Some recent landmark decisions

For the benefit of our readers and also to catch-up the recent developments, we are running in this post short notes on some of the landmark decisions in recent past. These decisions are landmark on various counts; either they reveal a jurisprudence shift or they deal with a legal controversy which was vividly followed up by national media and the citizens alike. Some are landmark on account of the sheer fact of these decisions being rendered by larger bench of the Supreme Court and thus an important and likely stable constitutional declaration flows from these decisions.

Constitution Bench decisions

1. This series of two decisions is actually a revisit of the constitutional stipulations relating to appointment of judges amongst the High Courts and the Supreme Court. The law was firmly settled by earlier larger bench decisions. However the incumbent Government initiated the process which led to amendment of the Constitution. This amendment was meant to bring in place a new positive legal order regarding the appointment process. In the first decision i.e. Supreme Court Advocates-on-Record Association v. Union of India [Writ Petition (Civil) No. 13 of 2015, decision dated 16.10.2015], a five-judges bench of the Supreme Court declared the amendment to the illegal being contrary to the basic constitutional principles. In essence, therefore, they revived the appointment process in place prior to this arrangement known as the 'Collegium'. However in this decision itself the judges agreed that there was room for improvement in the Collegium system and this led to the second decision. In this decision i.e. Supreme Court Advocates-on-Record Association v. Union of India [Writ Petition (Civil) No. 13 of 2015, decision dated 16.12.2015] the same five-judges of the Supreme Court broadly examined the suggestions received from various quarters towards improving the Collegium system, only to conclude that it was beyond the judicial realm to lay down the policy. On such account it directed the Government of India to frame 'Memorandum of Procedures' which would serve as the Working Document and lay down the protocol for the appointment of the judges. These decisions are landmark in various senses. Firstly they are by constitutional benches and thus carry significant weight. Secondly, there is a significant discussion on the 'basic structure principle' and also the importance of 'judicial review' and 'independence of judiciary', which are key constitutional tenets. Thirdly and more importantly, it is rare for the Supreme Court to declare as illegal a constitutional amendment and thus these decisions carry significant insight on the subject. 

 

 

2. The decision of another five-judges bench of the Supreme Court in Nabam Rebia v. Deputy Speaker [Civil Appeal No. 6203-6204/2016 decision dated 13.07.2016] is another significant decision for it delineates the scope and ambit of the powers vested in a Governor of a State under the Constitution. In this decision the Court was examining the allegations that the Governor did not adopt a bipartisan role which was expected of him and instead went beyond the scope of authority conferred upon him. In fact in this decision the Supreme Court reinstated the exective Government which had not found favour amongst the stipulations of the Government, which makes it perhaps an unprecedented decision on large counts. The case also involved the relationship between the Government and Speaker of a Legislative Assembly and how far could the Governor direct the Speaker to carry out specified functions. 

 

 3. Another decision, also of five-judges of the Supreme Court is in the case of Union of India v. V. Sriharan Writ Petition (Criminal) No. 185/2014 decision dated 02.12.2015] which dilutes a number of decisions on the subject as also the common understanding to declare that a life sentence means imprisonment till the end of life. There was a common understanding that life sentence means 14 years. However the Court has declared otherwise and held that the power of the Government to remit sentence after 14 years is not a matter of right but only a possibility for early release. This decision also declares that the Court has power to give a fixed sentence (say 20 years) to a person without any possibility of early release.

Some other decisions, but not of constitution benches of Supreme Court

4.  This decision in Kedar Nath Yadav v. State of West Bengal [Civil Appeal No. 8438/2016] runs into over 200 pages and relates to validity of land acquisition in West Bengal relating to Tata Nano plant. Dealing with a very emotive issue for the local residents and also a politically sensitive matter for the incumbent government, the Supreme Court has dealt extensively with land acquisition laws and the interse considerations required to be considered for upholding acquisition of land. In conclusion the Supreme Court has directed that "land shall be given back to the land owners and compensation if any paid to them shall not be recovered from them those who have not collected it are free to collect the same in lieu of damages for deprivation of possession for ten years".


5.  Additionally, another Supreme Court decision is the case of Shreya Singhal v. Union fo India [Writ Petition (Criminal) No. 167 of 2012, decision dated 24.03.2015] where certain provisions of the Information Technology Act, 2000 has been declared as unconstitutional and illegal for they are impediment to freedom of speech and expression guaranteed by the Constitution to its citizens. This decision renders interesting insights, also on a comparative legal analysis perspective, the various dimensions of free-speech jurisprudence and its ambit under the Constitution of India. A must read for students.


6. In a very recent decision in Chandrakeshwar Prasad v. State of Bihar [Criminal Appeal No. 932 of 2016, decision dated 30.09.2016] the Supreme Court has cancelled the bail granted by the High Court to Md. Shahabuddin. This decision presents interesting insights over the competing considerations between personal liberty of an individual and the larger societal interests. Referring to its earlier decisions on the subject, the Supreme Court held that it was important to balance the "fundamental right to individual liberty with the interest of the society".


7. While this is not a decision, this nonetheless has severe ramifications for the future of Supreme Court. In V. Vasanthakumar v. H.C. Bhatia [Writ Petition (Civil) No. 36 of 2016 order dated 13.07.2016] three judges of the Supreme Court have referred to a larger bench adjudication of certain constitutional questions, which are as under;

1. With access to justice being a fundamental right, would the said right stand denied to litigants, due to the unduly long delay in the disposal of cases in the Supreme Court?
2. Would the mere increase in the number of judges be an answer to the problem of undue delay in disposal of cases and to what extent would such increase be feasible?
3. Would the division of the Supreme Court into a Constitutional wing and an appellate wing be an answer to the problem?
4. Would the fact that the Supreme Court of India is situate in the far North, in Delhi, rendering travel from the Southern states and some other states in India, unduly long and expensive, be a deterrent to real access to justice?
5. Would the Supreme Court sitting in benches in different parts of India be an answer to the last mentioned problem?
6. Has the Supreme Court of India been exercising jurisdiction as an ordinary court of appeal on facts and law, in regard to routine cases of every description?
7. Is the huge pendency of cases in the Supreme Court, caused by the Court not restricting its consideration, as in the case of the Apex Courts of other countries, to Constitutional issues, questions of national importance, differences of opinion between different High Courts, death sentence cases and matters entrusted to the Supreme Court by express provisions of the Constitution?
8. Is there a need for having Courts of Appeal, with exclusive jurisdiction to hear and finally decide the vast proportion of the routine cases, as well as Article 32 petitions now being decided by the Supreme Court of India, especially when a considerable proportion of the four million cases pending before the High Court may require review by a higher intermediate court, as these judgments of the High Courts may fail to satisfy the standards of justice and competence expected from a superior court?
9. If four regional Courts of Appeal are established, in the Northern, Southern, Eastern and Western regions of the Country, each manned by, say, fifteen judges, elevated or appointed to each Court by the Collegium, would this not satisfy the requirement of ‘access to justice’ to all litigants from every part of the country?
10. As any such proposal would need an amendment to the Constitution, would the theory of ‘basic structure’ of the Constitution be violated, if in fact, such division of exclusive jurisdiction between the Supreme Court and the Courts of Appeal, enhances the efficacy of the justice delivery system without affecting the independence of the judicial wing of the State?
11. In view of cases pending in the Supreme Court of India on average for about 5 years, in the High Courts again for about 8 years, and anywhere between 5- 10 years in the Trial Courts on the average, would it not be part of the responsibility and duty of the Supreme Court of India to examine through a Constitution Bench, the issue of divesting the Supreme Court of about 80% of the pendency of cases of a routine nature, to recommend to Government, its opinion on the proposal for establishing four Courts of Appeal, so that the Supreme Court with about 2500 cases a year instead of about 60000, may regain its true status as a Constitutional Court?

