Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) NO.374 OF 2012

Arun Kumar Agrawal

...Petitioner

Versus

Union of India & Ors. …

Respondents

J U D G M E N T

SURINDER SINGH NIJJAR, J.

1.This writ petition has been filed by one Mr. Arun Kumar

Agrawal under Article 32 of the Constitution of India;

seeks the issuance of a writ of quo warranto or any other

direction against Mr. U.K. Sinha, Chairman of the

Securities and Exchange Board of India (hereinafter

referred to as ‘SEBI’) and his consequential removal from

the post of Chairman.

1

Page 2 2.Stated concisely, the petitioner challenges the

appointment of respondent No.4 on the following

grounds :-

(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 ‘SEBI Act’), as

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

as ‘ACC’).

(c)The appointment of respondent No.4, a Chairman

of SEBI, is mala fide.

3. Mr. Prashant Bhushan, learned counsel appearing

for the petitioner, has made detailed submissions with regard

to the manipulations and the maneuvers indulged in by the

2

Page 3 petitioner with the active connivance of some other persons to

successfully mislead the Search Committee as well as the

ACC. He has highlighted that the petitioner does not fulfill the

requirements of Section 4(5) of SEBI Act which provides as

under:-

“(5) The Chairman and the other members

referred to in clauses (a) and (d) of sub-section

(1) shall be persons of ability, integrity and

standing who have shown capacity in dealing

with problems relating to securities marker or

have special knowledge or experience of law,

finance, economics, accountancy,

administration or in any other discipline which,

in the opinion of the Central Government, shall

be useful to the Board.”

4. Giving the factual background, he referred to the

communication dated 10

th

September, 2010 of the

Department of Economic Affairs inviting the application for the

post of Chairman SEBI. In paragraph 3 of the aforesaid

communication which provided that “keeping in view the role

and importance of SEBI as a regulator, it is desirable that

person with high integrity, eminence and reputation preferably

with more than 25 years of professional experience and in the

age group of 50 to 60 years may apply”. Learned counsel

submits that Mr. Sinha lacks integrity which is well illustrated

by a reference to events leading to his appointment.

3

Page 4 5. He points out that Mr. Sinha was Joint Secretary,

Banking till May, 2002. He became Joint Secretary, Ministry of

Finance in June, 2002. Thereafter, he held the post of Joint

Secretary, Capital Market, Ministry of Finance from 1

st

July,

2003. Whilst working as such he was appointed as Additional

Director on the Board of Unit Trust of India Asset Management

Company Ltd. (hereinafter referred to as ‘UTI AMC’).

Thereafter, on 3

rd

November, 2005 Mr. Sinha was appointed as

CEO and MD of UTI AMC on deputation for two years.

According to Mr. Bhushan, Mr. Sinha was wrongly sent on

deputation under Rule 6(2)(ii) of the IAS (Cadre) Rules, 1954,

which is applicable in case of deputation in an international

organization, NGO or body not owned by the Government.

Since the equity share capital in UTI AMC is held by the State

Bank of India, Life Insurance Corporation, Bank of Baroda and

Punjab National Bank, each holding 25% of the shares, it could

not be said that UTI AMC was not controlled by the

Government. According to Mr. Bhushan, Mr. Sinha ought to

have been sent on deputation under Rule 6(2)(i) of the IAS

(Cadre) Rules, 1954 which is applicable for deputation of an

IAS officer “under a company, association or body of

4

Page 5 individuals, whether incorporated or not, which is wholly or

substantially owned or controlled by the State Government,

Municipal Corporation or a local body by the State

Government on whose cadre she/he is borne.” According to

Mr. Bhushan, Mr. Sinha was deliberately sent on deputation

under Rule 6(2)(ii) for ulterior motive. He points out that

the deputation of Mr. Sinha was against the accepted

assurance given to the J.P.C. on the appointment of CMD of

UTI AMC. Mr. Sinha as Joint Secretary, Capital Market and

member of the Board of UTI AMC was aware of the

recommendation of JPC. He deliberately violated the

recommendations. According to Mr. Bhushan, the deputation

was also in violation of policy of not allowing deputation to an

officer who had overseen the organization to which he was

being deputed. Deputation of Mr. Sinha was also in conflict of

interest as he was Joint Secretary, Banking till May 2002 and

the ownership of UTI AMC was with the SBI, Bank of Baroda,

PNB and LIC. According to Mr. Bhushan, Mr. Sinha was privy to

sensitive information. Under the rules, Mr. Sinha was required

to file affidavit/undertaking that person sent on deputation

was not privy to any sensitive information.

5

Page 6 6. Continuing further, Mr. Bhushan pointed out that

on appointment as CMD, UTI AMC on 13

th

January, 2006, Mr.

Sinha continued to get pay scale of Joint Secretary, even

though he had an option under Rule 6(2)(ii) of drawing the pay

of the UTI AMC or the scale of pay of the Government which is

beneficial. There was no separate pay scale for CMD of UTI

AMC and the same needed to be created in view of the option

under Rule 6(2)(ii). On 29

th

January, 2007, Mr. Sinha made

representation to the Government claiming that his batch

cadre IAS Officer has been empanelled as Additional

Secretary, therefore, his salary be fixed accordingly in the pay

scale of Additional Secretary to the Government of India i.e.

