Bench
Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member Per: Justice Tarun Agarwala, Presiding Officer
Date of the Judgement
17.05.2021
Parties
Axis bank
National Stock Exchange of India
Facts
● The Tribunal was operating with a Presiding Officer, a Judicial Member, and a Technical Member, according to the evidence that led to this controversy.
● The Technical Member resigned on March 31, 2021, and the Tribunal's Bench has been made up of the Presiding Officer and a Judicial Member since then.
● The proviso to section 15L(2)(b), which stipulates that any Bench must have at least one Technical Member as a mandatory rule, is at the heart of SEBI's argument.
● The argument is that any Bench must have at least one Technical Member, and because the current Bench is made up of Judicial Members, the bench's constitution is flawed, and any orders issued by this Bench would be void.
● The current uncertainty has arisen as a result of changes made to the SEBI Act from time to time in terms of the Tribunal's composition and power. In light of the changes made to the Act from time to time, Sec. 15L(2)(b) of the Act must be construed in a manner that is consistent with the other provisions of the Act. If literal interpretation defeats the intent of a statute, purposive interpretation must take its place.
● Courts have developed a slew of interpretation laws. If a legislative provision may be interpreted in more than one way, the court must select the interpretation that best reflects the legislature's true intent.
● Normally, the plain grammatical meaning of the words in the enactment should be considered as the best guide, but it is permissible to consider the purpose and object of the real legislative intent to winch up the legislative intent; otherwise, a bare mechanical interpretation of the words and application of legislative intent devoid of the concept of purpose and object would be the best guide.
● As a result, the construction method incorporates both literal and purposive methods, namely, the true sense of the terms used in the enactment in light of some discernible intent or object that encompasses the mischief and its solution to which the enactment is directed. When this is accomplished, it is referred to as "the cardinal principle of architecture."
● According to Oliver Ashworth v. Ballard (1999), the distinction between purposive and literal constructions is merely one of degree. The true distinction is found in the delicate balance that must be struck in each case between the literal sense of the terms on one side, and the context and intent of the measure in which they appear on the other.
● In Bengal Immunity Co. Ltd. v. the State of Bihar, AIR 1955, the Supreme Court clarified Heydon's case, which is now known as the "purposive construction" or "mischief law." Thus, in order to understand the Act's rules, it is important to remember how the provisions stood immediately before the section was revised, as well as certain parts that were added at a later date.
● According to Section 15L of the SEBI Act, the Tribunal was originally a one-member bench. This one-member bench rule was changed to a three-member bench in 2002.
● A reading of the clause reveals that the Tribunal's composition was changed from a one-member bench to a three-member bench, consisting of the Presiding Officer and two other members. At the time, there was no difference between a Judicial Member and a Technical Member.
● The Finance Act No. 7 of 2017 replaced Section 15L once more. Finance Act No.7 of 2017 substituted Section 15L. The legislature intended to have more than one Bench in order to ensure that Judicial Members were present on each Bench.
● The terms Judicial Member and Technical Member were included in the definition clause and included in Section 15L for the first time by the Finance Act no.7 of 2017. The goal and aim were that a Technical Member could be needed if and when the matter required technical guidance from the Judicial Members.
● The Securities Appellate Tribunal's power, as specified by Section 15L(1) of the Act, will be comprised of a Presiding Officer, one Judicial Member, and two Technical Members, according to a Central Government notification dated May 16, 2019.
Issue
● Can an appeal be heard if technical members are not present?
● Can this Tribunal face a crisis of non-functioning as a result of the Central Government's failure to fill vacancies?
Rule
● Composition of the Securities Appellate Tribunal (15-L). (1) To exercise the powers and discharge the duties conferred on the Securities Appellate Tribunal by this Act or any other law currently in force, the Securities Appellate Tribunal shall be composed of a Presiding Officer and a such number of Judicial Members and Technical Members as the Central Government may decide by notification.
