Case: Arun Kumar Agrawal Vs. Union of India &amp; Others

a) Mr. Sinha failed to fulfill one of the eligibility condition as laid down in sub-section (5) of Section 4 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBIas well as the qualification contained in Government communication, which required that the Chairman shall be a person of high integrity.b) The appointment of respondent No.4 is the result of manipulation, misrepresentation and suppression of vital material before the Search-cum-Selection Committee and the Appointment Committee of the Cabinet (hereinafter referred to asThe appointment of respondent No.4, a Chairman of SEBI, is malaWrit Petition (C) No.392 of 2011 again repeats the prayer which was made in the earlier writ petition. It was submitted by the learned Attorney General that the present writ petition is a camouflage for the earlier writ petitions which were dismissed. Learned Attorney General submitted that the submission of Mr. Bhushan that why a person, who was earning crores, would expect a position on which he was only to be paid lacs, is too absurd to be even taking cognizance of. Respondent No.4 accepted the Chairmanship of SEBI as a matter of national duty and as a matter of honour. Finally, learned Attorney General submitted that in the interest of justice the tendency among the petitioners to make wild allegations in public interest litigation needs to be curbed.

Court's reasoning:
We agree with Mr. Bhushan that SEBI is an institution of high integrity. A bare perusal of the SEBI Act makes it apparent that SEBI was established to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. In fact, the SEBI Act gives wide ranging powers to the Board to take such measures as it thinks fit to perform its duty to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. These measures may provide for regulating the business in stock exchanges and any other securities markets. Further measures are set out in Sections 11(1), (2)(a to m) to enable SEBI to perform its duties and functions efficiently. Section 11(2)(a) provides that the Board may take measures to undertake inspection of any book, register, or other document or record of any listed public company or a public company which intends to get its securities listed on any recognised stock exchange. The Board can exercise its power where it has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market. To enforce its directions, the Board has powers under Section 11(4) to issue any suspension/restraint orders against the persons including office bearers of any stock exchange or self regulatory organisation. It can impound and retain the proceeds or securities in respect of any transaction which is under investigation. The wide sweep of the powers of SEBI leaves no manner of doubt that it is the supreme authority for the control and regulations and orderly development of the securities market in India. It would not be mere rhetoric to state that in this era of globalisation, the importance of the functions performed by SEBI are of paramount importance to the well being of the economic health of the nation. Therefore, Mr. Bhushan is absolutely correct in emphasising that the Chairman of SEBI has to be a person of high integrity. This is imperative and there are no two ways about it. The importance of the functions performed by SEBI has been elaborately examined by this Court in the case of Sahara India Real Estate Corporation Ltd. & Ors. Vs. Securities and Exchange Board of India & Anr. [2013 (1) SCC 1 ]. Justice Radhakrishnan, upon examination of the various provisions of the SEBI Act, has observed that it is a special law, a complete code in itself containing elaborate provisions to protect interest of the investors. The paramount duty of the Board under the SEBI Act is to protect the interest of the investors and to prevent unscrupulous operators to enter and remain in the securities market. It is reiterated in paragraph 67 that SEBI is also duty bound to prohibit fraudulent and unfair trade practice relating to securities markets. Similarly, Justice Khehar in the concurrent judgment has emphasised the importance of the functions performed by SEBI in exercise of its powers under Sectionlearned Attorney General, in our opinion, rightly pointed out that no illegality was committed in making the amendment in the rules pertaining to the selection of Chairman/WTM of SEBI. It is borne out from the record that prior to 23rd July, 2009, there was no rule on the procedure to be followed in the selection of Chairman/whole time Member of SEBI. The selection procedure for the Chairman of SEBI in 2008 was approved by the Finance Minister on 2nd November, 2007. This procedure envisaged that the selection has to be made on the recommendation of the high powered Search Committee. The composition of the Search Committee was changed on the orders of the Finance Minister. The learned Attorney General also pointed out that the amendment of the rules had no relevance to the consideration of recommendation of Mr. Sinha to be appointed as Chairman of the SEBI. The Attorney General had also pointed out that in spite of the change in the Selection Committee and in spite of Mr. Sinha having been short- listed at No.1 by the Search-cum-Section Committee in its meeting held on 29th November, 2008, it was Shri C.B. Bhave who was appointed Chairman, SEBI on 15th February, 2008. We also find substance in the submission of learned Attorney General that the amendment in Rule 3 of the Security Exchange Board of India (Terms and Conditions of Service and Members) Rules, 1992 was to provide for more participation by the expert members. Therefore, sub-rule (5) of the aforesaid rules was incorporated which requires that recommendation of Search-cum- Selection Committee will consist of Cabinet Secretary, Department of Economic Affairs, Chairman, SEBI for selection of WTM and two expert eminent from relevant field. We have also been taken through the necessary correspondence for the inclusion of Shri Suman Berry and Shekhar Chaudhary, two experts of eminence from the relevant filed for the selection of Chairman, SEBI in 2010. But it was noticed that inclusion of Secretary Finance Services was not within the rules as amended on 23rd July, 2009. Upon discussion with the Ministry of Law, it was decided that the amendment in the rules could be made in line with the rule prevalent for the selection made to the Income Tax Appellate Tribunal. In view of the record produced in this court, we are of the opinion that the submission made on behalf of the petitioner is not correct. Learned Attorney General submitted that the Search-cum-Selection Committee, after