most vitally 3) Mr. Achuthan who has declared the order as non est notwithstanding part of the National Stock Exchange and a promoter and significant shareholder of NSDL. Consequently, as Pai of Infosys owing its liability is vested with no power to implement SEBI's order so also Achutan as an interested stake holder in NSDL and existing on board of NSE forfeits jurisdiction to invalidate the order of SEBI. Regardless of the facts and circumstances above referred to, the quasi judicial body should be on its own alert of not exceeding its jurisdiction and should howbeit pass final speaking orders.". Pradeepta Mishra, HC Of Orissa, Cuttack
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