● (2) Subject to the provisions of this Act, the Securities Appellate Tribunal's jurisdiction may be exercised by Benches; (b) a Bench may be constituted by the Presiding Officer of the Securities Appellate Tribunal with two or more Judicial or Technical Members as he may deem fit: Provided, however, that each Bench shall include at least one Judicial Member and one Tech Member.
● (1) The Presiding Officer may move a Judicial Member or a Technical Member of the Securities Appellate Tribunal from one Bench to another Bench, notwithstanding subsection (2).”
● Section 15K - SAT establishment. Section 15K allows the Central Government to create an SAT by issuing a notification, which would exercise the jurisdictional power and authority conferred on it by or under the Act or any other law in force at the time.
● Section 15-P - Filling vacancies; 15-PA- Under such cases, a member may serve as Presiding Officer.
● Section 15R. Orders establishing the Appellate Tribunal are definitive and do not invalidate the Tribunal's proceedings.
● Section - 15-U. The Securities Appellate Tribunal's procedure and powers.
● The Securities Appellate Tribunal (Procedure) Rules, 2000, Rule 5(2)
Analysis
● The Tribunal's approved strength is currently four members, including two Judicial Members, one of whom is the Presiding Officer, and two Technical Members. There is a vacancy of 50% of the sanctioned strength at the moment, and there are no Technical Members. Currently, the Tribunal is staffed by two Judicial Members.
● The question to be addressed is whether the vacancy in the Technical Members' office is fatal to the Tribunal's formation. The proviso to Section 15L(2)(b) is, admittedly, causing havoc. In order to promote the interests of investors under the SEBI Act, this provision must be construed in harmony with the other provisions of the Act.
● In our opinion, the legislature never intended for the Tribunal to stall or become non-functional in the absence of a Technical Member, and therefore a harmonious construction must be provided. As a result, it becomes appropriate to go through the other provisions of the Act that we mentioned earlier.
● Section 15P discusses the filling of vacancies. It also specifies that hearings before the Tribunal can be continued until the vacancy is filled. SEBI claims that when a vacancy arises, the Tribunal becomes non-functional and can only become functional and resume hearings after the vacancy is filled.
● In light of Section 15-PA, which states that in the case of a vacancy in the office of the Presiding Officer of the Tribunal, the senior-most Judicial Member may serve as the Presiding Officer before a new Presiding Officer is named, this submission appears to be incorrect.
● The Tribunal would not become inoperable or devoid of leadership. As a result, we believe that if a vacancy exists in a Member, if it is a Judicial or Technical Member, even if there is a coram in spite of the vacancy, the Tribunal will continue to hear the cases.
● In this regard, Rule 5 states that in the absence of a Presiding Officer, the Government will nominate one of the members to preside over the Tribunal's sittings, implying that even if a vacancy occurs, the Tribunal may continue to work with the remaining members.
● Benches and a Bench with two members are discussed in Sections 15U(4) and 15U(6). According to the 16 May 2019 notice, the Presiding Officer has the authority to form Benches. The approved strength is currently four, with two Judicial Members and two Technical Members. The Presiding Officer would be entirely justified in forming two Benches, each of which would consist of a Judicial Member and a Technical Member. The proviso to Section 15L(2)(b) will be met in this way.
● If, on the other hand, one member recuses himself or resigns from office, two Benches cannot be created. In such a case, SEBI contends that the only bench available, namely the Presiding Officer and two other Members (even if one of the members is a Technical Member), would be unable to work despite having the required coram, because Section 15P mandates that no proceedings begin until the vacancy is filled. This, in our opinion, cannot be the Legislature's purpose.
● Thus, if we construe the two provisions harmoniously, Section 15L(2)(b) and Section 15P, the result would be that the second Bench, which was constituted, will not proceed upon the occurrence of a vacancy and will only proceed when the vacancy is filled up, although nothing will prevent the Presiding Officer and the other members of the Bench from proceeding and exercising their jurisdiction.
● Even though the proviso uses the word "shall," we believe it should be read as "may." The terms "must" and "as he may deem fit" in Section 15L(2)(b) when combined with the words "subject to the provisions of the Act" explicitly imply that the clause is advisory in nature, and therefore the use of the word "must" in the proviso can only be interpreted as "as far as possible."