22400-525-24500. On 1

st

March, 2007, the salary of Mr. Sinha

was fixed in the aforesaid scale, with effect from 10

th

February, 2007. A communication was also sent on 16

th

April,

2007 enclosing the terms and conditions of the deputation of

Mr. Sinha. It was pointed out that the member of service may

opt for his grade pay or the pay of the post, whichever is more

beneficial to him. It was also pointed out that the terms and

conditions will be applicable with effect from 27

th

December,

2007. Mr. Bhushan thereafter laid considerable emphasis on

the fact that on 27

th

September, 2007 the Board UTI AMC

6

Page 7 approved the remuneration package of Mr. Sinha keeping in

view the remuneration package of CEO in the industry, roles

and responsibilities of the CMD, UTI AMC and the current

surge of the salary structure in the market, as follows :-

·Fixed Pay Rs. 10 million per annum

·Variable Payupto 100% of Fixed pay subject to

performance and as may be approved by the Board

on yearly basis.

7.According to Mr. Bhushan, this decision was taken on the

basis of the recommendation made by the Aapte Committee

in July, 2007. This Committee had been set up to recommend

the compensation to be paid to CMD, UTI AMC. This

Committee had recommended the compensation to be paid to

CMD, UTI AMC on the basis that the compensation should be

market competitive to attract appropriate talent from the

market.

8.According to Mr. Bhushan, the actual fact situation would

show that the recommendation to appoint CMD, UTI AMC from

the market was given a complete go by at the time of the

appointment of Mr. Sinha in 2008, when his extension to

deputation was denied. Therefore, in order to continue as

CMD, UTI, AMC Mr. Sinha took voluntary retirement. Mr.

7

Page 8 Bhushan states that on 6

th

November, 2007 though a proposal

for extension of deputation of Mr. Sinha for a period of two

years was made, he was only granted an interim extension of

three months till 2

nd

February, 2008. This was because some

general issue regarding deputation under Rule 6(2)(ii) was

being re-examined. On 28

th

November, 2007, the Consolidated

Deputation Guidelines for All India Services was circulated by

the Ministry of Personnel and under the Guidelines the

deputation of Mr. Sinha was determined to be under Rule 6(1).

He points out that under Rule 6(1) there is no option of getting

remuneration as per the scheme of the organization to which

an officer is sent on deputation. On 12

th

December, 2007, the

Finance Ministry, Department of Economic Affairs requested

the Department of Personnel and Training (DOPT) to extend

the deputation of Mr. Sinha for the remaining one year and

nine months under Rule 6(1). On 10

th

March, 2008, the ACC

advised the Finance Ministry (Department of Economic Affairs)

that extension of tenure as CMD of UTI AMC has been granted

to Mr. Sinha till 31

st

May, 2008 under Rule 6(1). It was

indicated that upon completion of the aforesaid term he would

return to his parent cadre (Bihar). A direction was issued to

the Department of Economic Affairs to identify a suitable

8

Page 9 replacement of Mr. Sinha by that date. Mr. Bhushan points out

that in the meantime on 25

th

March, 2008, the

shareholders approved the emoluments of Mr. Sinha as

recommended with effect from 27

th

December, 2006. This,

according to Mr. Bhushan, was not permissible since 28

th

November, 2007 or at best since February, 2008 the

deputation of Mr. Sinha was no longer under Rule 6(2)(ii). Mr.

Bhushan points out that inspite of the recommendation of the

ACC on 10

th

March, 2008, a recommendation was made by the

Chairman of SBI on behalf of other shareholders proposing

that Mr. Sinha should continue as CMD of UTI AMC even

beyond 31

st

May, 2008. In the recommendation letter, it was

proposed to offer four years tenure to Mr. Sinha as CMD of UTI

AMC with effect from 1

st

June, 2008 or earlier without break of

continuity. The letter also notices that under the existing

Government Rules Mr. Sinha will be able to take this offer only

if he takes voluntary retirement from the Government Service.

A formal letter for extension of tenure was issued to Mr. Sinha

on 11

th

April, 2008 by the UTI AMC. On 12

th

April, 2008 the

Board of UTI AMC approved that the CMD can draw revised

compensation with effect from 27

th

December, 2006.

9

Page 10 9. Mr. Bhushan had laid considerable amount of

emphasis on these facts to support the submission that

although the words in the aforesaid letters give the impression

that the approval of the shareholders of the pay package and

the bonus was for the future but in reality the resolution

enhanced the emoluments with effect from 27

th

December,

2006. Mr. Sinha in fact drew emoluments on that basis with

effect from 27

th

December, 2006. This fact, according to Mr.

