Arun Kumar Agarwal vs Union Of India And Others
2000 Latest Caselaw 47 Del

ORDER

Arun Kumar, J.

1. The controversy involved in this petition is in a narrow compass. The petitioner has challenged the appointment of D.R. Mehta, respondent No. 2 as Chairman of the Securities and Exchange Board of India (for short SEBI) vide notification issued by the Government of India and published in the official gazette on 17th February, 1995. Respondent No. 2 assumed office with effect from 21st February, 1995. SEBI was constituted vide an Act of Parliament, namely, Securities and Exchange Board of India Act, 1992. As per its preamble the Act was meant to provide for establishment of a Board to promote interest of investors in securities and to promote the development of and to regulate the security market and for matters connected therewith. Chapter II of the Act deals with establishment of the Board. The Board is to consist of a Chairman and Members. According to Section 4(4) the Central Government has the power to appoint Chairman and the Members. It is in exercise of this power that respondent No. 2 was appointed by the Central Government as Chairman of the Board for a term of five years.

2. The challenge to appointment of respondent No. 2 is mainly on two grounds. The first objection is based on Rule 3, sub-rule (2) of the Securities and Exchange Board of India (Terms and Conditions of Service of Chairman and Members) Rules, 1992 (hereinafter referred to as the Rules). According to this sub-rule the Chairman and every whole time Member holds office for such period, not exceeding three years as may be specified in the order of appointment. The person concerned is however, eligible for re-appointment. The sub-rule further provides that the Chairman will not hold office after he attains the age of 65 years. For Members the outer age limit is 62 years. Respondent No. 2 was appointed for a term of five years. According to the petitioner this was clearly violative of the aforesaid rule, according to which the term cannot exceed three years. The other point raised by the petitioner is that though the rules contained a relaxation provision under which the Central Govt. is empowered to relax the provisions of any of the rules, there is nothing to show that this power was exercised in the case of respondent No. 2 and, therefore, the respondents cannot fall back upon the relaxation provision to justify the appointment of respondent No. 2 for a period of five years. Related issues raised in this connection are that there could not be a deemed relaxation nor there could be relaxation in favour of an individual, i.e. respondent No. 2 because the relaxation rule refers to relaxation in respect of class or category of persons. At this stage it will be appropriate to reproduce the relevant rules.

"Rule 3. Terms and conditions of service of Chairman and Members :

(1) The Chairman or the whole-time Member shall be a person who does not, and will not, have any such financial or other interests as are likely to affect prejudicially his functions as such Chairman or Member.

(2) The Chairman and every whole-time Member shall hold office for such period, not exceeding 3 years. as may be specified in the order of his appointment, but he shall be eligible for reappointment.

Provided that the Chairman shall not hold office after he attains the age of sixty five and a Member (other than the Chairman) shall not hold office after such Member attains the age of sixty two years."

Rule :- 20. Power to relax - The Central Government shall have power to relax the provisions of any of these rules with respect to any class or category of persons."

3. At the outset we would like to note that though in the writ petition the petitioner has made allegations against respondent No. 2 regarding the manner of his functioning as Chairman of the Board, no arguments were addressed on this aspect and we have not gone into this aspect.

4. Relying on sub-rule (2) of Rule 3 the learned counsel for the petitioner submitted that the appointment of respondent No. 2 was clearly contrary to the rules and, therefore, had to be struck down. The learned counsel appearing for the respondents tried to meet this argument mainly by relying upon the power conferred by Rule 20 on the Central Government to relax the provisions of any of the Rules. Mr. Soli J. Sorabji, learned Attorney General, invited our attention to the Finance Ministry note dated 3rd February, 1995 which was prepared with the approval of the then Finance Minister. He also invited our attention to the note dated 9th February 1995 of the Cabinet Secretary which was put up for approval of the Prime Minister. On the basis of these notes it was submitted that the Government was conscious of the fact that according to the Rules the appointment of Chairman could not be for a period of more than three years. Since respondent No. 2 was being given a term of five years special mention was made in the note for the need for a five year term for respondent No. 2. Respondent No. 2 was already holding the post of Deputy Governor of the Reserve Bank of India when he was being considered for appointment as Chairman of SEBI. The Finance Ministry note records.