scrutinizing the qualification and experience of the short-listed candidates unanimously placed respondent No.4 first in the merit list. We have also perused the record and it appears that respondent No.4 was unanimously placed at Sr.No.1 by the Search-cum-Selection Committee. It has wrongly been submitted on behalf of the petitioner that respondent No.4 was placed at No.2 and yet he was appointed ignoring the person who was placed at No.1.Salve, in our opinion, has also rightly submitted that there is nothing surprising in respondent No.4 accepting the post of Chairman, SEBI which carried much lesser emoluments than he enjoyed as Chairman, UTI AMC. It is not abnormal for people of high integrity to make a sacrifice financially to take up the position of honour and service to the nation. In any event, we are of the opinion, the acceptance by Mr. Sinha of lesser salary as Chairman of SEBI cannot ipso facto lead to the conclusion that he accepted the position for the purpose of abusing the authority of Chairman, SEBI. Adverting to the allegation of non-disclosure of ESOP, in our opinion, Mr. Salve has rightly submitted that it was not done to avoid any investigation by the ACC into the question as to why respondent No.4 would wish to join Chairman, SEBI when he was drawing much higher emoluments as Chairman, UTI AMC. This non-mention cannot lead to the conclusion that if the same had been mentioned, respondent No.4 would not have been selected as Chairman, SEBI on the ground that it would have been illogical for a person drawing higher emoluments on one post to join another post having lesser emoluments. Mr. Salve has rightly reiterated that there was nothing abnormal; in the course adopted by respondent No.4. No material has been placed on record to show that respondent No.4 was in receipt of ESOP illegally. It has been pointed out that under ESOP, an employee is given an option by the company to buy its shares upto the given quantity allotted to him which can be exercised after a specified time. In the case of UTI AMC, the stock option was to vest after a period of three years. Secondly, an employee could not exercise 100% of the option in one go. It was spread over four years, 10% in the 4th year, 20% in the 5th year, 30% in the 6th year and last 40% in the 7th year. After vesting of each trench, the employee had one year to make up his mind whether to exercise his option or to let it go by. In UTI AMC, ESOP was approved by the shareholders. The HR Committee of the Board and the Board, the decision by the Board was taken on 27th December, 2007. The minutes of the meeting of the Board dated 12th April, 2008 clearly shows that the stock option was exercised by respondent No.4 in accordance with due procedure. However, even though the decision had been taken by the Board of Directors on 17th September, 2007 to grant respondent No.4 market based compensation, the matter was pending with the share holders. It was only on 12th April, 2008 that the Board took a decision to release the market based compensation to respondent No.4. The actual allocation of ESOP was made to respondent No.4 on 17th May, 2008 through the letter of head of HR Committee of the Board. In fact in 2011 after respondent No.4 got appointment in SEBI and had to leave UTI AMC on 31st January, 2011, he surrendered his entire ESOP and rescinded all his rights to exercise his option in future. We, therefore, find no substance in the submission of the petitioner that there was any ulterior motive involved in non- disclosure of the information with regard to ESOP to thehave been left with the very unsavoury impression that the petitioner is a surrogate for some powerful phantom lobbies. Respondent No.2-SEBI in its affidavit has stated that the petitioner is a habitual litigant. He files writ petitions against individuals to promote vested interest without any relief to the public at large. We are at a loss to understand as to how in the facts of this case, the petitioner can justify invoking the jurisdiction of this court under Article 32. This is not a petition to protect the Fundamental Rights of any class of down trodden or deprived section of the population. It is more for the protection of the vested interests of some unidentified business lobbies. The petitioner had earlier filed writ petition in which identical relief had been claimed and the same had been dismissed. The aforesaid writ petition is sought to be distinguished by the petitioner on the ground that three successive writ petitions were withdrawn as sufficient pleadings were not made for the grant of necessary relief. Even if this preliminary objection is disregarded, we are satisfied that the present petition is filed at the behest of certain interested powerful lobbies. The allegations made in the letter written by Dr. Abraham are without any basis and clearly motivated. Further, a perusal of the record clearly reveals that several complaints were filed against Dr. Abraham, wherein some serious allegations have been made against him in relation to his tenure as the Whole Time Member (WTM), SEBI. Also, it was only after the Ministry of Finance decided not to extend his tenure as WTM, SEBI and advertisements for new appointments were issued that Dr. Abraham started complaining about interference of the Ministry of Finance in SEBI through the present Chairman. We may also notice here that the letter dated 1st June, 2011 written by Dr. Abraham to the Prime Minister, that the Petitioner seeks reliance upon, was written merely a month and a half before Dr.tenure was to end. From the above, it is manifest that the letter written by Dr. Abraham was clearly motivated and espouses no public interest. The affidavit also narrates the action which has been taken by SEBI against very influential and powerful business Houses, including Sahara and Reliance. It is pointed out that the petitioner is a stool pigeon acting on the directions of these Business Houses. We are unable to easily discard the reasoning put forward by respondent No.4. It is a well known fact that in recent times, SEBI has been active in pursuing a number of cause celebre against some very powerful Business Houses. Therefore, the anxiety of these Business Houses for the removal of the present Chairman of SEBI is not wholly unimaginable. We make the aforesaid observations only to put on record that the present petition could have been dismissed as not maintainable for a variety of reasons. However, we have chosen to examine the entire issue to satisfy our judicial conscience that the appointment to such a High Powered Position has actually been made fairly and in accordance with the procedure established by law.