Vacancies in tribunals will affect business environment
The Indian securities market has an avoidable problem. After days of keeping everyone waiting, the Securities Appellate Tribunal (SAT) on Monday gave a split verdict in the PNB Housing Finance case, as it did not have enough members. SAT was hearing an appeal filed by PNB Housing against an order passed by the Securities and Exchange Board of India (Sebi), which had stopped the firm from making preferential allotment of shares to a set of investors. Among other things, Sebi had objected to the fact that the valuation was not done by an independent valuer. On an appeal of PNB Housing, the appellate tribunal had allowed it to go ahead with its extraordinary general meeting in June but restrained it from disclosing the results.
Usually, in the case of a split verdict, when two members of a bench have a difference of opinion, the matter is referred to the presiding officer. However, this was not possible in the current situation as the tribunal had been functioning with only two members. Since the matter could not be settled by the tribunal, the interim order will continue to hold, and an appeal will now have to be made before the Supreme Court. The situation is completely unwarranted and avoidable. This would not only delay the matter further but also raise larger questions about India’s ability to facilitate even basic requirements of a functioning market economy. A situation like this can affect market confidence and the ability of listed companies to raise capital or even conduct routine corporate business. It can also have large financial implications for both companies and shareholders.
As a matter of fact, developments in the PNB Housing case have exposed the lack of regulatory capacity. The market regulator objected to the move only after an advisory firm highlighted the possible discrepancy in the valuation process. In spite of the delay, the issue would have been settled by now if SAT was adequately manned. It is hard to imagine why the government could not make appointments in time. However, SAT is not an exception. A two-judge bench of the Supreme Court, headed by Chief Justice of India N V Ramana, recently questioned the government on what it intends to do with tribunals. There are pending vacancies of over 100 technical and judicial members in various tribunals across the country but the bureaucracy is reportedly not clearing the names forwarded by the selection committee led by judges. It is thus obvious why cases are getting delayed in most tribunals.
The government, however, seems to be moving in another direction. It is consolidating and reducing the number of tribunals. The government got a Bill passed in the current session to further reduce the number of tribunals, and most pending cases would go to the high courts. This will certainly increase the workload of the judiciary and delay decisions. The purpose behind establishing tribunals was to reduce the load of the judiciary and bring technical expertise. But the process is being reversed. It is likely that tribunals have not been able to function properly because of inadequate capacity as has been the case with SAT. The inability of businesses to enforce contracts and settle disputes in time affects the ease of doing business. India ranks poorly on this parameter in global rankings. Recent developments will only make things worse.