"Shri D.R. Mehta will reach the age of 58 on 25th June, 1995. His appointment as Deputy Governor has been approved upto June 1997 when he will reach the age of 60. He has indicated that he would be willing to take up the new assignment if he is given a five year term. If this were made effective immediately, he would have a term upto February 2000 when he would be below 63 years. Under the SEBI Act the Chairman can serve upto a maximum age of 65. Shri Nandkarni was given a three year term which would have taken him to age 63. Shri G.V. Ramakrishna's appointment also took him to age 63.

It is very desirable to have a S.E.B.I. Chairman in place for a full five year term. The capital markets are going through major institutional and legislative changes and SEBI needs to be transformed from a fledging organisation to a mature organisation over the next three to four years. Continuity of the Chairmanship over this period would be of immense value.

As FM had mentioned to Cabinet Secretary, FM has discussed the above proposal with PM. FM has desired that the proposal may be processed expeditiously so that the appointment can be announced as soon as possible."

5. Further the following extracts from the note of the Cabinet Secretary for the Prime Minister's approval have been relied upon to show that the respondents were conscious of the three year limitation in the Rules and were making out a case for five year term to be given to respondent No. 2 which was permissible under the Rules :-

"A 5-years term for Shri Mehta would be permissible under the SEBI Act as a Chairman can serve upto the maximum age of 65 years. Shri Mehta would be below 63 at the end of his term. Giving a 5-year term to Shri Mehta would also be in the overall interest of the organisation as it would provide continuity over a longer period. SEBI is presently a fledgling organisation. The next 5-years would be crucial for it as its transformation into a mature organisation would come about during the period. The proposed term would also be consistent with the precedents insofar as the previous incumbents, Shri Nadkarni and Shri Ramakrishna were also given terms upto 63-years of age."

6. On the basis of these notes it is submitted that it is clear that the Govt. was conscious of the fact that the rules provided a maximum three year term whereas five year term was being offered to respondent No. 2 and this could be only by virtue of the relaxation provision.

7. Learned counsel for the petitioner tried to counter this argument by submitting that in neither of the two notes referred to above there is any mention of sub-rule (2) of Rule 3 or Rule 20 which contains the relaxation provision. Therefore, it cannot be argued that the Govt. has exercised its power to relax the Rules in order to appoint respondent No. 2 for a period of five years. The learned Attorney General's answer to this is that omission to refer to the Rules in the order/note cannot be said to be fatal. Substance has to be seen rather than the form. In substance both the notes show that the Govt. was relaxing the three year rule by offering a five year term to respondent No. 2. It will be deemed that the Government relaxed the rule in the facts of the present case. In response to this it was submitted on behalf of the petitioner that there cannot be any deemed relaxation. Additionally he argued that relaxation as per Rule 20 can be only in respect of a class or category of persons and it cannot be in favour of an individual. The learned counsel for the petitioner further submitted that relaxation cannot be in clear violation of the Rule. According to him if the Government was permitted to violate statutory rules under the cover of power to relax, it would mean that the rules have no sanctity at all. Statutory rules cannot be permitted to be violated in this manner. The statutory rules in the present case limit the tenure of the Chairman to three years and the limitation ought to be adhered to. The other proposition advanced on behalf of the petitioner is that as a matter of fact the power to relax rules has not been exercised in this case since there is no mention in either of the notes approved by the Government about the rule or its relaxation in order to allow five year term to Respondent No. 2. The learned counsel contended that the notes relied upon by the respondent are rather designed to mislead the Appointments Committee into believing that the normal term of a Chairman is five years.

