Axis Bank Ltd vs National Stock Exchange Of India Ltd. And Others

Tarun Agarwala, Presiding Officer

A piquant situation has arisen on account of a vacancy of a Technical Member in the Securities Appellate Tribunal (hereinafter referred to as

‘SAT’). An issue has been raised by the Regulator, Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) in

paragraph no.1 of the reply to the memorandum of appeal questioning the composition of the Bench of the Tribunal hearing the appeals, etc. filed

before the Tribunal. For ready reference paragraph no.1 of the reply to the memorandum of appeal is extracted hereunder:

“I have gone through the Appeal filed by Axis Bank Limited (hereinafter referred to as the “Appellantâ€), whereby the Appellant has

sought to challenge the communication/order dated December 8, 2020 (hereinafter referred to as the “Impugned Orderâ€) issued by

Respondent No. 1 i.e. National Stock Exchange of India Limited (hereinafter referred to as the “Respondent No. 1â€), a copy of which is

annexed as Exhibit-A to the Memorandum of Appeal. I have perused the papers, records and files made available to me pertaining to the

present matter and being duly authorised, I am making this Affidavit-in-Reply on the basis of the information derived therefrom. I hereby

submit that, in terms of Section 15L(2) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the “SEBI

Actâ€), a Bench may be constituted by the Hon’ble Presiding Officer of the Hon’ble Tribunal with two or more Hon’ble Judicial

or Hon’ble Technical Member as he may deem fit, provided that every Hon’ble Bench so constituted shall include at least one

Hon’ble Judicial Member and one Hon’ble Technical Member. Presently, the Hon’ble Bench of the Hon’ble Tribunal does

not have a Hon’ble Technical Member. I have been advised to state that the constitution of the Hon’ble Bench may not strictly be in

terms of the provisions of the SEBI Act.â€​

In effect, the stand of SEBI is that in terms of the proviso to Section 15L(2)(b) of the Securities and Exchange Board of India Act, 1992

(hereinafter referred to as ‘SEBI Act’) the Bench so constituted should include at least one Technical Member, which in the instant case is

wanting and though it has not been stated in so many words, the effect is, that this Tribunal should not hear appeals till such time a Technical Member

is appointed by the Central Government.

Similar assertion is being made by SEBI while filing their replies in other appeals and, therefore, it has become imminent to decide this issue.

Consequently, this Tribunal is now enjoined to rule its own jurisdiction. In this regard, we requested the counsels at the Bar to address this issue and

enlighten this Tribunal with their submissions.

We have heard Shri Rafique Dada, Shri Fredun De Vitre, Shri Pesi Mody, Shri Gaurav Joshi, the learned senior counsel at length. We have also

heard Shri Somasekhar Sundaresan and Shri Suraj Chaudhary, learned advocates.

The brief facts leading to this controversy is, that the Tribunal was functioning with a Presiding Officer, a Judicial Member and a Technical

Member. The Technical Member demitted office on 31st March, 2021 and, since then, the Bench of the Tribunal consists of the Presiding Officer and

a Judicial Member.

The contention of SEBI is driven primarily by the proviso to section 15L(2)(b) which stipulates that every Bench must have at least one Technical

Member as a mandatory provision. The contention is, that every Bench must have at least one Technical Member and since the current Bench are of

Judicial Members, the constitution of the Bench is defective and orders passed by this Bench would be coram non judice.

The present confusion has been created because of the amendments being made in the SEBI Act from time to time with regard to the composition

of the Tribunal and with regard to strength of the Tribunal. Sec. 15L(2)(b) of the Act has to be construed harmoniously with the other provisions of

the Act in the light of the amendments made in the Act from time to time. If literal interpretation results in defeating the purpose of a statute, such

literal interpretation must give way to purposive interpretation.

Numerous rules of interpretation have been formulated by courts. If a statutory provision is open to more than one interpretation, the court has to

choose that interpretation which represents the true intention of the legislature. Normally the plain grammatical meaning of the words in the enactment

should be taken into consideration as the best guide but to winch up the legislative intent, it is permissible to take into account the purpose and object of

the real legislative intent otherwise a bare mechanical interpretation of the words and application of legislative intent devoid of concept of purpose and

object would render the legislature inane.

The process of construction, therefore, combines both literal and purposive approaches, namely, the true meaning of the words used in the

enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. Once

this is achieved, it would be called, “the cardinal principle of constructionâ€​.