8. And then in this series, we refer to the decision of the Delhi High Court in Government of National Capital Territory of Delhi v. Union of India [Writ Petition (Civil) No. 5888/2015 decision dated 04.08.2016] where the High Court has opined upon the interse powers of the Government of India and the Government of NCT of Delhi. Running into about 200 pages, this decision relied upon a nine-judge Supreme Court decision in New Delhi Municipal Corporation v. State of Punjab (1997) 7 SCC 339 to hold that Delhi continues to be Union Territory, albeit with special status, but does not enjoy statehood. This decision opines upon a long pending political struggle in Delhi and may not be the last word on the subject as the Supreme Court is currently seized of the dispute. Nonetheless various interesting aspects relating to the special position of Delhi and its legal attributes.

Ten landmark decisions of Supreme Court in 2010: A retrospect

In this first post of the new year we look in retrospect the ails and achievement of our beloved Supreme Court in the year 2010 gone by. On this note, what better to start with than quoting the man who has been voted consistently as the number one lawyer of the country and has argued from both sides of the bar. Prominent Senior Counsel (and a former Solicitor General of the country), Harish Salve has come up on record, in a piece written in the Times of India stating that the Supreme Court must demonstrate will to correct itself. Noting of the change of guard at the helm of affairs with a new Chief Justice of India and given a stirred country, Mr. Salve gives the eulogy to 2010 in the following words;

The Chief Justice of India and the institution he heads enter the New Year under somewhat extreme weather conditions beyond the unusually cold winter in Delhi and the rest of the world. Parliament faces a potential logjam with its future course uncertain as allegations about corporate India fly fast and thick even if a little truth is embellished with a lot of salacious fiction. Even the court itself is under scrutiny. Once again the beleaguered citizenry looks with one part hope and three parts desperation upon the court to help restore some semblance of values of governance in this circus of Indian democracy.

We take this opportunity to undertake a retrospect of what we consider have been some of the major decisions rendered in 2010. While the decisions are many, we have taken the liberty to handpick the top them (with no particular order of priority inter se) in as much as we find they not only have influenced the prevailing state of events but also in as much as they carry the potential to change (and if not so, atleast influence) the legal theory of the subjects they have dealt with. 

(1) In State of Maharashtra v. Sarangdharsingh Shivdassingh Chavan the Supreme Court in no uncertain terms made it clear that it will not tolerate the inference of executive in police functioning. Taking a stern note of the actions of a Chief Minister and going on to impose exemplary costs of ten lakhs, the Supreme Court made it clear that it "cannot shut our eyes to the stark realities". In our view the decision is an apt reminder to those in the power that come what may, irregularities would not be exempted from a close and erudite examination by the Court performing its bounded duty of maintaining the Constitutional order. 

(2) In these two decisions, the first which deals with the issue (but does not conclude) directly and the second which is a tacit acceptance to its limitations, the Supreme Court has taken note of its function as being one of judicial nature alone and not extending to a legislative role. (a) In University of Kerala v. Council, Principals', Colleges, Kerala, the Court referred to a larger bench the determination of a question "Whether under our Constitution the judiciary can legislate, and if so, what is the permissible limits of judicial legislation. Will judicial legislation not violate the principle of separation of powers broadly envisaged by our Constitution?" Whatever answer the Court gives, it is bound to affect the balance of powers understood in the Indian context in a big way. (b) In Gainda Ram v. M.C.D., the Supreme Court directed the Municipal Corporation of Delhi to frame bye-laws to deal with the issues relating to hawkers on the streets. Noting that "whatever power this Court may have had, it possibly cannot, in the absence of a proper statutory framework, control the ever increasing population of this country", the Supreme Court also accepted that on the issue it "has tried its best to somehow deal with the situation. But it is difficult for this Court to tackle this huge problem in the absence of a valid law. The nature of the problem defies a proper solution by this Court by any judicially manageable standards."

(3) In Dinesh Kumar v. Yusuf Ali the Supreme Court vigrously shed the mindset prevailing since the hay days of the Indian Constitution. The Courts have traditionally been inclined, in which can be reflected as a socialist pattern, to rule against the owners of property. The land-laws, labour-laws, tenancy-laws, etc. which were enacted during this period are potent reminders of the Nehruvian socialistic pattern which the country has been traditionally following. However with a liberalized regime, the mind-set has also undergone a change both at the policy-levels as well as the manner in which the judiciary has acted thereto. In this decision the Supreme Court ruled against undue pampering of the tenants at the expense of the landlord and invoked its jurisdiction hold that "the law ought not to be unjust to one and give a disproportionate benefit or protection to another section of the society" and that the "courts have no concern to dictate the landlord as to how and in what manner he should live". The decision, while based upon recent decisions, reflects the bold change in the judicial cannons of justice dispensation. 

(4) In Indirect Tax Practitioners Association v. R.K. Jain invoked Gautam Bhudda, Mahavir and Mahatma Gandhi to grant a well-needed respite against the strict rigours of the law on contempt of courts. This is the very court which had punished Arundhati Rai for her criticism of the Court's verdict in Narmada Bachaoo Andolan case". However reflecting of changed times, the decision puts on record the need for a liberal regime where a fair-minded criticism is permitted. The Court declared that "air criticism of the system of administration of justice or functioning of institutions or authorities entrusted with the task of deciding rights of the parties gives an opportunity to the operators of the system/institution to remedy the wrong and also bring about improvements. Such criticism cannot be castigated as an attempt to scandalize or lower the authority of the Court or other judicial institutions or as an attempt to interfere with the administration of justice except when such criticism is ill motivated or is construed as a deliberate attempt to run down the institution or an individual Judge is targeted for extraneous reasons."

(5) "In feudal society sexual relationship between man and woman outside marriage was totally taboo and regarded with disgust and horror" noted the Supreme Court in D. Velusamy v. D. Patchaiammal to contrast the new line of thinking in the Indian society as reflected from the enactment of the Domestic Violence Act. The Court spoke extensively over live-in relationships and held that "aforesaid Act of 2005 Parliament has taken notice of a new social phenomenon which has emerged in our country known as live-in relationship". This decision is an apt reminder that the Court is willing to take judicial notice of the changing social times and unashamed in bringing fore the realities of the Indian Social Order. 

(6) The Court in Competition Commission of India v. Steel Authority of India Ltd also granted the newly functional Competition Commissioner of India the requisite authority to take on the challenges of prosecuting anti-competitive practices as also ensuring that the economy worked at an optimal level by providing safeguards ensuring that the Commission did not become a monster that ran amok. While approving the unabashed powers of investigation vested with the Commission, the Court required "the Commission to pass speaking orders, upon due application of mind, responding to all the contentions raised before it by the rival parties" while exercising such power.