8. The learned counsel for the petitioner relied on Syed Khalid Rizvi and Others Vs. Union of India, and State of Orissa Vs. Sukanti Mohapatra and Others, in support of his contention that relaxation of rules in such circumstances has to be in express terms and there can be no deemed relaxation. In Syed Khalid Rizvi's case the controversy was about inter se seniority between direct recruits and promotees. A distinction was pointed out between conditions of recruitment and conditions of service. While conditions of recruitment like eligibility requirement could not be relaxed, conditions of service could be relaxed. Chances of promotion are conditions of service and are defensible. Rule 3 of the Residuary Rules empowered the Central Government to relieve undue hardship incurred due to unforeseen or unmerited circumstances. The Central Government must be satisfied that the operation of the rule or regulation brought undue hardship to an officer. If the twin conditions of appointment being as per rules and by operation of the rule undue hardship was caused in an individual case were met, the Central Government was empowered to relieve such undue hardship by exercising the power to relax such condition. The Supreme Court observed: "The fiction of deeming relaxation would emasculate the operation of the Rules an Regulations and be fraught with grave imbalances and chain reaction."

9. In State of Orissa and Others Vs. Sukanti Mohapatra and Others it was held that appointments could not be made de hors the Rules nor could the recruitment Rules be suspended in the garb of exercise of power of relaxation.

10. In reply to this the learned Attorney General submitted that a reference to the Finance Ministry note and the note of the Cabinet Secretary would show that emphasis was on appointment of respondent No. 2 for a period of five years. The intention of the authorities has to be ascertained from the notes which show that they wanted to make the appointment for a period of five years. They were conscious of the three year limitation contained in the rules and that is why special mention was made in the notes for a five year term for Respondent No. 2. Specific mention of three year Rule was not at all necessary. When the intent regarding the appointment was clear it was not mandatory to indicate the provision under which the power was exercised. An omission to mention the provision or mention of a wrong statutory provision would not vitiate exercise of power of the Government if it was otherwise available to the Government. In support of this contention the learned Attorney General relied on Municipal Corporation of City of Ahmedabad Vs. Ben Hiraben Manilal, wherein it was observed;

"It is true that the notice impugned in this case was not issued under Section 478. This section was also not placed for consideration by the learned Trial Judge or the first appellate court or in the Letters Patent appeal before the High Court. But the question being one of construction of a provision of a statue, in our opinion, that construction must be so made as to be in conformity with the other provisions of that particular statute and the provisions must be read as a whole. This being a question of law, this section can be relied upon in support of the notice under Section 260(1)(a). If indeed Section 478 comprehends both the owner or the occupier who has actually constructed and as well as the owner or occupier of the building which has been unauthorisedly constructed, then the action of the Corporation can be supported. It is well settled that the exercise of a power, if there is indeed a power, will be referable to a jurisdiction, when the validity of the exercise of that power is in issue, which confers validity upon it and not to a jurisdiction under which it would be nugatory, thought the section was not referred, and a different or a wrong section of different provisions was mentioned.

This point has again been reiterated by this Court in the case of Hukumchand Mills Ltd. Vs. State of M.P. where it was observed that it was well-settled that a wrong reference to the power under which action was taken by the Government would not per se vitiate that action if it could be justified under some other power under which Government could lawfully do that Act."

11. Reliance was also placed on Union of India Vs. Tulsi Ram Patel, wherein it was held (para 126)".... if source of power exists by reading together two provisions, whether statutory or constitutional, and the order refers to only one of them, the validity of the order should be upheld by construing it as an order passed under both those provisions. Further, even the mention of a wrong provision or the omission to mention the provision which contains the source of power will not invalidate an order where the source of such power exists."

12. Regarding the argument about relaxation not being available for an individual and could be only in respect of a class or category of person it was submitted that the power contained in rule (2) could not be circumscribed in this manner. Any class or category of persons would include an individual. He drew support from the following judgments of the Apex Court in this behalf :- J.C. Yadav & Others Vs. State of Haryana, : M. Venkateswarlu Vs. State of A.P., ; and Sandeep Kumar Sharma Vs. State of Punjab, .