The difference between purposive and literal constructions is in truth one of degree only as held in Oliver Ashworth (Holdings) Ltd. v. Ballard

(Kent) Ltd., [1999] 2 All ER 791 (CA) at 805 and reiterated in Tanna and Modi v. CIT, [2007] 292 ITR 209 (SC); (2007) 7 SCC 434. The real

distinction lies in the balance to be struck in the particular case between literal meaning of the words, on the one hand, and the context and purpose of

the measure in which they appear on the other. In Francis Bennion's Statutory Interpretation, purposive construction has been described in the

following manner:

“A purposive construction of an enactment is one which gives effect to the legislative purpose byâ€

(a) following the literal meaning of the enactment where that meaning is in accordance with the legislative purpose (in this code called

purposive and literal construction).â€​

Heydon's case now known as “purposive construction†or “mischief rule†was explained by the Supreme Court in Bengal Immunity Co.

Ltd. v. State of Bihar, AIR 1955 SC 661 holding:

“(22) It is a sound rule of construction of a statute firmly established in England as far back as 1584 when-‘Heydon's case, [1584] 3

Co. Rep 7a (V) was decided thatâ€

‘...for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law)

four things are to be discerned and considered:

1st What was the common law before the making of the Act,

2nd. What was the mischief and defect for which the common law did not provide,

3rd. What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and

4th. The true reason of the remedy; and then the office of all the judges is always to make such construction as shall suppress the mischief,

and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and ‘pro privato commodo’,

and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, ‘pro bono publico’.â€​

Thus, in order to interpret the provisions of the Act it is necessary to consider how the provisions stood immediately before the section was

amended and also take into consideration those sections which were incorporated at a latter point of time.

Originally, the Tribunal was a one Member Bench as per Section 15L of the SEBI Act. This one Member Bench provision was amended in the

year 2002 to form a three Member Bench. The said amended provision is extracted hereunder:-

“15L. Composition of Securities Appellate Tribunal.

A Securities Appellate Tribunal shall consist of a Presiding Officer and two other members, to be appointed, by notification, by the Central

Government:

Provided that the Securities Appellate Tribunal, consisting of one person only, established before the commencement of the Securities and

Exchange Board of India (Amendment) Act, 2002, shall continue to exercise the jurisdiction, powers and authority conferred on it by or

under this Act or any other law for the time being in force till two other Members are appointed under this section.â€​

A perusal of the aforesaid provision makes it clear that the composition of the Tribunal was increased from one Member Bench to a

three Member Bench, namely, the Presiding Officer and two other Members. There was no distinction of a Judicial Member or a Technical

Member at that point of time.

The aforesaid Section 15L was again substituted by the Finance Act no.7 of 2017. Section 15L as substituted by Finance Act no.7 of 2017 is

extracted hereunder for ready reference:

“15-L. Composition of Securities Appellate Tribunal.

(1) The Securities Appellate Tribunal shall consist of a Presiding Officer and such number of Judicial Members and Technical Members as

the Central Government may determine, by notification, to exercise the powers and discharge the functions conferred on the Securities

Appellate Tribunal under this Act or any other law for the time being in force.

(2) Subject to the provisions of this Act,-

(a) the jurisdiction of the Securities Appellate Tribunal may be exercised by Benches thereof;

(b) a Bench may be constituted by the Presiding Officer of the Securities Appellate Tribunal with two or more Judicial or Technical

Members as he may deem fit:

Provided that every Bench constituted shall include at least one Judicial Member and one Technical Member;

(c) the Benches of the Securities Appellate Tribunal shall ordinarily sit at Mumbai and may also sit at such other places as the Central

Government may, in consultation with the Presiding Officer, notify.

(1) Notwithstanding anything contained in sub-section (2), the Presiding Officer may transfer a Judicial Member or a Technical Member of

the Securities Appellate Tribunal from one Bench to another Bench.â€​

The aforesaid Section 15L as substituted by Finance Act no.7 of 2017 provides that Benches may be constituted by the Presiding Officer with two

Judicial Member or two Technical Members or two or more Judicial Members or two or more Technical Members as he may deem fit. The intention

of the legislature was to have more than one Bench to ensure that Judicial Members are there in each Bench.

For the first time by the Finance Act no.7 of 2017 the term Judicial Member and Technical Member was inserted in the definition clause and

incorporated in Section 15L. The intention and purpose was that a Technical Member may be required if an when the matter was such that Judicial

Members required technical guidance. The proviso stated that every Bench so constituted shall include at least one Judicial Member and one

Technical Member.