Bhushan, is evident from the annual return of UTI AMC for the

year 2007-2008. The annual return shows his salary for the

year ended 31

st

March, 2008 as Rs.20.12 million. The return

also shows that Mr. Sinha has also been paid Rs. 4.40 million

as an arrear of his salary from 27

th

December, 2006 to 31

st

March, 2007 consequent to his salary restructured with effect

from 27

th

December, 2006. Being fully aware of all the

facts and having received compensation in crores of rupees,

Mr. Sinha did not disclose the same while making an

application for VRS on 15

th

April, 2008. Whilst giving the

answer to column No.5 in the form of application to accept the

commercial appointment, Mr. Sinha stated Rs.22,400–Rs.525-

Rs.24,500/- as his pay scale and Rs. 23,450/- as his present

basic pay.

10

Page 11 10. Mr. Bhushan pointed out that this information was

necessary for getting the no-objection from the Cadre

Controlling Authority and from the office from where the

officer retired. Mr. Bhushan further pointed out that not only

Mr. Sinha gave false information in the application for seeking

voluntary retirement; he repeated the same in the counter

affidavit, in response to the writ petition in this Court.

According to Mr. Bhushan, the averments made in paragraph

18 of the counter affidavit are contrary to the Balance Sheet of

the UTI AMC for the year 2007-2008. Mr. Bhushan

emphasized that it is apparent from the annual report of UTI

AMC for the year 2008-2009, 2009-2010 and 2010-2011 (10½

months), Mr. Sinha got remuneration of Rs.2.15 crores, Rs.

2.36 crores and Rs.3.62 crores, respectively. According to Mr.

Bhushan again in paragraph 21 of the affidavit Mr. Sinha has

tried to mislead this Court. Mr. Sinha had stated that the

excessive payment of Rs. 4 crores for the year 2010-2011 was

on account of severance payment. He submits that the

severance payment is payable only when the concerned

organization asks the CEO to leave. In the case of Mr. Sinha,

UTI AMC did not ask him to leave. In fact, Mr. Sinha did not

11

Page 12 even give the mandatory three months notice, and

relinquished the charge without giving any opportunity to the

organization to appoint another CEO. Mr. Bhushan submits

that Mr. Sinha wrongly received benefits of retirement when in

fact he had only resigned. He reiterated that Mr. Sinha has

given false information repeatedly. He gives a false

declaration under Rule 26(3)(ii) of All India Services Death-

cum-Retirement Benefit Rules to the effect that in the last

three years of his official career he has not been privy to

sensitive or strategic information of UTI AMC. Mr. Bhushan

pointed out that this statement is patently false as Mr. Sinha

was already on deputation in the same organization at the

time of taking VRS.

11. Mr. Bhushan also pointed out that the third

deliberate mis-statement made by Mr. Sinha in the application

to accept the post of CEO of UTI AMC, was to the effect that

such higher level post are generally not advertised. This

statement was in answer to the question whether the post on

which the appointment is sought was advertised and, if not,

how was the offer made. Mr. Sinha had stated that keeping in

mind the contribution made by him and the needs of the

12

Page 13 company, the shareholders have made the offer to him. Mr.

Bhushan submits that the statement about such higher level

post not generally being advertised was against the Aapte

Committee’s direction. In fact, after Mr. Sinha relinquished the

post, an advertisement was issued to fill the post of CMD, UTI

AMC on 4

th

June, 2012. On the basis of the aforesaid facts, Mr.

Bhushan submits that manipulation of deputation under Rule

6(2)(ii), extension of deputation, concealment of emoluments,

misrepresentation and distortion of facts in the application for

voluntary retirement and re-employment clearly reflect that

respondent No.4 is not a man of integrity.

12. Mr. Bhushan has also made a reference to a very

lengthy letter, written by one Dr. K.M. Abraham, a former

Whole Time Member of SEBI, dated 1

st

June, 2011, to the

Prime Minister of India. In this letter, the Whole Time Member

has complained that the Chairman, SEBI, Mr. U.K. Sinha is

being directly influenced by the Union Minister of Finance or

Smt. Omita Paul, Adviser to Finance Minister. Mr. Bhushan

reiterated that the letter by Dr. Abraham contains

unbiased information. The former Whole Time Member was

only expressing his concern that under the leadership of Mr.

13

Page 14 U.K. Sinha the institutional integrity of SEBI is being

compromised.

13. Another ground of attack on the appointment of

the respondent No.4 pertains to the suppression of material

facts relating to the remuneration of Mr. Sinha as CMD, UTI

AMC before the Search-cum-Selection Committee and the

ACC. Mr. Bhushan points out that the application form for the

post of SEBI Chairman required the applicant to disclose scale

of pay and basic pay of the post presently held along with

service of the petitioner. The first meeting of the Search-cum-

Selection Committee was held on 2

nd

November, 2010. The

SSC short listed five candidates out of nineteen. Mr. Bhushan

then points out that the second meeting of the Committee was

held on 13

th

December, 2010, wherein the names of Mr. U.K.

Sinha and Mr. Himadri Bhattacharya were recommended for

the post of Chairman, SEBI in the order of merit. Mr. Bhushan

further submitted that the selection of Chairman of SEBI

required the approval of the ACC. The appointments

recommended to the ACC have to be sent along with a

standard Performa and annexures which are to be filled in by

the Ministry recommending the appointment. The proposal for

14

Page 15 the appointment of Mr. Sinha was put up to the ACC by the

Finance Ministry vide its confidential letter

No.D.O.No.2/23/2007-RE dated 13

th

December,

2010. Blatantly false information is given against the column

requiring details about the pay scale presently enjoyed by the

applicant. In reply to this column, it is stated “not available”.

