Tag Archives: Tribunals

How lines of role clarity are getting blurred

By Somasekhar Sundaresan
The question of whether the Reserve Bank of India (RBI) can dictate terms to a quasi-judicial tribunal that presides over enforcement of loan recoveries is making news, with the Gujarat High Court asking how the central bank had the powers to regulate tribunals. That the RBI believed it could dictate terms to a quasi-judicial body is not important. What is important — rather, scary — is how easily role clarity can officially get mistaken in the running of our public institutions.

 

The foundational blunder that embeds wrong policy choice into the DNA and blurs role clarity is the Presidential that specially empowered the RBI to direct commercial banks on the action banks must take towards recovery of dues owed by borrowers. This is a classic example of a simplistic policy solution, which is an outcome of its authors presuming that everyone else before them had not been clever enough to see an obvious fix to a serious problem.

 

It is not the RBI’s job to take enforcement decisions for commercial banks. But having been given a cloak and a shining armour, the RBI perhaps came to believe that it could issue directions even to the National Company Law Tribunal on what it must do. Giving the RBI powers to direct banks on how to act under the newly-legislated Insolvency and Bankruptcy Code presumes that commercial banks were napping despite having been empowered by a new law. By vesting in the RBI the executive function of banks that it regulates, in other sectors, too, such interventions could follow. The insurance regulator could be asked to run insurance companies, the securities market regulator could be asked to operate mutual funds, and the pensions regulator may be asked to run pension funds.

 

Worse, the foundation has also been laid for vigilance agencies to knock on the doors of RBI officials, say, five years down the line, for bad decisions that were taken in the course of such enforcement. The banks’ problems will have become the RBI’s problems. This is a real possibility as the poor non-performing assets may provide next to no recovery, and buyers of some of these assets may make profits buying assets cheap — fertile ground for the Central Bureau of Investigation to say in the future that even the RBI has become tainted by corruption.

 

The RBI jumping in to notify a declaration on what the tribunal must do is also a replication of a classic policy choice in the past few years. The very creation of the National Company Law Tribunal, with powers to take serious judicial decisions such as award of damages as if it were a civil court, is based on the erroneous policy choice of creating new institutions to deal with problems that hurt the performance of existing institutions. Since justice administration is ineffective (due to myriad problems that cannot be reduced to populist reasons such as length of court vacations or lack of judges), successive governments have been getting to make empowering regulators to play the role of the  The requisite training and capacity building to discharge such roles are never invested in. Every disappointment with such experiments leads to even more egregious experiments, further blurring the lines of role clarity.

 

Examples abound. Sweeping powers given to capital markets regulator, the Securities and Exchange Board of India, despite being an executive organisation, to take serious quasi-judicial decisions without imparting judicial training, is a great example. Likewise, even the quasi-judicial tribunals that are being set up with serious responsibilities, face resource constraints. The National Company Law Appellate Tribunal is now empowered to play the role of an appellate tribunal not only for company law but also for competition law, as indeed in appeals from decisions under the new bankruptcy law.  However, the tribunal has just two members — one is a retired Supreme Court judge, the other a retired officer from audit and accounts service. One seat is lying vacant. The Securities Appellate Tribunal has been empowered to hear appeals against decisions of the insurance regulator, but it took forever for the government to even complete appointments to achieve a full bench.

 

When the alleged scam in the telecom sector was making news, many “creative” policymakers advocated involving the Comptroller and Auditor General in executive decision-making before a decision is made, so that the auditor does not later find fault with propriety of decision-making.  This was an example of how little inter-institutional checks and balances are appreciated and how easily they can get disrupted if the clamour for “change” gets loud enough to drown out reasoning.  Getting the banking regulator to take decisions that regulated banks must take on their own is in the same vein.

 

It is highly possible that sometime in the near future, desperation over capacity constraints in “insolvency professionals” not being able to cope with the burden imposed on them under the new bankruptcy law could lead to the Insolvency and Bankruptcy Board of India to being given powers to play the role of the professionals it regulates.  Nothing could be a bigger blunder in the gestation of a nascent ecosystem.  Such a measure would weaken the ecosystem of insolvency professionals, the same way commercial banks are being weakened today by having the RBI decide on their behalf how to handle bad loans.