By a notification dated 16th May, 2019 the Central Government notified the strength of the Securities Appellate Tribunal under Section 15L(1) of

the Act to consist of Presiding Officer, one Judicial Member and two Technical Members. The said notification is extracted hereunder:

“MINISTRY OF FINANCE

(Department of Economic Affairs)

(FINANCIAL MARKETS DIVISION)

NOTIFICATION

New Delhi, the 16th May, 2019

S.O.1750(E) â€" In exercise of the powers conferred by sub-section (1) of Section 15L of Securities and Exchange Board of India Act,

1992 (15 of 1992), the Central Government hereby determines that the Securities Appellate Tribunal shall consist of a Presiding Officer,

one Judicial Member and two Technical Members to exercise the powers and discharge the functions conferred on it under the Securities

and Exchange Board of India Act, 1992 or any other law for the time being in force, and the Presiding Officer of Securities Appellate

Tribunal may constitute the Benches and may also function as the Judicial Member.

[F.No.3/9/2017-RE]

ANAND MOHAN BAJAJ, Jt. Secy.â€​

Thus as on 16th May 2019 the strength of the Tribunal consists of four persons, namely a Presiding Officer, One Judicial Member and Two

Technical Members. Before proceeding further, it would be appropriate to look at some of the provisions of the SEBI Act and the Rules framed

thereunder.

“15K. ESTABLISHMENT OF SECURITIES APPELLATE TRIBUNAL.

(1) The Central Government shall, by notification, establish a Tribunal to be known as the Securities Appellate Tribunal to exercise the

jurisdiction, powers and authority conferred on it by or under this Act or any other law for the time being in force.

(2) The Central Government shall also specify in the notification referred to in sub-section (1), the matters and places in relation to which

the Securities Appellate Tribunal may exercise jurisdiction.â€​

“15-P. Filling up of vacancies- If, for reason other than temporary absence, any vacancy occurs in the office of the Presiding Officer or

any other Member of a Securities Appellate Tribunal, then the Central Government shall appoint another person in accordance with the

provisions of this Act to fill the vacancy and the proceedings may be continued before the Securities Appellate Tribunal from the stage at

which the vacancy is filled.â€​

“15-PA. Member to act as Presiding Officer in certain circumstances-

In the event of occurrence of any vacancy in the office of the Presiding Officer of the Securities Appellate Tribunal by reason of his death,

resignation or otherwise, the senior-most Judicial Member of the Securities Appellate Tribunal shall act as the Presiding Officer until the

date on which a new Presiding Officer is appointed in accordance with the provisions of this Act.â€​

“15R. Orders constituting Appellate Tribunal to be final and not to invalidate its proceedings.

No order of the Central Government appointing any person as the Presiding Officer or a Member of a Securities Appellate Tribunal shall

be called in question in any manner, and no act or proceeding before a Securities Appellate Tribunal shall be called in question in any

manner on the ground merely of any defect in the constitution of a Securities Appellate Tribunal.â€​

“15-U. Procedure and powers of the Securities Appellate Tribunal.

..................

(4) Where Benches are constituted, the Presiding Officer of the Securities Appellate Tribunal may, from time to time make provisions as to

the distribution of the business of the Securities Appellate Tribunal amongst the Benches and also provide for the matters which may be

dealt with, by each Bench.

(5) On the application of any of the parties and after notice to the parties, and after hearing such of them as he may desire to be heard, or

on his own motion without such notice, the Presiding Officer of the Securities Appellate Tribunal may transfer any case pending before one

Bench, for disposal, to any other Bench.

(6) If a Bench of the Securities Appellate Tribunal consisting of two members differ in opinion on any point, they shall state the point or

points on which they differ, and make a reference to the Presiding Officer of the Securities Appellate Tribunal who shall either hear the

point or points himself or refer the case for hearing only on such point or points by one or more of the other members of the Securities

Appellate Tribunal and such point or points shall be decided according to the opinion of the majority of the members of the Securities

Appellate Tribunal who have heard the case, including those who first heard it.

Rule 5(2) of the Securities Appellate Tribunal (Procedure) Rules, 2000

“In the temporary absence of the Presiding Officer, Government may authorise one of the two members to preside over the sitting of the

Tribunal either at a place where its office is situated or such other place falling within its jurisdiction as it may deem fit by the Appellate

Tribunal.â€​

Section 15K provides for the establishment of a SAT by the Central Government through a notification which would exercise the jurisdictional

power and authority conferred on it by or under the Act or any other law for the time being in force.

Section 15L has to be read in two parts. Section 15L(1) gives a mandate to the Central Government to determine the strength of the Tribunal. At

the moment, the strength of the SAT is four, namely, two Judicial Members and two Technical Members. This provision in our view is mandatory.