(7) Perhaps taking note of the mounting backlog of cases, the Court in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd. declared that it was obligatory for the courts to promote alternate dispute resolution and laid down extensive guidelines to be observed scrupulously by the trial courts in this respect. The Court laid thrust on the legal provisions which require the matters to be resolved first by a conciliatory process and only if the issues could therein not be resolved, take up the matter for decision by itself. One can only hope that even the litigants evolve their mindsets to address their grievances through such mediums.

(8) The declaration in Selvi v. State of Karnataka that forced narco-analysis tests (so-called 'truth serum') and lie-detactor tests were unconstitutional and the extensive declaration to the effect that the Court will not allow the Constitutional protection to the accused to the diluted for any reason. The Court categorically declared that "invocations of a compelling public interest cannot justify the dilution of constitutional rights such as the ‘right against self-incrimination" failing to be persuaded that the changed legal times and fear-reigning terrorist attacks required differential treatment.

(9) In terms holding that the Courts were not handicapped at the hands of the executive in matters requiring investigation, a Constitutional Bench in State of West Bengal v. Committee for Protection of Democratic Rights declared that both the Supreme Court as well as the High Court could direct the Central Bureau of Investigation (CBI) to investigate particular instances, setting aside the contentions that it would about to violation of federal structure provided under the Constitution.

(10) By the laying of guidelines for entertaining public interest litigation before the Courts, the Supreme Court in State of Uttaranchal v. Balwant Singh Chaufal provided for a rule-based regime even for uptaking the social cause involved in such matters. Being of the view that given the frequency and volume of such cases it was "imperative to issue directions", the Court made it clear that by framing the guidelines it was not "discouraging the public interest litigation in any manner" but "trying to curb is its misuse and abuse". By requiring those taking up these causes to come with full declaration of their vested interests etc., the guidelines would indeed clean up motivated litigation.

In other notable references, which were not picked in the top ten but deserve an honourable mention are; 

1. Arun Kumar Agrawal v. National Insurance Company where the Court expressed its concern on lack of appropriate respect and regard given the the house-wives, which according to the Court form the basic fulcrum of an evolved social order; 
2. The decision in Preeti Gupta v. State of Jharkhand where the Court ruefully noted the blatant abuse of anti-dowry laws as a means to harass the in-laws of the husband; 
3. Changing with the changing times, the Court in Central Electricity Regulatory Commission v. National Hydroelectic Power Corporation Ltd. adopted email service of notices as an additional medium of serving the parties by traditional methods of service; 
4. The decision in  Mahanadi Coal Fields Ltd. v. Mathias Oram where the Court wrote extensively over the issues of development in the context of those displaced from their habitat to make way for development of others;
5. Setting aside Amrinder Singh's expulsion from the Legislative Assembly wherein a Constitutional Bench declared that such actions were contrary to "the basic objectives of a parliamentary democracy";
6. Declaring that while "a Governor cannot be removed on the ground that he is out of sync with the policies and ideologies of the Union Government or the party in power at the Centre", nonetheless the Constitutional Bench in B.P. Singhal v. Union of India "the Governor holds office during the pleasure of the President" and "the President can remove the Governor from office at any time without assigning any reason and without giving any opportunity to show cause";
7. The decision in the hotly contested Ambani brothers case in where the Court invoked the doctrine of public trust to give overriding mandate to the executive over private agreements;
8. Exoneration of Khushboo from charged of obscenity having openly spoken about sexual beliefs. The Court specifically observed that "an expression of opinion in favour of non-dogmatic and non-conventional morality has to be tolerated as the same cannot be a ground to penalise the author";
9. The conviction of Manu Sharma wherein the Court reflected upon the need of controlled reporting by the press and disassociating itself from indulging in 'trial by media';
10. Disassociating the right of the State Governments to challenge decisions of CBI investigated matters and thus providing relief to Lalu Prasad Yadav on a technical point of law.  

Something rotten in Allahabad High Court?

Heard learned counsel for the petitioner. “Something is rotten in the State of Denmark”, said Shakespeare in Hamlet, and it can similarly be said that something is rotten in the Allahabad High Court, as this case illustrates.

A division Bench of the Supreme Court comprising of Justice Markandey Katju (who himself hails from Allahabad High Court) and Justice Gyan Sudha Misra recently in Raja Khan v. U.P. Sunni Central Wakf Board made inter alia these observations, which a Full Court of the High Court has found objectionable and thus decide to action against. The High Court, as the news reports indicate, has resolved to approach the Supreme Court itself against these observations. The High Court, we anticipate,would file a review petition before the Supreme Court seeking expunging of these remarks from the judgment, which in our opinion may well be done in view of the settled law on expunging of remarks, as we trace in this post later.

In our view the predicament of the High Court is justified. Under the constitutional ethos of this country, there is a settled principle of law that no one shall be condemned unheard. Thus when an ordinary citizen has a right to put his case fully before any decision can be made against him, much less aspersions cast on him, how can a constitutional institution be deprived of such right before its dignity, repute and standing is brought to question. However, before we dwell upon these and related issues further, a brief background in the reason for this controversy. 

The Supreme Court in Raja Khan was dealing with the challenge to the validity of the orders passed by a Single Judge of the Allahabad High Court where according to the Supreme Court the Court should not have exercised jurisdiction as the matter pertained to areas which fell under the jurisdiction of the Lucknow Bench of the High Court. The Supreme Court not only pointed out a number of other legal reasons to declare the challenged order as incorrect but also went on to observe that "the faith of the common man in the country is shaken to the core by such shocking and outrageous orders such as the kind which have been passed by the Single Judge." Further the pen of the Supreme Court bench did not stop here. It took suo motu cognizance of the, according to it, sorry state of affairs prevailing in the High Court. The Bench listed the following as being the core concerns which it was aware;

We are sorry to say but a lot of complaints are coming against certain Judges of the Allahabad High Court relating to their integrity. Some Judges have their kith and kin practising in the same Court, and within a few years of starting practice the sons or relations of the Judge become multi-millionaires, have huge bank balances, luxurious cars, huge houses and are enjoying a luxurious life. This is a far cry from the days when the sons and other relatives of Judges could derive no benefit from their relationship and had to struggle at the bar like any other lawyer.

We do not mean to say that all lawyers who have close relations as Judges of the High Court are misusing that relationship. Some are scrupulously taking care that no one should lift a finger on this account. However, others are shamelessly taking advantage of this relationship. There are other serious complaints also against some Judges of the High Court.

Being of this view, the Supreme Court was of the view that the "Allahabad High Court really needs some house cleaning (both Allahabad and Lucknow Bench)" and on this note requested the "Chief Justice of the High Court to do the needful, even if he has to take some strong measures, including recommending transfers of the incorrigibles." It in fact even directed that "copy of this order be sent to the Registrar Generals/Registrars of all High Courts for being placed before Hon’ble the Chief Justice of the respective High Courts", perhaps so as to ensure that similar exercise is undertaken elsewhere too. Though this is not the first time that a judge of the Supreme Court has taken stock of the prevailing corruption in the higher judiciary (as this news-piece in Times of India matter-of-factly notes), yet in as much as direct attack been made on a particular High Court by name, the issue is unprecedented on some lines. 

