Capacity building is imperative

If the executive believes its agencies can and must play judge, it must invest in building capacity in regulators to conduct court-like proceedings in a fair, objective, firm and yet polite manner

By Somasekhar Sundaresan

The last edition of this column spoke about the Securities Appellate Tribunal being hamstrung in conducting final hearings due to two out of three posts remaining vacant. Tribunals often come in for comment and the concept is often critiqued, typically for how they are staffed, despite playing the role of courts. More often, they come in for comment (like the last edition) for how they do not get staffed.

However, public debate is woefully lacking in discussion about how the “courts” from which appeals lie in the tribunals are staffed, how they are not staffed, and if they are at all equipped to deliver on the expectations from them under the law.

First, India’s regulatory design typically centres around creating a regulator for an activity and then creating a tribunal to hear appeals from decisions of the regulator. Further appeals from the tribunal is invariably to the Supreme Court, bypassing the high courts completely. While much of the focus of public debate is on the tribunals being alternates to the higher judiciary, what gets missed out really is that it is the regulator that bypasses the judiciary, and that too, by legislative design.

Under every legislation that creates a regulator, certain specific and limited powers of a civil court are conferred on the regulatory agency — for example, on the Competition Commission of India or the Securities and Exchange Board of India. How equipped the regulators are in playing judge and how well-equipped the institutions are to withstand comparison with court-like dispensation of justice, are really the questions to ask.

Usually a generic motherhood edict is set out in these legislation: “the regulator shall comply with principles of natural justice”. What this means, how it is meant to play out, and how it actually plays out, can be an unruly horse. Two regulators governed by an identical standard, can completely vary in how this is handled. For example, the approach of one regulator in providing inspection of the record would totally vary from the approach of another regulator in performing the same task. Even within a regulatory organisation, one officer may do the right thing by letting a person accused of a wrong get access to a full and proper inspection of the record, while another officer may get aggressive and quibble. Typically, such quibbles emerge over giving access only to what is “relied upon” to support the accusation; over holding back from inspection any material that would undermine the accusations; and over arguing that only what is not relied on to make an allegation can never be “relevant”, even if such material would undermine the accusation. Each individual case, depending on how wronged the person accused feels, then begins its journey up the appellate chain and at times, years and years are lost squabbling. Ironically, those who deny proper access to the record usually accuse that request for access as a dilatory tactic.

Second, legislation creating regulators, usually oust the jurisdiction of civil courts on matters over which the regulator has jurisdiction. This is often a source of great confusion — a regulator can punish and enforce, and in cases, remedy. But a regulator would not be able conduct a private trial, weigh evidence, and assess damages to award compensation. In other words, if you were to believe that someone hurt your rights available to you under a regulatory legislation — say, the Insurance Act, 1938 — and want to be compensated for being wronged, you cannot “litigate” before the regulator. If you were to approach the regulator, the regulator may be disinterested, because of the scale, size and relevance of the case, or because it does not believe in getting involved is its duty. If you wanted to force the regulator’s hand, you would need to file a writ petition in a Constitutional court asking for a direction to be issued to the regulator to do its statutory duty. If the regulator were to entertain your complaint and get involved, the regulatory official in question may not have the bandwidth and wherewithal to conduct an adversarial proceeding between two persons — a complainant and the person complained against.

On the other hand, a regulator would be able to punish and enforce against the wrongdoer. The regulator may issue remedial directions to the wrongdoer. However, without specific powers, the regulator would not be able to conduct a proceeding for a compensatory claim, assess reasonable damages and award compensation. Legislation could be amended to empower a regulator to do so, but one must tread carefully, because it would then also mean the power is coupled with a duty to use the power — precisely what bogs down our courts.

The power to effect disgorgement has indeed been introduced into the Sebi Act, 1992, but that can only cover ensuring that a wrong-doer does not get to enjoy the wrongful gains made. If the gains do not sit with a person, there would be nothing to disgorge from him. Today, the jurisdiction of courts is ousted only over what the regulator is empowered to do. Arguably, where the regulator does not have the power to assess and award damages and costs, the jurisdiction of the normal court would not get ousted.

All in all, careful thought is required on how we empower our regulators — and whether they should play the full role of a court. If they were to be empowered to play the full role of a court, it would raise the same furore as with the debate over tribunals. Today, so much happens with the regulators simply because of the half measures in giving them some powers — they look like courts, function like courts, but are not courts.

Finally, at the least, serious capacity building efforts and judicial training of the institution on what constitutes proper compliance with natural justice is vital. Expending serious resources on basic disputes such as natural justice compliance is a drain on not just time but also financial resources of the regulator and of course, the accused. At the least, a uniformity of practice within the same regulatory organisation would be an imperative for predictability and ease in conducting regulated activity. It is not enough to jostle for space in the intra-Constitutional conflict between the executive and the judiciary. If the executive believes its agencies can and must play judge, it must invest in building capacity in regulators to conduct court-like proceedings in a fair, objective, firm and yet polite manner.

This was published as my column titled Without Contempt in the editions of Business Standard dated August 2, 2018

One thought on “Capacity building is imperative”

  1. Unfortunate to say this. People manned by government in regulatory bodies are made to do the work which they don’t know. Be it SEBI or SAT. Forget about them delivering natural justice.

    Like

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