Section 15L(2)(b) starts with the words “Subject to the provisions of the Act.†On a plain reading it means that the provisions of Section

15L(2) is subject to other provisions of the Act which we will deal with hereinafter. In South India Corporation (P) Ltd. Vs Secretary, Board of

Revenue AIR 1964 SC 207, the Supreme Court held that the expression “subject to†conveys the idea of a provision yielding place to another

provision or other provisions to which it is made subject. Further, Section 15L(2) gives power to the Presiding Officer to constitute a Bench or

Benches, as the case may be, and as he deems fit. The constitution of a Bench or Benches, as he may deem fit, indicates that the provision is

directory in nature and is not mandatory. This aspect will be elaborated also hereinafter.

However, a plain reading of Section 15L indicates

i. The Tribunal will consist of such number of Judicial Members and such number of Technical Members as the Central Government may determine

i.e. the strength of the Tribunal.

ii. The jurisdiction of the Tribunal would be exercised by Benches.

iii. The Benches to be constituted would be two Judicial Members or two Technical Member or two or more Judicial Members or two or more

Technical Members.

iv. The proviso indicates that every Bench constituted shall have at least one Judicial Member and one Technical Member.

Currently, the sanctioned strength of the Tribunal is four members which consists of two Judicial Members including the Presiding Officer and two

Technical Members. Presently, there is a vacancy of fifty percent of the sanctioned strength and there are no Technical Members. The Tribunal is

presently manned by two Judicial Members. The question to be answered is, whether the vacancy in the office of the Technical Members is fatal to

the constitution of the Tribunal. Admittedly, the proviso to Section 15L(2)(b) is creating a mischief. This provision has to be construed harmoniously

along with the other provisions of the Act in order to promote the cause of the investors under the SEBI Act. In our view, it is never the intention of

the legislature to stall or render the Tribunal non-functional in the absence of a Technical Member and, therefore, a harmonious construction is to be

given. It thus becomes necessary to dwell or touch upon the other provisions of the Act which we have quoted earlier.

Section 15P talks about filling up of the vacancies. It also provides that proceedings may be continued before the Tribunal from the stage at which

the vacancy is filled. The contention of SEBI is, that when a vacancy occurs, the Tribunal becomes non-functional and can become functional and can

restart the proceedings only when the vacancy is filled up. This submission appears to be incorrect in view of Section 15-PA which provides that in

the event of a vacancy occurring in the office of the Presiding Officer of the Tribunal then the senior most Judicial Member will act as the Presiding

Officer until a new Presiding Officer is appointed. Thus, the Tribunal would continue to function even if there is a vacancy in the office of the

Presiding Officer. The Tribunal will not become non-functional or that the Tribunal will not become headless. Therefore, we are of the opinion, that if

a vacancy of a Member occurs whether it is a Judicial Member or a Technical Member and if there is a coram inspite of a vacancy the Tribunal can

proceed and hear the matters. In this regard, Rule 5 also provides that in the absence of a Presiding Officer the Government can appoint one of the

members to preside over the sitting of the Tribunal, meaning thereby, that even in the event of a vacancy the Tribunal will not become non functional

and will continue to discharge its functions from the remaining members.

Coming back to Section 15L(2)(b), the coram of a Bench is indicated, namely, two or more. Section 15U(4) and 15U(6) contemplate Benches and

a Bench consisting of two members. The notification of 16 May 2019 indicates that the Presiding Officer can constitute Benches. At the present

moment, the sanctioned strength is four, two Judicial Members and two Technical Members. It would be perfectly justified for the Presiding Officer to

constitute two Benches; each Bench consisting of a Judicial Member and a Technical Member. By doing so the proviso to Section 15L(2)(b) would be

complied with. However, lets take a situation where one Member recuses himself or demits office, then two Benches cannot be formed. In such a

scenario, as per the contention of SEBI, the only Bench available, namely, the Presiding Officer and two other Members (even if one of the member

is a Technical Member) will not be able to function inspite of having the appropriate coram in view of Section 15P which requires that no proceedings

would continue till the vacancy is filled up. This in our view, cannot be the intention of the Legislature.

Thus, if we harmoniously construe the two provisions, namely, Section 15L(2)(b) and Section 15P the result would be that the second Bench

which was constituted will not proceed upon the occurrence of a vacancy and will proceed only when the vacancy is filled up but nothing would stop

the Bench consisting of the Presiding Officer and the other Members to proceed and exercise its jurisdiction, power and authority and hear the

appeals under Section 15L(2)(b).

In our view, even though the proviso uses the word “shall†it has to be read as “mayâ€. The word “may†and the words “as he

may deem fit†given in Section 15L(2)(b) coupled with the words “subject to the provisions of the Act†clearly indicates that the provision is

directory in nature and, thus, the usage of the word “shallâ€​ in the proviso can only be directory to be read “as far as possibleâ€​

In this regard, we may note that the normal function of a proviso is to except something out of the enactment or to qualify something enacted

therein which but for the proviso would be within the purview of the enactment. In a given case, the proviso carves out an exception to the main

provision to which it has been enacted as a proviso and no other and may at times the proviso may limit the general enactment in certain instances.