Against Column 6(ii), scale of pay of the post it is stated that

“the chairman shall have an option to receive pay (a) as

admissible to a Secretary to the Government of India; or (b) a

consolidated salary of Rs.3,00,000 per month. It was also

submitted that in between the first and the second meeting of

the Search-cum-Selection Committee, there were 40 days for

the officials to ensure that the particulars of Mr. Sinha are

verified before filling up the application form. The officials

could have ascertained the particulars of his emoluments as

CMD, UTI AMC. Mr. Bhushan submits that in order to mislead

this Court, Mr. Sinha in paragraph 10 of the counter affidavit

has given a totally false explanation that the Finance

Secretary was aware of his market-bench-marked salary as

CMD, UTI AMC. This, according to Mr. Bhushan, is a bald

assertion without any material to substantiate the same. Mr.

Bhushan submits that the other explanation given by Mr.

15

Page 16 Sinha that information relating to emoluments of CMD, UTI

AMC was in public domain as full disclosure is made in the

Balance Sheet of UTI AMC. It is submitted by Mr. Bhushan that

such an explanation cannot possibly be accepted. The

question before this Court, according to Mr. Bhushan, is not

whether the person who filled up the form knew or could have

known the correct emoluments drawn by Mr. Sinha. The issue

is that the applicant had failed to disclose the correct

particulars about his emoluments and the pay scale before the

Search Committee. This misinformation was also placed

before the ACC. According to Mr. Bhushan, such a

manipulative person cannot be said to be a man of integrity.

Mr. Bhushan, as noticed earlier, submitted that the Committee

in its second meeting had recommended two names.

However, the Finance Minister forwarded only the name of Mr.

Sinha to the ACC for approval. Even the document which was

placed before the ACC seeking approval for the appointment

of Mr. Sinha mentions “not available” against the present

scale of pay. Mr. Bhushan further pointed out that Mr. Sinha’s

total emoluments for the year 2010-2011 were over 4 crores

per annum. This amount was probably more than what the

bureaucrats senior to him and involved in the selection

16

Page 17 process were paid by the Government in their entire career.

Mr. Bhushan, therefore, submits that it was for this reason that

Mr. Sinha manipulated that there should be no advertisement

and the selection should be made through the Search route. In

the case of advertisement, he would have to reveal the

emoluments received by him. Relying on the aforesaid facts,

Mr. Bhushan submits that since vital pieces of information was

withheld from the Search Committee as well as ACC, Mr. Sinha

clearly cannot be said to be a man of high integrity. The post

of the Chairman, SEBI is a very important position having a

bearing on the flow of investment, Indian and Foreign,

economic growth and the safety of funds invested by large

and small investors. Therefore, according to Mr. Bhushan, it

was important that the complete facts particularly those

having direct bearing on deciding the question of integrity

should have been placed before the Search-cum-Selection

Committee and the ACC. In support of the submission learned

counsel has relied on the judgment of this Court in Centre for

PIL & Anr. Vs. Union of India & Anr.

1

14. The next ground of challenge of the petitioner to

the appointment of Mr. Sinha as the Chairman of SEBI is that it

1

(2011) 4 SCC 1

17

Page 18 is vitiated by mala fide. Mr. Bhushan pointed out that to

accommodate Mr. Sinha the earlier Chairman of SEBI was

denied extension in tenure. The SEBI (Term and Condition of

Service of Chairman and Members) Rules were amended on

23

rd

July, 2009 not to extend the term of the Chairman and the

WTM from three to five years. The Director of Capital Market

Division put up a proposal on 2

nd

September, 2009 for aligning

the terms of the Chairman and WTM by giving two years

extension and the same was endorsed by the Finance

Secretary. After following the due procedure, consent for the

extension of the concerned persons was taken and the

proposal for extension of tenure was recommended to the

DOPT by the Director, Capital Market Division by letter dated

16

th

November, 2009. According to Mr. Bhushan, from that

stage manipulation started with the active cooperation of Ms.

Omita Paul, the then Advisor in the Finance Ministry. On 25

th

November, 2009, she called for the file relating to the

recommendation for extension, in the term of the Chairman

and the Whole Time Member. The file was sent to her by the

Finance Secretary on 27

th

November, 2009 and was seen by

her on 30

th

November, 2009. It was again sent to the Advisor

for her perusal on 16

th

December, 2009 and noting was made

18

Page 19 by her on 21

st

December, 2009 drawing the attention of the

Finance Minister to Page 22 regarding the composition of the

SEBI Board and the present tenure of the Board. Mr. Bhushan

submits that the note was written in such a way by Ms. Omita

Paul, the then Finance Minister reversed his earlier decision to

accord extension to the then Chairman. Subsequently, the

orders were issued to start the selection process for the

Chairman on 10

th

August, 2010. Suggestion of giving further

extension to the existing officers was overruled. Mr. Bhushan

submits that the justification given by the respondents in the

counter affidavit for non grant of the extension is wholly

fallacious. He submits that the justification that earlier

Chairman was not granted extension as his name was

reported in newspapers of being involved in NSDL Scam.