So, coming back to the main issue. Realistic considerations apart, is such an order justified from a purely legal perspective? We have already touched the chord of audi alteram partem which required a chance to be given to the High Court (through the Registrar General of the High Court) to put forth the facts in perspective rather than what are within the personal knowledge of a Supreme Court judge. The comments are not less than aspersions in as much as it undermines and frowns upon the state-of-affairs in the High Court. Thus atleast issuance of a notice to the High Court before such observations were made was called for.

Also to be considered is a fact that although one of the judges comprising the division bench himself hails from the same High Court and thus can be attributed as being aware of the ground-realities in the said High Court, it must be noted that when dealing with matters which shake the very foundation on which the institution operates i.e. trust in the judicial system, much longs to be seen if the issues are considered in correct perspective.  In our view such an opinion may have been appropriate in a matter where the Supreme Court was dealing with a particular complaint before it. However the impromptu comments, without any concrete incident before it, passing of such order seems a bit harsh. While we are none to suggest the manner in which the Court should conduct its proceedings, we nonetheless feel the expression to be harsh on the other god-fearing and honest judges of the High Court. 

The Supreme Court itself, speaking through Lahoti J. in Tirupati Balaji Builders declared (about which we had written extensively earlier) that the High Court and Supreme Court are like brothers under the Constitutional framework of India, both being endowed with wide and important powers (the Supreme Court also aptly pointed out that the scope and jurisdiction of High Court under Article 226 of the Constitution was in fact larger than what the Supreme Court could avail under the similar provision in Article 32) and entrusted with the responsibility of ensuring rule of law. The Supreme Court on that occasion had inter alia observed as under;

8. Under the constitutional scheme as framed for the judiciary, the Supreme Court and the High Courts both are courts of record. The High Court is not a court 'subordinate' to the Supreme Court. In a way the canvass of judicial powers vesting in the High Court is wider Inasmuch as it has jurisdiction to issue all prerogative writs conferred by Article 226 of the Constitution for the enforcement of any of the rights conferred by Part III of the Constitution and for any other purpose while the original jurisdiction of Supreme Court to issue prerogative writs remains confined to the enforcement of fundamental rights and to deal with some such matters, such as Presidential election or inter-state disputes which the Constitution does not envisage being heard and determined by High Courts. The High Court exercises power of superintendence under Article 227 of the Constitution over all subordinate courts and tribunals; the Supreme Court has not been conferred with any power of superintendence. If the Supreme Court and the High Courts both were to be thought of as brothers in the administration of justice, the High Court has larger jurisdiction but the Supreme Court still remains the elder brother. There are a few provisions which give an edge, and assign a superior place in the hierarchy, to Supreme Court over High Courts. So far as the appellate jurisdiction is concerned, in all civil and criminal matters, the Supreme Court is the highest and the ultimate court of appeal. It is the final interpreter of the law. Under Article 139-A, the Supreme Court may transfer any case pending before one High Court to another High Court or may withdraw the case to itself. Under Article 141 the law declared by the Supreme Court shall be binding on all courts, including High Courts, within the territory of India. Under Article 144 all authorities, civil and judicial, in the territory of India -- and that would include High Court as well -- shall act in aid of the Supreme Court.

The Supreme Court may as well do well to consider its own advice in a Presidential Reference answered by it (AIR 1965 SC 745, In Re Keshav Singh)  (though in a different context, vis-a-vis the legislature and high court, but equally relevant in the present matter) where it reflected upon the role played by High Court and the manner in which two constitutional institutions were required to interact;

43. ... Speaking broadly, all the legislative chambers in our country today are playing a significant role in the pursuit of the ideal of Welfare State which has been placed by the Constitution before our country, and that naturally gives the legislative chambers a high place in the making of history today. The High Courts also have to play an equally significant role in the development of the rule of law and there can be little doubt that the successful working of the rule of law is the basic foundation of the democratic way of life. In this connection it is necessary to remember that the status, dignity and importance of these two respective institutions, the Legislatures and the Judicature, are derived primarily from the status, dignity and importance of the respective causes that are assigned to their charge by the Constitution. These two august bodies as well as the Executive which is another importance constituent of a democratic State, must function not in antimony not in a spirit of hostility, but rationally, harmoniously and in a spirit of understanding within their respective spheres, for such harmonious working of the three constituents of the democratic State alone will help the peaceful development, growth and stabilisation of the democratic way of life in this country.

In the same decision the Supreme Court further noted that detached objectivity was required to be maintained by the Apex Court when examining the conduct of a constitutional body in as much as its own objectivity is on trial in such a scenario. The Constitutional Bench therein observed as under;

44. But when, as in the present case, a controversy arises between the House and the High Court, we must deal with the problem objectively and impersonally. There is no occasion to import heat into the debate or discussion and no justification for the use of strong language. The problem presented to us by the present reference and though its consideration may present some difficult aspects, we must attempt to find the answers as best we can. In dealing with a dispute like the present which concerns the jurisdiction, the dignity and the independence of two august bodies in a State, we must remember that the objectively of our approach itself may incidentally be on trial. It is, therefore, in a spirit of detached objective enquiry which is the distinguishing feature of judicial process that we propose to find solutions to the questions framed for our advisory opinion. If ultimately we come to the conclusion that the view pressed before us by Mr. Setalvad for High Court is erroneous, we would not hesitate to pronounce our verdict against that view. On the other hand, if we ultimately come to the conclusion that the claim made by Mr. Seervai for the House cannot be sustained, we would not falter to pronounce our verdict accordingly. In dealing with problems of this importance and significance, it is essential that we should proceed to discharge our duty without fear or favour, affection or ill-will and with the full consciousness that it is our solemn obligation to uphold the Constitution and the laws.

Therefore the determination of a lis / issue which carries serious implications over the dignity and institution such as the High Court should have been trodden without undue haste.

Much needs to be said, however, on the fate of a petition which may be presented by the High Court for expunging  of the above observations. One recalls the test laid down by a four judge bench of the Supreme Court way back in 1964 wherein Mohd. Naim (AIR 1964 SC 703) the Court observed as under;

The last question is, is the present case a case of an exceptional nature in which the learned judge should have exercised his inherent jurisdiction under s. 561-A Cr. P. C. in respect of the observations complained of by the State Government ? If there is one principle of cardinal importance in the administration of justice, it is this : the proper freedom and independence of judges and Magistrates must be maintained and they must be allowed to perform their functions freely and fearlessly and without undue interference by any body, even by this court. At the same time it is equally necessary that in expressing their opinions judges and Magistrates must be guided by considerations of justice, fairplay and restraint. It is not infrequent that sweeping generalisations defeat the very purpose for which they are made. It has been judicially recognised that in the matter of making disparaging remarks against persons or authorities whose conduct comes into consideration before courts of law in cases to be decided by them, it is relevant to consider (a) whether the party whose conduct is in question is before the court or has an opportunity of explaining or defending himself; (b) whether there is evidence on record bearing on that conduct justifying the remarks ; and (c) whether it is necessary for the decision of the case, as an integral part thereof, to animadvert on that conduct. It has also been recognised that judicial pronouncements must be judicial in nature, and should not normally depart from sobriety, moderation and reserve.