The aforesaid principle has been laid down by the Supreme Court in the case of Union of India vs. Sanjay Kumar Jain (2004) 6 SCC 708.

Section 15R provides that any proceedings taken before the Tribunal cannot be questioned in any manner on the ground of any defect in the

constitution of SAT. This provision protects the legality and validity of the orders passed by the Tribunal even if it is found that there was a defect in

the constitution of the Tribunal. This provision clearly indicates that the Section 15L(2)(b) and its proviso are only directory in nature and cannot be

mandatory.

Thus, upon a harmonious construction of the provisions of Section 15L read with Section 15P, Section 15-PA and Section 15R it would be clear

that the Tribunal does not come to a grinding halt whenever there is an absence or vacancy of a Member. When there is no Technical Member, a

Bench would have to be constituted by the Presiding Officer from amongst the Members who have been appointed. This is evident from the opening

lines of Section 15L(2) which begins with the words “Subject to the provisions of the Act†making it clear that Section 15L(2) would in fact be

subject to other provisions including Section 15R of the Act. Section 15R makes it clear that Section 15L is not a mandatory provision. It is envisaged

that the constitution of the Bench as envisaged in the proviso to Section 15L(2)(b) may not always be met, and in such an event, the constitution of the

Bench is immune from being called in question. To put it differently, Section 15R would have the effect of qualifying and treating the word “shallâ€

in the proviso to Section 15L to mean “ may†that is to say, that there shall be at least one Judicial Member and one Technical Member in every

Bench and where such members are available and, where such members are not available it would not be a mandatory requirement to be met with

and by law the Presiding Officer is required to constitute a bench as he deems fit from the members available. Thus, Section 15L(2)(b) is directory in

nature. Section 15R would also cover the field of a vacancy in the office or even temporary absence such as ill health or recusal by a Member.

In view of the aforesaid, if the Tribunal becomes non functional on account of a vacancy even though the coram exists, in our view, it would be in

complete violation of the right to access justice as guaranteed under Article 21 of the Constitution of India as held in Anita Kushwaha v. Pushap

Sudan, (2016) 8 SCC 509.

In view of the harmonious construction given by us, we are of the opinion that where the Presiding Officer is functional he alongwith the other

Member/Members shall conduct the proceedings and where a vacancy occurs in the office of the Presiding Officer, then the senior most Judicial

Member shall act as a Presiding Officer till the date on which a new Presiding Officer is appointed. This provision was made to make the Tribunal

functional even in the absence of Presiding Officer and not to allow the Tribunal to be rendered non-functional for want of a Presiding Officer. This

provision, if construed harmoniously, will promote the object and the spirit of the Act and, while doing so, no violence would be done to the plain

language used in the proviso to Section 15L(2)(b).

In Gulzari Lal Agarwal vs. Accounts Officer (1996) 10 SCC 590 an order under the Consumer Protection Act, 1986 was passed by two Members

of the State Commission. The National Commission held that the order passed by the State Commission was illegal and void as it was passed by two

Members without the President which was contrary to the mandatory provision of Section 14(2A) read with Section 18 of the said Act. The Supreme

Court reversed the decision of the National Commission holding that in view of Section 29A of the said Act the order of the State Commission will not

be invalidated merely because there was a vacancy in the State Commission. The Supreme Court held that relevant provision has to be construed

harmoniously to find out the intention of the legislature and the provisions are required to be construed harmoniously with a view to promote the object

and spirit of the Act. In this regard, we find that the provision of Section 29A of the Consumer Protection Act is similar to Section 15R of the SEBI

Act which states that no proceedings before SAT shall be questioned, in any manner, of any defects in the constitution of the Tribunal.

Much reliance was placed by SEBI in the decision of the Bombay High Court in the matter of Subash G. Narvekar & Ors. Vs. State of Goa &

Ors. (2005) 6 BomCR 361 which distinguished Gulzari Lal Agarwal's case (supra). Before the Bombay High Court the matter was under the

Industrial Disputes Act where the Chairman retired and the other two members proceeded and submitted a report under Section 17(1) of the Act

making recommendation to the government. The Bombay High Court held that in view of the provisions under the Industrial Disputes Act the two

Members had no jurisdiction to proceed in the matter. The said decision, in our opinion, is distinguishable on facts and further there was no provision in

the Industrial Disputes Act akin to Section 15R and 15PA.

