IS SEBI chairman D.R. Mehta continuing on borrowed time?
HAS the tenure of D.R. Mehta, chairman of the high-profile Securities and Exchange Board of India (SEBI),ended? As per SEBI rules, it has, since its chairman can be appointed for a term of three years only. If one goes by that, Mehta's term ended on February 21, 1998. But he continues in office, with the blessings of the finance ministry.
The debate on the tenure of the SEBI chairman's term has been raging for over a year now. And the finance ministry's actions, instead of clearing the air, have only served to heighten the controversy. A full 20 days after Mehta's term had technically expired, the ministry issued a press note on March 12, to confirm that Mehta had been appointed SEBI chairman for five years—till February 20, 2000—and that "this appointment is valid and there is no question of any uncertainty in this matter."
Others didn't agree. On March 25, a two-member division bench of the Delhi High Court issued notices to then Union cabinet secretary T.S.R. Subramaniam, and Mehta, in response to a public interest litigation (PIL) challenging the validity of Mehta's continuance as SEBI chairman.The court has also asked the government to submit all records relating to Mehta's appointment.
The petitioner, Arun Kumar Aggarwal, has also questioned the actions taken by SEBI in the last three years under Mehta's chairmanship. Among them: SEBI's role in the MS Shoes scandal, the Reliance share switch controversy, UTI's direct bulk purchase of Reliance shares and the CRB Mutual Fund case.
Market observers point out that the ambiguity about the SEBI chairman's tenure needs to be resolved, not so much for the deeds of Mehta as SEBI chairman, but to help throw light on the way in which the entire issue of Mehta's appointment was handled by the finance ministry in February 1995 when he took charge.
When S.S. Nadkarni, Mehta's predecessor, died while still in office, Mehta was a deputy governor with the Reserve Bank of India. When the finance ministry approached him to take charge of SEBI, Mehta made a five-year term his precondition for acceptance. That defied existing rules. Section 3 (2) of the Securities and Exchange Board of India (Terms and Conditions of Services of Chairman and Members) Rules, 1992 (as amended up to February, 1995), specifies that "the Chairman and every whole-time director member shall hold office for such a period, not exceeding three years, as may be specified in the order of his appointment, but he shall be eligible for reappointment."
But then, section 20 of the same rules provides for relaxation of the tenure norm. It says: "The Central Government shall have the power to relax the provisions of any of these rules with respect to any class or category of persons." Unfortunately, it is also not clear whether the finance ministry had invoked Section 20 to grant Mehta five years instead of three years of tenure. There was no mention of any such relaxation or a reference to Section 20 in the official notification in The Gazette of India (extraordinary) dated February 17, 1995, by the department of economic affairs, ministry of finance.
The finance ministry notification goes like this: "In exercise of the powers conferred by Section 4 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), read with rule 3 of the Securities and Exchange Board of India (Terms and Conditions of Services of Chairman and Members) Rules, 1992, the Central Government hereby appoints D. R. Mehta for a period of five years from the date he assumes charge of office of Chairman."
This is the key issue, point out some legal experts: Section 20, which empowers the Central Government to relax the rules. They say that there should at least be an internal note in the appointment file which notes down the relaxation in the rules as per Section 20. If not, that is, if Section 20 has not been invoked by the government, then it could be a case of major bureaucratic lapse on the part of the ministry.
When contacted, Mehta confirmed that his appointment was for a period of five years, but refused to elaborate further, saying the matter was now sub judice. So is Mehta legally SEBI chairman or not? Since even the March 12 press note does not refer to the relaxation clause, the last word on this unseemly controversy seems to lie with the high court.