13. Besides meeting the case of the petitioner on merits, the learned Attorney General relying upon a Full Bench decision of this Court in P.L. Lakhanpal Vs. A.N. Ray, , submitted that in any case this court will not issue a futile writ. The Central Government had the power to reappoint respondent No. 2. This power was specifically contained in sub-rule (2) of rule 3 of the SEBI Rules. Therefore, the court would be loath to issue a writ in the nature of quo-warranto in such facts. Shri Kirit Rawal, learned Additional Solicitor General appearing for SEBI, respondent No. 3, submitted that the present petition seeks issuance of a writ of quowarranto. The writ of quo-warranto ought not to be issued unless there is a serious infirmity or breach. The present petition does not display the required seriousness inasmuch as it is a casual attempt challenging the appointment of respondent No. 2 on the basis of newspaper reports. There is no challenge about eligibility of respondent No. 2 to hold the post. The only challenge is based on interpretation of sub-rule (2) of rule 3 of the SEBI Rules. While eligibility is a condition of recruitment which cannot be relaxed, the requirement regarding term is a condition which can be relaxed especially in view of the relaxation provision. On this basis it was submitted that issuance of a writ of quo-warranto in the facts of the present case is wholly unwarranted and unjustified. There is no illegality involved. On the basis of a proper construction of the rules, the appointment cannot be faulted. Respondent No. 2 was found to be fully qualified and eligible for the job. It was also considered appropriate that he should be given a five year term, therefore, a decision was taken to appoint respondent No. 2 for a period of five years.

14. We find considerable force in the argument that a writ of quo-warranto is a serious business and should not be normally issued unless there is a gross violation of rules or law which is not so in the present case. The counsel relied on Statesman Vs. H.R. Deb, in support of this contention. It was submitted that the rules in the present case contain a power to re-appoint the same persons as well as there is a power to relax the rules. In view of these powers, the present is not a fit case for issuance of a writ of quo-warranto even if the Court was to agree with the learned counsel for the petitioner on the interpretation of rule 3 sub-rule (2) containing the three year Limitation.

15. The learned Attorney General also urged that this petition could not be entertained as Public Interest Litigation. Next it was submitted that the petition was bad on account of delay and latches. Learned counsel for respondent No. 2 challenged the locus standi of the petitioner in filing the present petition on the ground that the petitioner had filed several other cases against the SEBI and was pursuing a personal vendetta against the SEBI and its officials.

16. We have carefully considered the rival contentions. Before, dealing with the merits of the controversy we would like to note that we find great merit in the submission on behalf of the respondents that the present is not a fit case falling in the category of Public Interest Litigation. Agreeing with the respondent contention we find ourselves unable to appreciate how public interest is involved in the controversy whether respondent No. 2 gets a three year term or a five year term as Chairman of SEBI, specially keeping in view the provision in the Rules regarding re-appointment of an officer in the same post. The present petition does not involve any invasion of fundamental rights or basic rights of citizens or an issue which otherwise shakes the judicial conscience. It also does not involve an issue of wider public interest entailing ramification to the society at large. The issue raised is in relation to the service condition of an individual officer and is a question of interpretation of the SEBI rules. The Supreme Court as repeatedly deprecated the practice of unnecessary and uncalled for entertainment of petitions by way of PIL by the courts. Sachidan and Pandey Vs. State of West Bengal, ; and Chhettriya Pradushan Vs. State of U.P., .

17. Having taken the view that the present is not a fit case for PIL, we are inclined to agree with the learned Attorney General that this petition is highly belated. The appointment of respondent No. 2 was made in February 1995. A gazette notification to this effect was issued and published in the official gazette in February 1995. The appointment was widely circulated in all the daily newspapers and financial magazines and journals. The petitioner who claims to be a keen watcher of the security market ought to have had knowledge of this Act. The present petition filed in March, 1998 appears to be highly belated. The petitioner has tried to explain that he was not aware of the relevant Rules and, therefore, could not approach this court earlier. For this we can only observe that ignorance of Rules cannot be an excuse for the delay. The learned counsel for the petitioner argued in this behalf that in matters where a writ of quo-warranto is prayed for, there is no question of delay because every single day that an officer illegally appointed continues in office, the cause of action continues. In our view this reasoning does not apply in the facts of the present case. The present is not a case of the appointment being illegal ab initio. At best as per petitioner's own case it becomes bad after three years. As noticed earlier the Rules contain a power to relax as also there is a power to re-appoint the same person provided he does not reach the age of 65 years. Therefore, the reasoning advanced on behalf of the petitioner cannot be applied in the present case. If the petitioner was aggrieved of the appointment of respondent No. 2 for a term of five years on the ground that it was contrary to Rules he should have challenged the initial appointment itself within a reasonable time. The present petition filed after more than three years is highly belated.