According to Mr. Bhushan, there is no such noting in the

official files. Mr. Bhushan also emphasized that the real reason

for denial of extension to the former chairman is that it was at

his insistence that investigations were being held against the

Sahara and RIL. There was a complaint pending with regard to

insider trading relating to RIL and Reliance Petroleum in which

over Rs.500 crores were made in four days of trading in

September, 2007. Mr. Bhushan then submits that in order to

19

Page 20 facilitate the selection of Mr. Sinha there was illegal and

arbitrary change in composition of Search-cum-Selection

Committee. Ms. Omita Paul ordered two new names of her

own to be appointed as experts of eminence on the Selection

Committee. She also suggested Secretary (Financial Services)

over and above the two experts. Thus, according to Mr.

Bhushan, three of the five members of the Search-cum-

Selection Committee were hand picked by Ms. Paul. In order to

include Secretary (Financial Services) in the Search

Committee, Rule 5 of the Rules, 2010 was amended to include

clause (e) under which two nominees of the Finance Minister

were included. In such a way, primacy was given to the

Finance Minister. Mr. Bhushan submits that the record clearly

shows that the object of the entire exercise of changing the

Rules was to ensure that the Committee desired by the

Advisor Ms. Omita Paul remains unchanged. It was also done

probably to ensure that the ex-officio Chairman, the Cabinet

Secretary, remains the only member unconnected with the

Finance Minister. Mr. Bhushan submits that Ms. Omita Paul in

the reply affidavit has admitted that her role was merely

advisory. Mr. Bhushan submits that in spite of the admitted

position that her role was merely advising without having any

20

Page 21 authority to process the matter or take a decision, the files

relating to further extension or composition of Search-cum-

Selection Committee were regularly sent to her. The

composition of the Search Committee was changed at her

behest. Mr. Bhushan then submitted that the respondents

have sought to justify the selection of Mr. Sinha on the basis

that he was earlier unanimously selected by the Search-cum-

Selection Committee in 2008, on the same post. If that was so,

it is surprising that the Government, in fact, appointed Mr. C.B.

Bhave as the Chairman, SEBI, who had neither applied for the

post nor appeared in the interview. He had in fact informed

the Committee that he did not want to be considered for the

post of Chairman, SEBI. According to Mr. Bhushan, this can

hardly be a fact relevant to judge the integrity of Mr. Sinha.

15. To further establish the ground of a mala fide, Mr.

Bhushan submits that the post of CMD of UTI AMC was kept

vacant for 17 months to accommodate the brother of

respondent No.6 Ms. Omita Paul. He points out that shortly

after the appointment of Mr. Sinha in mid-February reports

started appearing in the press from April, 2011, that the

brother of Ms. Omita Paul, Jitesh Khosla, was the front runner

21

Page 22 for the post of UTI AMC because he had the backing of the

Finance Minister. These reports also stated this was being

resisted by a foreign investor and whose consent was

necessary. Thus, the post of CMD UTI AMC continued to

remain vacant for 17 months because the brother of Omita

Paul could not be appointed to the post. According to Mr.

Bhushan, the whole episode of appointment of Mr. Sinha as

CMD, UTI AMC and the proposed appointment of Mr. Jitesh

Khosla was adversely commented upon by the Joint

Parliamentary Committee, because the recommendations of

the Committee were ignored. The Joint Parliamentary

Committee had gone into the entire UTI Scam as a result of

which massive losses were incurred by the Government

investors and tax payers. The report in paragraph 5 made the

following recommendations :-

“(V) Government has stated that a professional

Chairman and Board of Trustees will manage UTI-

II and that advertisements for appointment of

professional managers will be issued. The

committee recommended that it should be

ensured that the selection of the Chairman and

professional managers of UTI-II should be done in

a transparent manner, whether they are picked

up from the public or private sector. If an official

from the public sector is selected, in no case

should deputation from the parent organization

be allowed and the person chosen should be

asked to sever all connections with the previous

employer. This is imperative because under no

22

Page 23 circumstance should there be a public perception

that the mutual fund schemes of UTI-II are

subject to guarantee by the Government and will

be bailed out in case of losses.”

16. Mr. Bhushan submits that the aforesaid

recommendations were blatantly ignored in the selection of

Mr. Sinha. He further pointed out that neither Mr. Sinha nor

Mr. Jitesh Khosla were professionals. Neither of them met any

of the four criteria in the advertisement inserted for the post

of UTI CMD in newspaper dated 4

th

June, 2012. In fact, the

entire manipulation and mala fide exercise, according to Mr.

Bhushan, is exposed by the advertisement that was released

after the brother of Ms. Omita Paul, Advisor opted out of the

race because the tenure of Ms. Omita Paul, Advisor

was coming to an end on account of it being co-terminus with

that of Finance Minister. He emphasized that it was only then

the advertisement was released fulfilling the commitment

given to the JPC by the Government in 2002.