Thus is one were to consider these tests, it is clear that none of the tests above are satisfactory borne out from a perusal of the order in consideration. The fact situation with which the Court was dealing with in the case of Mohd. Naim further goes on to show the extent to which the Supreme Court has gone in its quest to ensure that casting remarks are duly removed from records. The factual matrix of that case was noted in the following terms;

In the case before us the learned judge chose to make sweeping and general observations gainst the entire police force of the State. The case before him related to only one police officer, Mohammad Naim, about whose conduct the learned judge was undoubtedly justified in making adverse remarks. The learned Judge himself realised that the remarks which he had made were much too general and sweeping in character, because in his later order he said that the remarks were meant for the police force in Uttar Pradesh only and he further said he would have expunged the remarks under the head (a) referred to earlier, if the party aggrieved had come before him. We consider that the remarks made by the learned judge in respect of the entire police force of the State were not justified on the facts of the case, nor were they necessary for the disposal of the case before him. The learned judge conceded that the general remarks he made were not based on any evidence in the record; he said that he drew largely from his knowledge and experience at the Bar and on the Bench. Learned counsel for the appellant has very frankly stated before us that the learned judge has had very great experience in the matter of criminal cases, and was familiar with the method of investigation adopted by the local police. He has contended, however, that it was not proper for the judge to import his personal knowledge into the matter. We do not think that in the present case we need go into the question as to the extent to which a judge or Magistrate may draw upon his experience in assessing or weighing evidence or even in judging the conduct of a person. We recognise the existence of exceptional circumstances in a case where the judge or Magistrate may have to draw upon his experience to determine what is the usual or normal conduct with regard to men and affairs. We say this with respect, but it appears to us that in the present case even allowing' for the great experience which the learned judge had in the matter of criminal trials, his statement that "there was not a single lawless group in the whole country whose record of crime came anywhere near the record of that organised unit which is known as the Indian Police Force" was wholly unwarranted and, if we may say so, betrayed a lack of judicial approach and restraint. The learned judge referred to no material on which this observation was based, nor did he say that his experience of criminal trials gave him an occasion to compare the records of crime of various lawless groups in the State vis-a-vis the Police Force. To characterise the whole Police Force of the State as a lawless group is bad enough ; to say that its record of crime is the highest in the State is worse and coming as it does from a Judge of the High Court, is sure to bring the whole administration of law and order into disrepute. For a sweeping generalisation of such a nature, there must be a sure foundation and the necessity of the case must demand it. We can find neither in the present case. We think that the State Government was justifiably aggrieved by such a sweeping remark. Similar in nature is the remark about the stinking of "every fish in the police force barring, perhaps, a few." The word "perhaps" seems to indicate that even about the few, the learned judge had some doubt. We consider that these sweeping generalisations defeat their own purpose. They were not necessary for the disposal of the case against Mohammad Naim. It would have been enough for the learned judge to say that when a large number of police officers were resorting to an objectionable method of investigation, it was unnecessary to pick out one petty officer and prosecute him for doing what several others had done with impugnity, It was wholly unnecessary for the learned judge to condemn the entire police force and say that their record of crime was the highest in the country. Such a remark instead of serving the purpose of reforming the police force, which is the object the learned judge says he had in mind, is likely to undermine the efficiency of the entire police force. We think that in his zeal and solicitude for the reform of the police force, the learned judge allowed himself to make these very unfortunate remarks which defeated the very purpose he had in mind. 

In Pramod Kumar Gupta (AIR 1990 SC 1737), the Supreme Court further declared that even the appearance of bitterness on the part of a judge was abhor-able. The Supreme Court therein invoked the wise words of Justice Cardozo to set the record straight. Therein it was observed as under;

No doubt each Judge is independent to form an opinion of his own in deciding cases or in any phase of the decisional function. But the facts of the present case against the background of the views ex- pressed by this Court apropos to the earlier strictures against the Government, should have warned B.M. Lal, J., no matter how clear he was in his mind, not to criticise the appellant. The avoidance of even the appearances of bitterness, so important in a Judge required him not to cast aspersions on the professional conduct of the appellant. Justice Cardozo of course said:

"The great tides and currents which engulf the rest of men, do not turn aside in their course, and pass judges by. We like to figure to ourselves the processes of justice as coldly objective and impersonal. The law, conceived of as a real existence, dwelling apart and alone, speaks, through the voices of priests and ministers, the words which they have no choice except to utter. That is an ideal of objective truth toward which every system of jurisprudence tends ..... It has a lofty sound; it is well and finely said; but it can never be more than partly true. " [The Nature of the Judicial Process by Benjamin N. Cardozo p. 168-169]

Justice Felix Frankfurter, put it with a different emphasis: "Judges are men, not disembodied spirits. Of course a Judge is not free from preferences or, if you will, biases.[Some observations of Felix Frankfurter, J., on the Nature of Judicial Process of Supreme Court Litigation 98 Proceedings AM Phil Society 233 (1954)]

It is true that the judges are flesh and blood mortals with individual personalities and with normal human traits. Still what remains essential in judging, Justice Felix Frankfurter said:

"First and foremost, humility and an understanding of the range of the problems and (one's) own inadequacy in dealing with them, disinterestedness ..... and allegiance to noth- ing except the effort to find (that) pass through precedent, through policy, through history, through (one's) own gifts of insights to the best judgment that a poor fallible crea- ture can arrive at in that most difficult of all tasks, the adjudication between man and man, between man and state, through reason called law." [The Judiciary and Constitutional Politics--Views from the Bench by Mark W. Cannon and David M.O.'s Brien p. 27.]

Judicial restraint and discipline are as necessary to the orderly administration of justice as they are to the effectiveness of the army. The duty of restraint, this humility of function should be a constant theme of our judges. This quality in decision making is as much necessary for judges to command respect as to protect the independence of the judiciary. Judicial restraint in this regard might better be called judicial respect; that is, respect by the judiciary. Respect to those who come before the Court as well to other co-ordinate branches of the State, the Executive and Legislature. There must be mutual respect. When these qualities fail or when litigants and public believe that the judge has failed in these qualities, it will be neither good for the judge nor for the judicial process. The Judges Bench is a seat of power. Not only do judges have power to make binding decisions, their decisions legitimate the use of power by other officials. The Judges have the absolute and unchallenged control of the Court domain. But they cannot misuse their authority by intemperate comments, undignified banter or scathing criticism of counsel, parties or witnesses. We concede that the Court has the inherent power to act freely upon its own conviction on any matter coming before it for adjudication, but it is a general principle of the highest importance to the proper administration of justice that derogatory remarks ought not to be made against persons or authorities whose conduct comes into consideration unless it is absolutely necessary for the decision of the case to animadvert on their conduct. (See (i) R.K. Lakshmanan v.A.K. Srinivasan, [1976] I SCR 204 and (ii) Niranjan Patnaik v. Sashibhushan Kar, [1986] 2 SCC 567 at 576.

We feel that the words of wisdom reflected in this judgments would be considered in its perspective when an application for expunging of remarks is made before the Court.

Post-script rejoinder

Subsequent to this post, the petition filed by the Allahabad High Court for expugning of remarks had been disposed. The same is covered in our subsequent post.