18. On merits the decision really turns on the two notes to which reference has already been made above. A careful consideration of the notes shows that the authorities were making out a case for a five year term for respondent No. 2, the need for which can be said to arise only because there was a three year limitation in the rules. Though the rule has not been referred to in the notes as such, yet one can perceive that the draftsmen were conscious of the three year limitation. The notes spell out the justification for a five year term to be given to respondent No. 2 which could be said to be the basis for resort to the rule regarding relaxation. The authorities concerned upto the level of the Prime Minister approved the note signifying acceptance of the proposal for five year term. Since the five year term could be given only on the basis of relaxation of the three year Rule, relaxation will be deemed to have been granted. In the context of the rules under consideration relaxation need not be in writing. There is no bar to a deemed relaxation. Both the judgments cited by the counsel for the petitioner in his behalf, i.e. Syed Khalid Rizvi & Ors. Vs. Union of India, AIR 1993 Supple. 3 SCC 575 and State of Orissa Vs. Sukanti Mohapatra, , are cases where the relaxation Rules required reasons to be recorded in writing for grant of relaxation. In both the cases the relaxation was permissible in public interest or in order to relieve undue hardship in a particular case. For this, reasons had to be recorded in writing before granting relaxation. There is no such requirement in the rule regarding relaxation in the present case, therefore, in our view these cases have no application in the facts of the present case.

19. In support of his contention that there can be deemed relaxation, the learned Attorney General relied on Direct Recruits Class Ii Eng. Officers Assoc. Vs. State of Maharashtra, , where it was held that where the rules permit the authorities to relax the provisions relating to the quota, ordinarily a presumption should be raised that there was such a relaxation when there is a deviation from the quota Rule. In this behalf we would also like to note that omission to mention the provisions which contains the source of power for granting relaxation will not vitiate an order. Reliance in this behalf was also placed on State of A.P. Vs. M. Lakshmi Devi, 1993 (2) SCC 422 and Union of India Vs. Tulsiram Patel, . Considering all aspects in the light of the facts of the present case we hold that there was a deemed relaxation by the Central Government of the three year rule while making appointment of respondent No. 2 for five years.

20. In this context the side issue raised by the learned counsel for the petitioner that relaxation could not be granted in respect of an individual especially when the relevant rule states that relaxation can be in respect of a category or class of persons has to be considered. In our view this argument has no merit. A category or class of persons will include an individual. It depends on the given situation. What really matters is existence of power to relax rather than form, i.e. manner of its exercise. The expression 'category' or 'class of persons' is of wide connotation and will cover relaxation granted in favour of an individual as in the present case. We find support for this from Sandeep Kumar's case, . The rule regarding relaxation must receive pragmatic construction. In J.C. Yadav Vs. State of Haryana, , the relaxation rule referred to hardship in a particular case. It was held that this did not mean that relaxation was confined to a particular case. The scope was held to be wide enough to confer on the Government power to relax the rule qua an individual or class of individuals.

21. The contention of the learned counsel for the petitioner that the notes of the Finance Ministry and the Cabinet Secretary are couched in a language designed to mislead the appointing authority is only to be noted to be rejected. There is no basis for this submission. A perusal of the notes shows that there was no such intention, rather the intention was to place the correct perspective before the authorities. Learned counsel for the petitioner further argued that the exercise of power of relaxation in the present case is arbitrary. We are unable to accept this bald averment. We find nothing arbitrary in the exercise of relaxation power, rather the relevant notes to which reference has already been made, contain full justification for the exercise of power.

22. The result of the above discussion is that there is no merit in any of the contentions raised on behalf of the petitioner. The writ petition is dismissed with costs quantified at Rs. 10,000/-.