In Writ Petition No. 5571 of 2019, Mylan Laboratories Limited vs. Union of India & Ors. decided by the Delhi High Court on 8th July, 2019, the

post of a Technical member fell vacant and the Appellate Board under the Trade Marks Act could not take up any matters on account of lack of

coram. Section 84 of the Trade Marks Act provides a stringent condition that a Bench of the Appellate Board shall consist of one Judicial Member

and one Technical Member. The Delhi High Court invoked the doctrine of necessity holding that the Appellate Board could proceed and hear urgent

matters and orders passed by the Appellate Board would not suffer any invalidity on account of lack of coram.

Recently, the Supreme Court interpreted Section 84 of the Trade Marks Act in the International Association for Protection of Intellectual Property

(India Group) vs. Union of India, 2021 SCC OnLine SC 89, decided on 12th February, 2021 holding that in the absence of Technical Member the

Chairperson can discharge the functions of a Judicial Member or Technical Member of the Bench to which he is appointed and can discharge the

functions of a Judicial Member, or as the case may be, of a Technical Member, of any other Bench. The Supreme Court held that in the absence of a

Member, the Chairperson may, if the occasion so arises, act as a Technical Member or a Judicial Member.

In Talluri Srinivas v. Union of India, (2018) SCC OnLine Del 7765 the matter was one under the Chartered Accountants Act, 1947 where the

Appellate Authority comprised of five Members. One Member recused and the question which arose was whether the Appellate Authority could

conduct the proceedings with four Members. The Delhi High Court held that the Appellate Authority could proceed and decide the matter with four

Members. The Delhi High Court held as under:-

19...The CA Act does prescribe that the Appellate Authority will be a body constitute of five persons, but does not prescribe and does not

fix a minimum quorum. The statute is silent on the procedure to be followed and adopted when one or more members cannot participate. In

absence of a provision and stipulation to the contrary, quorum in such cases is in order and complete when majority of the members are

present and participate. Therefore, if one of the members of the Appellate Authority for valid and good reason has recused and does not

want to participate, hearing in the appeal can proceed and would not suffer invalidity on the ground of lack of quorum.

In the present case no vacancy has arisen which can be filled up as the said fifth member has neither resigned nor has been removed.

There is no provision in the enactment to fill up ""vacancy"" by recusal in a particular case by any other mode. Temporary absence or

recusal of a member in a particular appeal, would not make the Appellate Tribunal dysfunctional till a new member is appointed, which as

recorded above as per the CA Act is impermissible....

The rationale behind the Rule is that the litigation cannot be a non sequitur. In other words, there cannot be a litigation system in which

it is impossible to litigate a given case. It is on the aforesaid principle that we have examined the statutory provisions of the CA Act and the

effect of recusal of one member of the five-members of the Appellate Authority and held that recusal will not stall hearing and decision of

the Appeal. Contention of lack of quorum on account of recusal of one member of the five member Appellate Authority for the aforesaid

reasons fails and is rejected.

In Gokaraju Rangaraju Etc vs State Of Andhra Pradesh, 1981 (3) SCC 132 the appointment of a Session’s Judge was found to be in violation

of Article 233 of the Constitution and, thereafter, it was urged that the judgements passed by the Judge was void and was required to be set aside.

The Supreme Court while invoking the doctrine of necessity held that a Judge, de facto is one who is not a mere intruder or usurper but one who holds

office, under the colour of lawful authority, even though his appointment was later found to be defective. The Supreme Court held that whatever be

the defect of his title to the office, judgments pronounced by him and acts done by him will have the same efficacy as the judgments pronounced and

acts done by a Judge de jure. Such is the de facto doctrine, born of necessity and public policy to prevent needless confusion and endless mischief.

In Sandeep Jain vs. Union of India in Writ Petition no.5847 of 2017 decided on 26th November, 2012 the Division Bench of the Bombay High

Court was dealing with the earlier version of Section 15L of the SEBI Act on a question as to whether the absence of a Presiding Officer would

preclude SAT from exercising its jurisdiction. The controversy raised at that time was that the then Presiding Officer of this Tribunal had retired and

the Central Government acting under Rule 5(2) of the Securities Appellate Tribunal (Procedure) Rules, 2000 designated one of the two members of

the Tribunal as the officiating Presiding Officer. A writ petition was filed praying for a writ of prohibition to prohibit the Members of SAT from

functioning as the officiating Presiding Officer of this Tribunal. The Bombay High Court in its decision held that the temporary absence contemplated

under Rule 5(2) and Section 15P means that the arrangement under which one of the two Members is to preside over the sitting of the Tribunal is to

be made on a temporary basis and not on a regular basis and, consequently, dismissed the writ petition holding that the Appellate Tribunal can proceed

and decide the appeal of the petitioner as there was no impediment in its functioning.