ULIP Ordinance: The legal dimensions analysed

We had promised our readers in our last update that we would be penning our thoughts on the legal dimensions of the ULIP ordinance as soon as we got our hands on it. Now that we have with us the legal text of the Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010 promulgated by the President of India, furthering the quest of analyzing the legal perspectives as we always do on this blog, we carry forward that task on the the Ordinance No. 3 of 2010. In as much as on this blog we had analysed extensive the origin and the issued involved in the tussle between SEBI and IRDA on ULIPS in our earlier post we would desist from undertaking the exercise again except as and when required when we specifically cover that in this post.  

Ordinances understood

First and foremost, for the benefit of our readers, 'what is an Ordinance'. Legally speaking, in terms of Article 79 of the Constitution, the Parliament comprises of not just the two Houses (i.e. the Council of States or the Rajya Sabha and the House of People or the Lok Sabha) but also the President of India. These three institutions are the legislative organ of the Union. Thus the responsibilities of legislating for the country lies with these three collectively. Ordinarily it is the two houses which take up this task in as much as bills are presented before them, discussed/debate, voted and approved and upon the assent of the President, these bills become enactments or the law. However this does not imply that the President is devoid of such legislative powers. 

In order to deal with contingencies which arises in the event when the Houses of Parliament are not in session and the situation requires for a Parliamentary law, the Constitution confers power on the President to act on his own volition where in terms of Article 123 of the Constitution the President can promulgate an Ordinance. The Constitutional provision stipulates that "if at any time, except when both Houses of Parliament are in session, the President is satisfied that circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinances as the circumstances may appear to him to require". Thus the absolute prerogative vests with the President in this regard. There are, however, two notes points to be covered in this regard.

First, the President performs a different role when issuing an ordinance than in the capacity of giving assent to this bill. While the satisfaction of the President to give assent to the bills presented to him after due passage by the Parliament is the personal satisfaction of the President, the role is different in regard to promulgation of Ordinance. The President while issuing an Ordinance is bound by the advice of the Cabinet led by the Prime Minister in this regard. We have already examined the law in regard to the President being bound by the advice of the Council of Ministers in our earlier post and therefore will abstain from speaking more on this.

Second, the power of promulgation of Ordinance, as held by the Supreme Court, while is an extraordinary power vested with the President, nonetheless is not beyond the purview of judicial review and the Constitutional Bench of the Supreme Court in A.K. Roy v. Union of India [AIR 1982 SC 710] declares that the judiciary can scrutinize the validity of the Ordinance issuing process. 

Having noted this, it is also important to remember that the life of an Ordinance can at the maximum be six weeks after the Parliament is in session. Therefore the Ordinance must be followed by a bill and enacted into an Act within six weeks of the re-sitting of the Parliament after the issuance of the Ordinance. If the Government fails to ensure the same, the Ordinance lapses. With this background now let us examine in greater detail the impact of the recent Ordinance.

Understanding the Ordinance dated 18.06.2010

A whole-time member of SEBI had issued an Order on 9th April, 2010 concluding that Unit-Linked-Insurance-Products (ULIPs) "offered by the said entities are a combination of investment and insurance and, therefore, the investment components are in the nature of mutual funds which can only be offered/launched after obtaining registration from SEBI". For this reason, and the companies having issued ULIPs without registration with SEBI, directed those companies "not to issue any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new and/or additional subscription for any product (including ULIPs) having an investment component in the nature of mutual funds, till they obtain the requisite certificate of registration from SEBI". The order was made in terms of the SEBI Act, 1992 whereunder the SEBI Member was of the view that he had the jurisdiction to decide so despite the objections of IRDA to this regard. This is the very first issue sought to be addressed by the Ordinance. 

This issue, however is not a simple one. First the respective powers and jurisdictions of the various market regulators involved required to be defined and that too in a manner that their jurisdiction is defined exclusive to each other, otherwise the issue of the same subject-matter being sought to be regulated by the two or more regulators would arise again. In this regard the Ordinance seems to have introduced a new feature namely the "Joint Mechanism" wherein under the issues relating to the jurisdiction between the regulators, being not just SEBI and IRDA but also including RBI, PFRDA, such issues are (instead of each regulator taking action in exercise of its powers) to be raised and reconciled by the Joint Committee which shall comprise of the Minister of Finance, Government of India and Secretary to his Ministry besides the Chairman of the respective regulatory bodies. Thus the jurisdictional issues shall now be addressed at an administrative level rather than through the exercise of quasi-judicial powers. 

In this context it is crucial to note that the Ordinance provides that "the decision of the Joint Committee shall be binding on the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority". Thus the decision of an administrative body has been given statutory force. In as much as this provision is being inserted into an existing law (namely the RBI Act) and also that it has been clothed in a non-obstante clause, it shall override any other contrary provision under any other law, it would now not be open to the regulators to go ahead and act contrary to the Ministry's instructions. Thus its not just for SEBI or IRDA but the Government has gone ahead to ensure that no such jurisdictional tussles do not take place in full public view in future.

The second and more immediate change made in the Ordinance is the extension of the jurisdiction of IRDA as contrary to what was sought to be argued by SEBI as falling within its own ambit. Even earlier there was no doubt that the jurisdiction in respect of 'life insurance' products was exclusive to IRDA. Now the definition of 'life insurance products' has been extended to  "include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment and a component of insurance issued by an insurer" while simultaneously excluding them from within the definition of 'securities' such that SEBI shall not be able to bring them within its fold. 

On another interesting note, the Ordinance has been backdated i.e. even though it has received the Presidential assent on 18th June, 2010, retrospective effect has been given to the Ordinance from 9th April, 2010 which significantly is the same date on which the SEBI passed the critical order. Further, in order to wriggle out the insurance companies from the order of SEBI, the validation provision in Section 6 of the Ordinance overcomes the SEBI order by declaring that the "any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, issued or purported to have been issued at any time before the 9th day of April, 2010, shall be deemed and always deemed to have been validly issued and shall not be called in question in any court of law or other authority solely on the ground that it was issued without a certificate of registration under any law for the time being in force or without following any procedure under any law for the time being in force, by an insurer or any other person". 

Having understood the Ordinance, let us now examine the validity of the Ordinance.

Examining the validity of the Ordinance

Having had a look at the Ordinance, one must say that it is indeed an almost flawless piece of legislation in as much as it leaves little scope for challenge. By amending the provisions of the law under which the respective regulators have been established and by clothing the Joint Committee as a statutory body, its institution can hardly be challenged as being contrary to the statutory provisions of other laws or seeking to undermine the laws in force in India. By the amendment carried out by this Ordinance, the Joint Committee and the Joint Mechanism have come on equal footing as any of the regulators and given the provision of its decision being binding on all regulators, the decision of the Joint Committee are legally binding on all regulators. Its decisions would undoubtedly still be within the purview of judicial review (in terms of the constitutional powers vested in the High Courts and the Supreme Court) but then the grounds of challenge being very limited therein, the Joint Mechanism feature seems to be an efficient and legally sustainable mechanism for resolution of jurisdictional issues between the regulators. 

As far as the need for issuance of Ordinance is concerned, the scope of judicial review is already very limited. Nonetheless given the fact that crores of rupees of the innocent investors was at stake, the market was behaving erratically given the contradictory orders being passed by two regulators and the fact that each day of business loss is not only costing the insurance companies in the lime-lights but also the investors and more importantly the Government's business, one can only call the decision behind issuance of Ordinance as prudent such that an appropriate law can be enacted by the Parliament thus giving permanence to the provisions sought to be introduced by the Parliament. 

