By Apoorva Mandhani
Securities and Exchange Board of India (SEBI), the regulator for the Indian securities market recently saw a change of guard. Senior IAS officer Mr. Ajay Tyagi replaced Mr. U.K. Sinha as the chairman. The appointment, however, has been mired in controversy. The government changed the chairman’s tenure even before the new chairman could assume office. The manner of appointment by the government raises questions on the autonomy of SEBI and of such independent watch dogs, in general.
The challenges to the ex-Chief’s appointment
Mr. U.K. Sinha had replaced Mr. C.B. Bhave as the SEBI Chairman in 2011, with a three-year tenure, which was later extended twice. The ex-SEBI chief had faced a number of Public Interest Litigation (PIL) alleging irregularities in his appointment and extension. One particular PIL had challenged the Finance Minister’s power to nominate two additional members in the selection committee for the appointment of the Chairman. The challenge was later dismissed by a Supreme Court judgment passed in November, 2013. The Court ruled that there was no illegality committed in amending the Securities and Exchange Board of India (Terms and Conditions of Service and Members) Rules, 1992, in order to provide for “more participation by expert members”.
The allegations have reignited the issue of ministerial interference in key appointments and investigations, on behalf of high-profile corporate houses. This is especially because the Apex Court judgment does not delve into questions of institutional autonomy at large, restricting itself to the extant contentions of Mr. Sinha’s appointment in particular.
The carrot of extension
The government’s first communication on Mr. Tyagi’s appointment as SEBI Chief had suggested a five year tenure. However, it was later clarified that his appointment would be for three years, without citing any reasons for the same. While the rules do provide discretion to specify the period of such appointment, such power endowment of the appointment authority has often been termed as excessive in the past.
The Financial Sector Legislative Reforms Commission (FSLRC), for instance, had suggested a five-year term for the SEBI Chief, without any scope for extension. The report had explained that a crucial requirement for independence of market regulators was that they should be protected from any sort of pressure through change in their terms of appointment.
Reinforcing the perception of autonomy
“Brokers should know that the road from Dalal Street (where the Bombay Stock Exchange is located) to Mittal Court (where SEBI was then based) doesn’t run through North Block (where the finance ministry is located).”
This remark was made by Mr. G.V. Ramakrishna, the first Chairman of SEBI, when Securities and Exchange Board of India Act, 1992 had just been passed. The comment emphasized on both, the objective behind formation of the financial market regulator and on the perception of autonomy among the market participants as equally significant. Allegations of SEBI’s autonomy being compromised, might be unproved going forward. Even then the market regulator needs to re-look at its appointment process, for justice should not only be done, but seen to be done.
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