17. In reply to the preliminary objection raised by the

respondents in the counter affidavit/replies, he submits that

they deserve to be ignored. According to Mr. Bhushan, the

respondents including the Government have made concerted

23

Page 24 attack on the public spirited attitude of the petitioner. He is

wrongly labeled as a person who has been set up by persons

or entities having vested interests. It is also wrongly alleged

that the petitioner had similarly challenged the appointment

of another past Chairman of SEBI which was decided against

him with imposition of costs. The respondents have also

wrongly stated that this is the 4

th

similar petition on a similar

issue. Re-enforcing high credentials of the petitioner, Mr.

Bhushan submits that he has filed several notable public

interest litigations that have unearthed corruption and

financial irregularities. The appointment of the petitioner as

Advisor to Prasar Bharti benefited the organization by about

Rs. 20 Crores. He was the original complainant in the 2G

spectrum scam which eventually led to the registration of the

FIR by the CBI. This fact has been noted by this Court in the

2G case. On the basis of the above, Mr. Bhushan submits that

the petitioner has given his time and forgone earnings

selflessly in the true spirit of Article 51A of the Constitution

and continues to unravel financial scams because of the

paucity of people who both understand and are willing to take

risks and make sacrifices. Mr. Bhushan then points out that

the petitioner had previously challenged the appointment of a

24

Page 25 previous SEBI Chairman, but it was not related to the integrity

of the then Chairman. In fact, the then Chairman was a person

with high integrity and compassion. However, his leniency in

trusting the sharp players in the market resulted in lot of

scams in the first three years of his tenure. Therefore, the

petitioner has challenged the extension that had been given

to the then Chairman SEBI on the ground that the Government

should reassess his performance after three years. The writ

petition was dismissed. The Chairman was given yet another

extension in 2000 to make him the longest serving Chairman.

What followed was the largest stock market scam in which the

investors and the government lost tens of thousands of crores

and the entire JPC report is the testimony to the scam. The

Government and tax payer lost over Rs.10,000 crores in the

UNIT 64 scam. Similarly Mr. Bhushan submits that the

respondents have wrongly taken the preliminary objection

that earlier two writ petitions having been filed by the

petitioner challenging the appointment of respondent No.1

having been dismissed as withdrawn. He further submits that

the respondents have wrongly leveled allegations that this

petition is at the behest of some other person who is

interested to continue as the Chairman of SEBI. The petitioner

25

Page 26 has not prayed for the reinstatement of any of the previous

incumbents. The petitioner only prays for appointment of a

person as the Regulator who should be a person of high

integrity functioning in a transparent manner. Mr. Bhushan

submits that although the respondents claim that the

petitioner has suppressed material facts, the suppression of

facts by respondent No.4 is not treated with the same amount

of concern.

Respondents’ Submissions:

18. In response to the submission made, learned

Attorney General Mr. G.E. Vahanvati, appearing for the Union

of India, has submitted that public interest litigation

jurisdiction is based on the principle of Uberrimae fide which

means ‘utmost good faith’. Therefore, before the petitioner

can attack the integrity of respondent No.4, he would have to

establish his own good faith in filing the present writ petition.

He further submits that this is a very unfair petition.

Documents have been presented before the Court in a very

selective manner. The petitioner has admitted the suppression

of earlier petition but he has tried to explain it by giving some

excuses. The submission of the petitioner that the petition

26

Page 27 was dismissed on the pleadings has been contended by Mr.

Vahanvati to be totally without any basis. This is evident from

his letter to the Registrar sent in August, 2000. He stated that

Writ Petition (C) No.69 of 2012 deals with Cairn-Vedanta deal

and it has nothing to do with the present writ petition. Then it

is stated that there is one similar matter filed by some other

person which is pending before this Court which is W.P. (C)

No.246 of 2012. The petitioner never mentioned the earlier

petitions filed by him which were dismissed. The objection

taken is that the petition deserves to be dismissed for

suppression of earlier petition. The letter given to the

Registrar gives the totally distorted version. Similarly, the

petitioner has distorted the entire sequence of events with

regard to the deputation of Mr. Sinha.

19. Mr. Vahanvati points out to paragraph 34 of the

petition and the emphasis placed by the petitioner that “within

a period of a day the emoluments too increased from around

six lacs per annum to one crore per annum”. It is submitted

that the deputation of respondent No.4 commences on 3

rd

November, 2005 he became CEO, UTI AMC on 27

th

December,

2006. The letter dated 16

th

April, 2006 which is very relevant

to the issue has been withheld by the petitioner. Referring to

27

Page 28 the affidavit of Mr. Sinha, he submits that all other information

has been given according to law. The terms and conditions for

deputation clearly show that Mr. Sinha was permitted to opt

for his grade of pay or pay scale whichever is more beneficial

for him. The recommendations made by the Aapte Committee

were taken into notice when extension of tenure of Mr. Sinha

was approved by the Board of Directors UTI AMC on 17

th

September, 2007. Actual sanction came on 11

th

April, 2008, as

the approval of the Bank of Baroda did not come till 29

th

March, 2008. Therefore, there was no approval prior to 11

th

April, 2008 of the compensation of Rs.1 crore per annum

alongwith the related payment of bonus of Rs. 1 crore.