An effective restraint on the power of the President to issue the Ordinance is that the subject-matter on which the Ordinance has been passed must be one on which the Parliament can make laws. This takes us to the Schedule VII of the Constitution which delineates the power between the Parliament and State Legislatures. A bare perusal of the three lists in the said Schedule would quickly reveal that the Parliament indeed has the power to make laws on the issue in as much as legislative subjects such as 'banking', 'insurance', 'stock exchanges and futures markets', 'reserve bank of India' vest with the Parliament, which in any case is entrusted with the legislative function in respect of all residuary subjects as well. 

As far as the backdating of the Ordinance is concerned, it is well settled in the Indian jurisprudence that if a legislative body has the power to make law, it has the power to make law with retrospective effect. Thus if the Ordinance is successfully defended as being within the realm of the powers vested in the Parliament and thus exercisable by the President, the challenge to the Ordinance only on the ground of backdating would not be able to further the cause of the challenge. 

In as much as legislative overruling of the SEBI order is concerned, the law in regard to the validity of 'validation statutes' states that if the law-makers change the very basis on which the decision had been rendered, then the overruling of the judicial dictum and subsequent validation of the new law is permissible. Through such means the law-makers can not only validate an action contrary to an order of a quasi-judicial body but also overturn the decision of the Supreme Court and the Indian constitutional jurisprudence is replete with such instances. Thus the only aspect to be examined is whether the very basis on which the SEBI passed the order in eroded away or not. The answer to this is clear. 

The whole-time member of SEBI took into account the provisions of the SEBI Act, Securities Contract Regulation Act and the IRDA Act, all three of which stand amended to the effect that ULIPs and other similar insurance products are not covered within the definition of 'securities' but are instead a part and parcel of 'life insurance' products, then deleting the very basis on which the SEBI order was passed. Further the aspect of having given retrospective operation to the Ordinance implies that legally it would be presumed that the amended provisions as introduced by the Ordinance were in place at all times and thus the very basis (i.e. the statutory provisions) which were examined by the SEBI to find giving jurisdiction to SEBI over ULIPs never existed and thus the SEBI order is now without legal basis looking elsewhere for its sustainence. 

As far as the propriety of the Governmental action in issuing the Ordinance, considering the matter was sub-judice and that the Government had already filed its affidavit before the Supreme Court, again that is a ground on which we as commentators are not in a position to reflect but it is the Court itself which can take a view on the propriety. Technically speaking, sub-judice or not, the power to legislative cannot be curbed for any reason. Such incidents are again frequent in Indian legal diaspora and very rarely such instances have been called into question on such ground of propriety. Further, in as much as the courts are equipped to take judicial notice of facts subsequent to the origin of the litigation, the Supreme Court may well decline to exercise its jurisdiction of going into the merits of the matter in the wake of the Ordinance for it is equally well settled that the Courts in India do not decide over matters which have been rendered academic.

We may also leave it to our readers and lawyers who make like to take up this matter that it may well be a case that the amendment called into question may be challenged on the ground that the definition of 'life insurance' products, as amended by the Ordinance, does not quiet fit well with the introduction of ULIPs into the definition. However how and with what effectiveness such a ground may be sustained is for experts in Insurance to bring out the incompatibility and press thereon.  

However, in as much as the effect of SEBI order is in question, the law to this regard is well settled. We already wrote about it earlier and would be pleased to reiterate that any order, howsoever illegal, incorrect or without jurisdiction would be alive and kicking unless set aside in a matter known to law. Thus it would require a pronouncement from a competent court setting aside the SEBI order and unless such happens, the order would be legally binding. It is a different matter, however, that given the factual aspect relating to the introduction of the Ordinance and the legal aspect of the changes brought therein, very less remains to be said and done in compliance with the said order except wait for a formal pronouncement to that effect, in the wake of the Ordinance. 

We are slightly disappointed in which the issue has been given a burial in as much as we had been expecting fire-works in the Supreme Court when this matter was being argued. But better have a simpler solution rather than prolong the agony of the innocent investors. We will, as usual, in any case keep our readers posted of the subsequent developments. It would also be worthwhile to note that how quickly Parliament adopts the Ordinance for one may recall that it is only six weeks that the Ordinance has got to be approved for fade away into oblivion.

SEBI v. IRDA: Exploring the tussle between regulators over ULIPs

The issue which we cover in this post is an interesting one. Two regulators have taken contrary stands and the issue of Unit Linked Insurance Plans (ULIPs) has in fact brought the Securities and Exchange Board of India (SEBI), the securities market regulator of India and the Insurance Regulatory and Development Authority (IRDA) at logger-heads in much as their respective jurisdiction and exercise of powers of concerned. Since legal issues are involved, we seek leave to bring to the attention of our readers the stakes involved and the potential fallouts of this tussle. 

First the facts: A whole-time member of SEBI, exercising powers under Section 11, 11B  and 12(1B) of the SEBI Act, 1992 has issued an order restraining fourteen (14) insurance companies from issuing "any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new and/or additional subscription for any product (including ULIPs) having an investment component in the nature of mutual funds, till they obtain the requisite certificate of registration from SEBI." This order has been passed as in the considered view of SEBI the ULIPs launched by these companies were "found to be akin to the mutual fund schemes and were launched without obtaining registration" from SEBI whereas one of the functions SEBI as a market-regular is required to perform in terms of the SEBI Act is the "registering and regulating the working of collective investment schemes including mutual funds" towards which regard the "Securities and Exchange Board of India (Mutual Funds) Regulations, 1996" and "Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999" have been framed in terms of which inter alia "“no person can sponsor or cause to be sponsored a collective investment scheme including a mutual fund unless he has been registered with SEBI under the SEBI Act." Thus according to SEBI these companies were in violation of the SEBI Act and regulations by launching and continuing with the ULIPs without being registered with SEBI and following its Regulations.

So what is the rub? Aren't all companies dealing with securities and mutual funds in India registered with SEBI and following its Regulations? Why are the insurance companies so special that they are not required to follow these Regulations? And most importantly, what brings IRDA in picture?

The answer to these questions lies in another Parliamentary enactment and the role of another market-regulators. The Insurance Regulatory and Development Act, 1999, which has constituted the office of IRDA and prescribes (vide Section 14) the powers, functions and duties of IRDA lays down that the IRDA "shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business" and in fact various other specific functions and duties have been prescribed by IRDA in this regard under the Act of 1999. Thus, in as much as IRDA is concerned, the sole dominion over insurance companies vests in IRDA and thus comes the rub when SEBI exercises jurisdiction over the insurance companies. 

IRDA has come on record to state that it had specifically "intimated to SEBI that the ULIPs are insurance products marketed by the companies licensed by the IRDA and each of the ULIPs and the conditions thereto are specifically cleared by the IRDA having regard to the Insurance Act and the Regulations issued thereunder and that consequently, the action of SEBI is wholly misconceived and without jurisdiction." Further, the IRDA is also concerned that if the order of SEBI is given effect to, it shall "cause the stoppage of all renewals of insurance policies already invested by the insuring public, may result in the forced premature surrender of insurance policies causing substantial loss to the policyholder and to the insurers.  The effective stoppage of the sale of the said products will cause a complete drying up of the revenue flows to the insurance companies which could disrupt the payment of benefits on maturity, on death and on other admissible claims, putting the policyholder and the general public to irreparable financial loss.  The financial position of the insurers will be seriously jeopardized thus destabilizing the market and upsetting financial stability."