Reliance by SEBI on the decision of the Madras High Court in Kama Unni vs. Rama Kudumban & Ors. 1952 (65) LW 1063 is misplaced and is

also distinguishable. In the first instance, the Court was concerned with the composition of the Industrial Tribunal consisting of three Members. It may

be noted that it was the only Bench of the Industrial Tribunal. Upon a vacancy being created the Tribunal could proceed only when the vacancy was

filled up.

In the instant case, the Tribunal has four Members and the Presiding Officer can constitute more than one Bench in view of Section15L(2)(b) read

with Section 15U(4) and (6) read with the notification dated 16th May, 2019 issued under Section 15L. Further Section 15P has to be read with

Section 15PA which makes it obligatory that in the event of a vacancy occurring on the post of Presiding Officer, the senior most Judicial Member

will act as a Presiding Officer, till such time a new Presiding Officer is appointed. Thus, the intention of the legislature was that the Tribunal cannot

come to a standstill upon the occurrence of a vacancy. Thus, the decision of the Madras High Court is totally distinguishable on facts as well as on

law.

Reliance by the respondent was also made to another decision of the Madras High Court dated 26th February, 2015 in Writ Petition no.31409 of

2014 S. Manoharan vs. The Deputy Registrar, Central Administrative Tribunal and Ors. In this case, the Chairman of the Central Administrative

Tribunal (hereinafter referred to as ‘CAT’) formed a Full Bench comprising of one Judicial Member and two Administrative Members. This

composition of the Tribunal was challenged. The Madras High Court while considering the aforesaid provisions of Section 5(2) and Section 5(4) of the

Central Administrative Tribunals Act, 1986 came to the conclusion that the charging provision as well as the proviso provides that each Bench of the

Tribunal will consist of one Judicial Member and one non Judicial Member and, therefore, came to the conclusion that the formation of the Bench was

incorrect. This decision is distinguishable on facts and on law in as much as under the Central Administrative Tribunals Act the charging provision

clearly stipulated that the Bench shall consist of one Judicial Member and one Administrative Member whereas under the SEBI Act there is no such

charging provision except the proviso. The proviso, at best, qualifies to the charging section and at times it could be an exception. Further, nothing was

indicated by the respondent that similar provision of Sections 15P and 15PA and 15R exists under the Central Administrative Tribunals Act. Thus, no

reliance can be placed on this decision.

The contention of the respondent SEBI that the presence of a Technical Member is essential for the formation of a Bench is totally misplaced.

Reliance on a decision in the case of Roger Mathew vs. South Indian Bank Ltd. (2000) 6 SCC 1 has been taken. Reliance was made on certain

paragraphs of this decision which is extracted hereunder:

“14. With the inclusion of technical members along with judicial members in composition of Tribunals, it is ensured that the adjudicatory

authority is equipped with the technical knowledge required to comprehend and decide issues involving specialised subjects.â€​

Further, reliance was made on a decision of Supreme Court in the case of Union of India vs. R. Gandhi President, Madras Bar Association (2010)

11 SCC 1, wherein it was held:-

“48. Technical members could only be in addition to judicial members and that also only when specialised knowledge or know-how is

required. Any inclusion of technical members in the absence of any discernible requirement of specialisation would amount to dilution and

encroachment upon the independence of the judiciary.â€​

And further held:-

“245. The Court affirmed the view in Chandra Kumar that a tribunal may consist of both judicial and technical members. Judicial

members ensure 'impartiality, fairness and reasonableness in consideration' and technical members ensure 'the availability of expertise and

experience related to the field of adjudication'.â€​

And further held:-

“248. The Court affirmed the position laid down in Chandra Kumar and R. Gandhi that the appointment of technical members is

restricted to the cases where technical expertise is essential for adjudication and is impermissible in any other case.â€​

The submission of the respondent on the basis of the aforesaid paragraphs is, that the presence of a Technical Member is essential and mandatory

and that a Bench of a Tribunal cannot function in the absence of a Technical Member.

The submission of the respondent and reliance on Roger Mathew (supra) is untenable and is totally misplaced. The Supreme Court in a series of

judgements has repeatedly held that the encroachment of judicial space by bureaucrats and government officials who get appointed as Technical

Members dilutes and encroaches upon the independence of judiciary. The Supreme Court in Roger Mathew (supra) dealt with the validity of Rules

framed by the Central Government to appoint Members of various Tribunals. The Supreme Court struck down the Rules on the ground that the Rules

envisaged a majority of the nominee of the Central Government was in the appointment of various Members including Judicial Members and that such

Rules constituted an excessive encroachment by the Executive in matters which was within the domain of Judiciary. We are of the opinion that Roger

Mathew (supra) neither dealt with the impact of the vacancy nor held that the presence of Technical Member was necessary for the Tribunal to

function. On the contrary the Supreme Court reiterated its proposition in its earlier judgements that judicial functions cannot be performed by

Technical Members who lack adjudicatory experience.