Similarly, it is stated by Mr. Vahanvati that submission of the

application for voluntary retirement was done four days after

the approval on 15

th

April, 2008. Until then, the petitioner had

been in receipt of pay scale which was duly sanctioned on the

post held by him in the Government. Therefore, the petitioner

has unnecessarily tried to create an impression that there has

been any deliberate misrepresentation or concealment of fact

by respondent No.4. In the form of application to accept

commercial appointment, respondent No.4 had clearly stated

that he has been working as the Director/CEO UTI AMC since

28

Page 29 3

rd

November, 2005 till date. Respondent No.4 had to state the

pay scale of the post and the pay drawn by the officer at the

time of the retirement which in his case was of Rs.22,400-535-

24,500. Respondent No.4 had clearly mentioned his present

basis pay as Rs.23,450/-.

20. Learned Attorney General submitted that the

petitioner has wrongly alleged that respondent No.4 had given

a false declaration that he was not privy to any sensitive

information. This would clearly only indicate that the

respondent No.4 has to disclose that he was not privy to any

sensitive information received in his official capacity. Learned

Attorney General submits that the petitioner in fact has an

absurdity of facts with regard to compensation which were

placed before the Ministry of Finance on 1

st

May, 2008. The

Finance Minister approved the proposal. It was specifically

observed that there is no conflict of interest between the

Government of India and UTI AMC. On 17

th

April, 2008,

Department of Personnel and Training sent a comprehensive

note with regard to the application of respondent No.4 in the

prescribed format to seek permission under Rule 26 of the All

India Services (DCRB) Rules, 1958 to join the Company i.e. UTI

29

Page 30 Asset Management Company Ltd. on regular basis, post

voluntary retirement. The proposal was thoroughly examined

and duly approved by all the authorities. Learned Attorney

General drew our attention to paragraph 30 of the petition and

submitted a list of documents. The petition has given a twist in

the tale. This has been done, according to learned Attorney

General, to give the same controversy a new flavour. He

submits that the allegations about the pattern of JPC directions

are false. The same petitioner had challenged Mr. Mehta’s

appointment earlier. It is the submission of learned Attorney

General that public interest litigation cannot be filed

irresponsibly. It has to be handled very carefully. It cannot be

used as an AK-47 with the hope that some bullets will hit the

target. The allegations of the petitioner that the rules were

deliberately amended to hand pick Mr. Sinha are without any

basis. In fact, there was no illegality committed in changing

the composition of Search-cum-Selection Committee. Prior to

23

rd

July, 2009 there was no rule on the procedure to be

followed for the selection of Chairman/WTM of SEBI. Therefore,

before July, 2009 selections were made as decided by the

Finance Minister from time to time. However, for the selection

of the SEBI Chairman in 2008 the then Finance Minister had

30

Page 31 approved on 2

nd

November, 2007 that the High Powered

Search Committee (later notified as the Search Committee)

which had four members and one Chairman. The Finance

Minister noted that there should be one more outside expert.

Accordingly, Dr. S.A. Dave, Chairman CMIE, was nominated as

the Member. Therefore, to say that the amendment of the

rules has been made just to ensure that balance was tilted in

favour of the Finance Minister is without any basis.

21. Learned Attorney General also pointed out that the

Search-cum-Selection Committee in its meeting held on 29

th

January, 2008 had unanimously short listed two names in the

following order: (1) Mr. U.K. Sinha and (2) Mr. J. Bhagwati.

However, notwithstanding the recommendation of Mr. Sinha

by the Selection Committee, Shri Bhave was appointed as

Chairman, SEBI on 15

th

February, 2008. In 2009, a statutory

system was established for selection of Chairman/Whole Time

Member of the SEBI. The proposal was also placed to amend

Rule 3 of the Securities & Exchange Board of India (Terms and

Conditions of Service of Chairman and Members) Rules, 1992

to include the provision relating to procedure to be followed

for the selection of Chairman/WTM of SEBI. This was done by

31

Page 32 incorporating sub-rule (5) which required the recommendation

of the Search-cum-Selection Committee consisting of Cabinet

Secretary, Department of Economic Affairs, Chairman, SEBI for

selection of WTM and two experts of eminence from the

relevant field. When it was decided in 2010 to initiate action

for the fresh selection for the post of Chairman, SEBI two

experts of eminence from the relevant field were Shri Suman

Bery, Director General, National Council of Applied Economic

Research (NCAER) and Prof. Shekhar Choudhary, former

Director, IIM Calcutta. The composition of the Search-cum-

Selection Committee was sent to the Department of Personnel

& Training for approval. However on 23

rd

September, 2010,

Department of Personnel and Training pointed out that

inclusion of the Secretary Financial Services was not within the

Rules as amended on 23

rd

July, 2009. Therefore, the matter

was again referred to the Ministry of Law & Justice. During the

discussion that was held with the Ministry of Law, it was

suggested that there could be an amendment to the rule

based on the Income Tax Appellate Tribunal Members

(Recruitment and Conditions of Service) Rules, 1963. Under

these rules, the Selection Board inter alia consists of a

nominee of the Ministry of Law as well as such other persons if

32

Page 33 any, not exceeding two, as the Law Minister may appoint. It

was in these circumstances that the proposal to amend the

1992 Rules was approved.

22. The Search-cum-Selection Committee after

scrutinizing the qualification and experience of the short listed

candidates unanimously placed respondent No.4 first in the

order of merit. The impression sought to be given wrongly by

the petitioner is that respondent No.4 was placed at No.2 and

Mr. Bhattacharya was at No.1. This is a deliberate distortion by

the petitioner.