● Even though the proviso uses the word "shall," we believe it should be read as "may." The terms "must" and "as he may deem fit" in Section 15L(2)(b) when combined with the words "subject to the provisions of the Act" explicitly imply that the clause is advisory in nature, and therefore the use of the word "must" in the proviso can only be interpreted as "as far as possible."
● Section 15R states that any proceedings before the Tribunal cannot be called into question in any way because of a flaw in the SAT's constitution. Even if the Tribunal's constitution is found to be defective, this clause preserves the legality and legitimacy of the Tribunal's orders. This clause makes it clear that Section 15L(2)(b) and its proviso are merely advisory and cannot be construed as obligatory.
● Thus, if the provisions of Section 15L are read in conjunction with Section 15P, Section 15-PA, and Section 15R, it is clear that the Tribunal does not come to a halt whenever a Member is absent or a vacancy occurs. When there is no Technical Member, the Presiding Officer must select a Bench from among the members who have been appointed.
● Section 15R specifies that Section 15L is not a statutory requirement. The proviso to Section 15L(2)(b) contemplates that the constitution of the Bench may not always be met, and in such a case, the constitution of the Bench is immune from being called into question.
● To put it another way, Section 15R will have the effect of qualifying and treating the word "must" in the proviso to Section 15L to mean "can," i.e., that there shall be at least one Judicial Member and one Technical Member in any Bench, where such members are available; however, where such members are not available, it would not be a mandatory requirement to be met, and by law, the judicial member and technical member would be replaced by the judicial member.
Judgement
● Issue 1 - The Tribunal is a court with judicial powers. The Tribunal must be staffed entirely by Judicial Members. The presence of a Judicial Member as the Presiding Officer is required by the SEBI Act. A Technical Member may never be named as a Presiding Officer. A Judicial Member cannot be replaced by a Technical Member.
● Tribunals are also one of the most significant pillars of the administration of justice. Various Tribunals have been set up to deal with various issues. Their roles are identical to those of traditional judicial bodies. The Constitutional Courts depend on the Tribunals for assistance.
● The inclusion of a Technical Member is solely to add specialized knowledge to the table; however, this does not imply that it will replace a Judicial Member, nor does it imply that a Judicial Member lacks specialized knowledge.
● Furthermore, the qualifications of a Judicial Member and a Technical Member are vastly different under the SEBI Act. Only individuals with a formal legal degree and extensive legal experience can address complicated legal issues that a Technical Member cannot, and therefore a Technical Member cannot substitute for such competence.
● We also believe that a Technical Member is a help to the Bench when it requires technical knowledge on a subject, and that, as a result, it cannot be assumed that if a Technical Member is unavailable, the Bench of two Judicial Members would be unable to work. At best, this should never be the legislature's intention; otherwise, the judiciary's independence would be diluted and encroached upon.
● Based on a careful reading of the relevant provisions of the SEBI Act, we are certain that the functioning of the Tribunal, which currently consists of a Presiding Officer and a Judicial Member, is not impaired by the absence of a Technical Member, and that the Presiding Officer and Judicial Member will proceed to hear and decide the appeal. SEBI's objection has been dismissed.
● Issue 2 - To solve this problem, one does not need to search for a band-aid solution, but rather one that seeks to solve the problem permanently. We have addressed the problem by interpreting the Act's provisions, but the long-term solution is for the Central Government to expedite and fill the vacancy.
● The fourth role of Technical Member was established on May 16, 2019, according to a notification. Despite the passage of two years, the Central Government has taken no measures to fill this vacancy. Furthermore, the government was aware that the only Technical Member will be retiring on March 31, 2021.
● No steps have been taken to fill the role as of yet, despite the fact that such steps should have been taken at least a few months prior to the Technical Member's retirement. Furthermore, care should be taken when amending the Act to fix any discrepancies that might occur in the charging clause.
● As a result, we urge the Central Government to fill the vacancies as soon as possible, as well as to make the required amendments to the charging provision and to address the discrepancy in the proviso under Section 15L(2) (b).