The Tribunal performs judicial functions. It is mandatory for the Tribunal to be manned by Judicial Members. It is an essential requirement under

the SEBI Act that the Presiding Officer is a Judicial Member. A Presiding Officer can never be appointed from a Technical Member. The Technical

Member cannot replace a Judicial Member. Further, Tribunals are amongst the most important limb in the dispensation of justice. Numerous Tribunals

have been established to deal in various areas. Their functions are similar to mainstream judicial bodies. The Tribunals are established in aid of the

constitutional Courts. Inclusion of Technical Member is only to bring specialised knowledge but that does not mean that it can substitute a Judicial

Member not can it mean that a Judicial Member does not possess specialized knowledge.Further, under the SEBI Act the qualification of a Judicial

Member and a Technical Member is vastly different. Only persons with professional legal qualification coupled with substantial expertise in law are

competent to handle complex legal issues which a Technical Member cannot handle and, therefore, a Technical Member cannot substitute such

competence. We are further of the opinion that a Technical member is an aid to assist the Bench requiring technical expertise on an issue and, thus, it

cannot be said that if a Technical Member is not available the Bench comprising of two Judicial Members cannot function. At best this can never be

the intention of the legislature otherwise it would dilute and encroach upon the independence of judiciary.

In this regard in L. Chandra Kumar vs. Union of India, (1997)3SCC261, the Supreme Court held that:

“A Tribunal which substitutes the High Court as an alternative institutional mechanism for judicial review must be no less efficacious

than the High Court. Such a tribunal must inspire confidence and public esteem that it is a highly competent and expert mechanism with

judicial approach and objectivity. What is needed in a tribunal, which is intended to supplant the High Court, is legal training and

experience, and judicial acumen, equipment and approach. When such a tribunal is composed of personnel drawn from the judiciary as

well as from services or from amongst experts in the field, any weightage in favour of the service members or expert members and value-

discounting the judicial members would render the tribunal less effective and efficacious than the High Court. The Act setting up such a

tribunal would itself have to be declared as void under such circumstances. The same would not at all be conducive to judicial

independence ..............â€​

In view of the aforesaid and upon a harmonious construction of the relevant provisions of the SEBI Act, we are of the confirmed opinion that the

functioning of the Tribunal presently comprising of a Presiding Officer and a Judicial Member is not defective on account of non-availability of

Technical Member and that the Bench constituting the Presiding Officer and Judicial member can proceed to hear and decide the appeals, etc which

are filed before the SAT. The objection raised by SEBI is rejected.

Before parting, we find that this, crisis has arisen in the context of composition of the Tribunal. Can this Tribunal face such crisis of non-

functioning due to non filling up of the vacancies by the Central Government? To resolve this issue one does not have to look for temporary solution

but which aims to resolve the issue once and for all. We have interpreted the provisions of Ac and have resolved the issue but the permanent solution

is that Central Government should expedite and fill up the vacancy. A fourth post of Technical Member was created vide notification dated 16 May

2019. No steps have been taken by the Central Government to fill up this vacancy, even though two years have elapsed. Further, the government

knew that the only Technical Member was going to retire on 31st March, 2021. Till date no steps have been taken to fill up the post whereas such

steps should have been taken at least a couple of months before the retirement of the Technical Member. Further, while making amendments in the

Act, care should be taken to resolve the discrepancy that may arise in the charging provision. Thus, we request the Central Government to fill the

vacancies at the earliest and also recommend to make necessary amendments and resolve the discrepancy in the charging section to the proviso under

Section 15L(2)(b).

Today, SEBI has raised an objection. Tomorrow a private litigant would raise a similar objection. It would be a never ending process. This issue

needs to be resolved on the judicial side as well.

We, therefore, direct the Registrar of this Tribunal to send a certified copy of this order to the Secretary, Ministry of Finance, Department of

Economic Affairs, North Block, New Delhi with a request to fill up the vacancies at the earliest and consider making appropriate amendments. We

also direct the Registrar to send a certified copy of this order to the Secretary General of the Supreme Court of India with a request to place our order

before the Honourable Chief Justice of India and, if desired, to treat this order as a PIL and resolve the issue on the judicial side so that the matter is

resolved once and for all from the highest Court in India.

The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor

a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on

behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally

signed copy sent by fax and/or email.