Capital market regulator Securities and Exchange Board of India (Sebi) has asked the finance ministry to revoke a rule that bars Sebi officials sitting as members at the Securities Appellate Tribunal (SAT), which hears appeals against Sebi orders, a Sebi official said.
“There is no such bar on officials of other regulators like the Insurance Regulatory and Development Authority and Pension Fund Regulatory Development Authority, but Sebi officials are not allowed to become SAT members on grounds of conflict of interest,” said another Sebi official, who did not want to be named because this involves a regulatory issue.
“Among various other proposals, there is a proposal with the Central government to allow appointment of SAT members from Sebi,” said the official mentioned first, who also requested anonymity. “This could be a long-term process and may take some time.”
“If the proposal is accepted by the government, a separate Bill will be introduced in Parliament in order to make related amendments to the Securities Laws,” the first Sebi official said. “This Bill is yet to be prepared.”
A finance ministry official confirmed that a Bill on the proposal is yet to be drafted. He, too, declined to be named.
SAT comprises one presiding officer and two judicial members. All three members, appointed by the Union government, must give their consent to any decision. Only a sitting or retired judge of the Supreme Court or a sitting or retired chief justice of a high court can become a presiding officer.
To improve the functioning of SAT, Sebi has also proposed that the number of SAT members be increased to seven from two. The regulator has suggested that two members out of these seven could be appointed as judicial members, while the rest could be given the role of regulatory members under the presiding officer.
According to the Sebi proposal, since SAT hears appeals against the regulator, it would be useful to have members with experience of the markets. However, to allow Sebi members to join SAT, the government will have to change parts of the Securities and Exchange Board of India Act, 1992, to avoid any potential conflict of interest arising from their Sebi tenure.
“The basic presumption is when you are in an organization and then go to an appellate body, there will be a bias. But there is a counter-argument for this,” said C. Achutan, a former presiding officer of SAT.
The Sebi Act bars all senior Sebi officials—of the rank of executive director and above—from becoming SAT members. The moratorium extends to two years after a board member ceases to hold office.
Appointment norms are less stringent for other tribunals than they are for SAT. “If you look at the structure of ITAT (Income Tax Appellate Tribunal), commissioners are appointed as ITAT members, or at CAT (Central Administrative Tribunal), retired government secretaries are appointed. If that can be done then why not SAT?” asked Achutan. “So the proposal needs to be examined carefully. In all fairness, there is enough to discuss.”
Following an earlier Sebi proposal, draft legislation was introduced in the Lok Sabha on Monday to increase the upper age limit for SAT members to 65 from 62. The Securities and Exchange Board of India (Amendment) Bill, 2009, if passed in Parliament, will supersede the Sebi Act of 1992.