Thus the IRDA has directed, exercising powers under the IRDA Act has directed all the 14 insurance companies which are mentioned in the order of SEBI "to note that notwithstanding the said Order of the SEBI, they shall continue to carry out insurance business as usual including offering, marketing and servicing ULIPs in accordance with the Insurance Act, 1938, Rules, Regulations and Guidelines issued thereunder by the IRDA" which the market calls as IRDA having overruled SEBI and this is where it props up interesting legal issues.

Issues Summarized: Before we deal with the possible legal outcomes, we thought it wiser to cull out the legal issues which are involved in these orders of the two regulators so as to have a clear understanding of the issues.

(1) What are those 14 insurance companies, in the line of fire, required to do? To follow the SEBI order and stop business or to follow IRDA order and continue business in ULIPs?

(2) What is the recourse available to either SEBI or IRDA if the insurance companies defy either of their orders? Will legal sanctions follow the insurance companies in case of their failure to meet out either of the orders?

(3) What happens to investors in these ULIPs? What is the legal status of the policies purchased/renewed by them after the SEBI order?

Examining the legal position: Here we examine the legal position on all of the three issues independently. However, even before we begin, we would like to put a caveat that in all fairness to both SEBI and IRDA, we will not comment upon the correctness of the orders passed by them. That is a issue which is required to be resolved through Good Offices or whatever legal means the regulators or the stake-holders may desire to choose. Here we are examining only the implications and fall outs over the contradictory stands adopted by the two regulators.

(1) and (2) A quick look at the SEBI Act will tell us that the power of SEBI are indeed very wide. The statement of objects and reasons of the Act tells us that SEBI has been instituted being envisioned as "a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith", a mandate which has actually be restated in Section 11(1) of the Act, thus making it an obligatory duty requiring SEBI to ensure that the interests of the investors are protected. Thus, generally, the SEBI does have power to require the entities dealing in securities and ensure that they meeting out the specifications listed in the Regulations prescribed by SEBI. These aspects have been upheld time and again even by the highest courts of the country. Therefore it is clear that the SEBI, in the preliminary, has the power to examine as to whether the role of entities doing business in India fits within the regulatory set-up administered by it. This logically points to the fact that SEBI, given the wide powers it is conferred with, can take action against defaulters for failing to meet its Regulations, which seems to have been done through the order passed by the Whole-Time member of SEBI.

Further, it is a well settled rule of common law that an order, no matter how perverse and illegal and one even without jurisdiction is binding over the subject unless set-aside in a manner known to law. In the present case, even assuming that the SEBI order is incorrect or as the IRDA puts it, without jurisdiction to begin with. However, given the legal set-up in which the rule of law operates in India, the fourteen insurance companies cannot sit over the order grossly violating its terms without getting it set aside. In the present case the only remedy available to them is to file an appeal against the order before the Securities Appellate Tribunal (SAT) or even a direct petition of special leave before the Supreme Court (under Article 136 of the Constitution) or a writ petition before the High Court challenge the order on grounds of lack of jurisdiction, illegality or otherwise. 

In the event the Insurance Companies violate the order of SEBI, the logical fallouts would be that SEBI will be constrained to take action (being a creature of statute, it is required and bound to follow the mandate of the Act and bring to book the defaulters of its orders) and pass necessary orders against these companies for having failed to carry out its order and continuing business. As far as the IRDA goes, it may have the jurisdiction to regulate and monitor insurance companies. However it does not have the powers to poke its nose and sit over judgment over the orders passed by SEBI. All it can do is represent the insurance companies before appropriate forum and carry their grievances further. It neither has the power nor the authority to over-rule a decision passed by a quasi-judicial authority in exercise of powers conferred by a Parliamentary statute. 

However, in as much as the IRDA has already passed orders directing these companies to continue doing business and in terms of the IRDA Act such powers are indeed vested in the IRDA, this brings the insurance companies in a catch 22 position. They are required by the SEBI order to desist from their business whereas the IRDA order directs them to continue doing the business as usual. So what if these companies decide to follow SEBI order and ignore the one passed by IRDA? Given the IRDA Act, they can be taken action against by IRDA, in which scenario they would be required to approach the appropriate forum to challenge such orders of IRDA. Either way, they are bound to face regulatory action from either SEBI or IRDA, depending upon which order they decide to follow.

Thus, as a matter of advice to these companies, the only optimal solution would seek that they approach the appropriate legal forum against the SEBI order and ventilate their grievances against it to get it diluted or set-aside. In which case, till the time the appeal/petition against the SEBI order is pending, the matter being sub-judice, IRDA would oblige by not taking any action against these companies. However, glossing over the SEBI order without challenging its legality can only cost the company in multitudes given the rule of law in the country that an order becomes final and binding if not appealed against or set-aside by an appropriate forum.

(3) Now let us deal with what the investors in these securities have in the offering. Let us assume that for the time-being the order of SEBI is here to stay (for the procedure for setting it aside will bring the appeal/petition in due course). In this scenario, the companies are legally barred from renewing or offering any ULIPs. Thus the new/renewed scrips are contrary to law (being the order passed in terms of the SEBI Act). The law of contracts entitles the agreements not enforceable by law as 'void'. Thus the ULIPs, which are nothing but agreements between the subscribers and the insurance companies, are void till the time the SEBI order stay. In this scenario, a subscriber cannot bring an action for violation of any of the terms of the ULIP by the company and vice versa. In fact the object of the such agreements, under the law of contracts, is also unlawful as it is forbidden by law and thus no legal rights flow from ULIP. 

This basically means that the subscribers will not be able to ventilate their grievances, for non-performance of its obligation by the insurance company under the ULIP before a court of law. A rule of equity might come to help the subscriber, but then it also another rule that law does not help those who knowingly enter into illegal agreements. Thus even the investors are here for a spin. To that extent one has to admit that the SEBI order is incomplete as it does not state the status of the ULIPs already subscribed to by the investors. It stops by saying that the order passed is "without prejudice to any action that might be taken by SEBI in respect of offer documents or advertisements issued by these entities for products (including ULIPs) having an investment component in the nature of mutual funds launched so far." Thus the status of the existing ULIPs depends upon further orders of SEBI and as to which side the camel will sit is anyone's guess. 

Post-script

The companies which are the subject-matter of the SEBI order are as follows;

a. Aegon Religare Life Insurance Company Limited
b. Aviva Life Insurance Company India Limited
c. Bajaj Allianz Life Insurance Company Limited
d. Bharti AXA Life Insurance Company Limited
e. Birla Sun Life Insurance Company Limited
f. HDFC Standard Life Insurance Company Limited
g. ICICI Prudential Life Insurance Company Limited
h. ING Vyasa Life Insurance Company Limited
i. Kotak Mahindra Old Mutual Life Insurance Limited
j. Max New York Life Insurance Co. Limited
k. Metlife India Insurance Company Limited
l. Reliance Life Insurance Company Limited
m. SBI Life Insurance Company Limited
n. TATA AIG Life Insurance Company Limited 

Latest Update

For further update on the Ordinance to resolve the tussle and our views on the same, have a look at the latest post.