 

In parallel, another role ambiguity is hurting the ecosystem. Under the new bankruptcy law, any operational creditor may initiate a “resolution process”, which, at the threshold, suspends the powers of the debtor’s entire board of directors, and imposes a moratorium on recovery of any dues from the debtor.  The abuse of this provision has begun in earnest. Instead of servicing the financial creditors whose firefighting needs the system’s support, the enforcement system is being clogged with anyone claiming Rs 1 lakh or more being able to hold all the financial creditors to ransom, to extract a settlement by threatening a snowballing effect of a moratorium. The pain of having the moratorium presents a perverse incentive to small operational creditors who can derail the financial creditors’ engagement with complex decisions, which can involve weighing recovery, enforcement, revival strategies and exit planning, all at once. Clearly, overzealous knee-jerk policy is only going to cause more problems, far from solving existing problems.

 

This Without Contempt column was published in the editions of Business Standard on July 13, 2017

It’s a tug-of-war out there

By Somasekhar Sundaresan
It is by far the boldest move in executive governments pushing the envelope in breaking the law with the very process of law-making. The current government has piloted the Finance Act, 2017, through to get substantial legal provisions passed without the scrutiny of the

 

Many appellate tribunals that hear appeals against orders by regulatory authorities have been wound up for being merged with other tribunals —essentially, changes in institutions that were set up in the first place, with the approval of both the and the Constitutional courts may be visited with challenges to the abuse.  But not much may happen there. The has an inbuilt check and balance in the office of the Speaker of the She has the last word on whether or not a proposed law is a Money Bill, that is, a law that deals with matters of finance and tax, as set out in the

 

The approach of the government is legally wrong. However, every wrong is not justiciable. If the set much store by the judgement of an occupant of high office, it was arguably intended that the occupant of that office must be trusted. If that trust is belied, it would only follow that we have a loophole in the that can only be corrected by a constitutional amendment.

 

It is equally true that courts have not always steered clear of every wrong that is not justiciable. Constitutional courts have happily legislated. Either entire legislation (for example, environmental charge for entry of vehicles into Delhi) including de facto contents of the (for example, the judges’ collegium for judicial appointments) have been created in the past by judge-made law. When facts are provocative enough, intervention may indeed follow.

 

In a challenge to the replacement of governors of states as political decisions, courts have ruled that no decision of the government, including a decision to replace a governor can be arbitrary, yet ruling that the decision cannot be interfered with. It is likely that the pending litigation over whether legislation that are nowhere near Money Bills can be passed by as if they were Money Bills, would meet the same fate.

This contrivance aimed at simply circumventing the has been resorted to in the past. The Foreign Exchange Management Act, 1999, had been passed by both Houses of as a non-criminal law to replace the dreaded criminal law contained in the Foreign Exchange Regulation Act, 1974. That was not a That had been a major milestone in India’s legislative and economic policy history. Two years ago, provisions criminalising exchange controls were brought into through a No consent of the was taken.

These infractions of law were not challenged since they were not politically correct for challenge. Now that a bigger gauntlet has been thrown, it is possible that some may challenge it.  The history of constitutional challenges to the creation of tribunals has itself had a chequered history at the hands of courts. The National Tax Tribunal could not be set up due to such a challenge.  The National Company Law Tribunal could indeed be set up although in its new form it is in conflict with earlier rulings of the Supreme Court rendered when dealing with earlier attempts to set up the Tribunal. There are as many views on interpreting the as there can be benches of the Supreme Court and of multiple high courts.

All of this is not to say that all the changes sought to be brought in are bad. There are some laudatory amendments — one is the retirement age of the presiding officer has been extended to 70 years. Some changes are horrible.  The tribunals listed in the Finance Act, 2017, are not the only ones whose has been disturbed. A provision entitling government to similarly merge other tribunals not named for now, by a simple executive fiat has also been passed as a part of the

 

The Finance Act, 2017, is a quiet power-grab in the conflict between arms of the state.  If the judiciary wrested control back by striking down the National Judicial Appointments Commission, the executive has sought to strike back by giving itself powers over vast areas of quasi-judicial territory.

This is the most vulnerable part of the Finance Act, 2017, since it could be struck down as being arbitrary as it is a matter of “excessive delegation” of powers by the legislature to the executive. A constitutional challenge to such delegation is not about whether it is a Even if it were to be regarded as a provision in a Money Bill, it would be liable to be attacked as an arbitrary delegation of power to the government.
A version of this post was published as my Without Contempt column in the Business Standard in its editions dated April 6, 2017