23. With regard to the role played by Ms. Omita Paul,

learned Attorney General submitted that in fact the present

petition is a mala fide attempt to resurrect the challenge

earlier rejected by this Court. The petition is a sheer abuse of

the process of law. The petitioner is guilty of making reckless

allegations against two highly respected dignitaries who were

appointed expert members of the Selection Committee.

Learned Attorney General also submitted that the submissions

with regard to the non extension of tenure of Mr. Bhave are

totally baseless and need to be ignored. He makes a reference

33

Page 34 to a detailed explanation given in the affidavit filed by the UOI.

The term of Mr. Bhave was not extended to avoid the

Government being unnecessarily involved in a scandal. In the

earlier petition (W.P. No. 340 of 2012), the petitioner has

sought an extension to continue the tenure of Mr. Bhave for 5

years which was withdrawn. Prayer No.2 in the W.P.(C) No.340

of 2011 was as follows :

“Issue a writ of mandamus or any other

appropriate writ, order or, direction to quash and

declare void constitution of sub-committee of the

Search-cum-Selection Committee under Shri

U.K.Sinha, Chairman SEBI for conducting interview

to the post of whole time members and

proceedings/recommendation thereof.”

24. This would clearly ensure that as soon as Mr.

Sinha’s appointment was declared void, Mr. Bhave would

continue as a Chairman. This is evident from Prayer 5 which is

as under :

“Issue a writ of mandamus or any other

appropriate Writ, order or direction to direct

Respondent Nos.1 & 2 to act in accordance with

the Government of India Notification

No.2/106/2006-RE, dated 23

rd

July, 2009 which

stipulates enhancement of the tenure of existing

Chairman and Whole Time directors of SEBI from

three (3) to five (5) years.”

25. Similarly, Writ Petition (C) No.392 of 2011 again

34

Page 35 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.

26. Mr. Harish Salve, learned senior counsel and Mr.

Rajesh Dwivedi appearing for respondent No. 4 have also

raised a preliminary objection on the ground of

maintainability. According to Mr. Salve, the writ petition is not

maintainable because it is not filed in public interest. In fact,

the writ petition has been filed as surrogate litigation on

behalf of an individual who was very anxious to continue as

35

Page 36 Chairman, SEBI, namely Mr. C.B. Bhave. Secondly, Mr. Salve

submits that the writ petition is liable to be dismissed as it

does not make a candid disclosure of all the facts which are

relevant for the adjudication of the issues raised. Learned

senior counsel submits that a litigant is duty bound to make

full and true disclosure of the facts without any reservation,

even if they seem to be against them. In support of this

proposition, he relies on State of Madhya Pradesh Vs.

Narmada Bachao Andolan & Anr.

2

and K.D. Sharma Vs.

Steel Authority of India Limited & Ors.

3

. The factual basis

for the aforesaid submission is that the petitioner had filed a

writ petition in the Delhi High Court against the then

Chairman, SEBI, Mr. D.R. Mehta, which was dismissed with

cost. A Special Leave Petition against the same was

dismissed. However, this Court reduced the cost. This fact is

deliberately suppressed. Writ Petition No. 340 of 2011 on the

same issue was dismissed by this Court. Dismissal of these

petitions has also been suppressed by the petitioner.

Mr. Salve reiterates the submissions of the Attorney General

that public interest litigation is founded on the principle of

uberrima fide, i.e., the utmost good faith of the petitioner. To

2

(2011) 7 SCC 639

3

(2008) 12 SCC 481

36

Page 37 buttress his submission, learned senior counsel relied on S.P.

Gupta’s case. This petition is motivated by ill will, and the

moving spirit behind the petition is Mr. C.B. Bhave. He

reiterated the submissions of the Attorney General that Mr.

C.B. Bhave and the Whole Time Member Dr. K.M. Abraham

were aggrieved by the non-grant of extension to them, on the

posts occupied by them, in the light of change in the rules. In

fact, the petitioner, in his submission, has made detailed

reference to the motivated complaint made by the Whole

Time Member Dr. K.M. Abraham about the functioning of the

new Chairman, i.e., Mr. U.K. Sinha. This was only because

Mr. Bhave and Mr. Abraham were upset about the non-

extension of tenure of Mr. Bhave. Apart from the change of

rules, the extension was not granted to Mr. Bhave for his

lapses in dealing with the IPO Scam of 2005 when he was the

Chairman of NSDL.

Conclusions:

27. We have considered the submissions made by the

learned counsel for the parties. Although all the respondents

have raised the preliminary issue about the maintainability of

the writ petition, we shall consider this submission after we

37

Page 38 have considered the issue on merits. The foremost issue

raised by the petitioner and emphasized vehemently by Mr.

Parshant Bhushan is that respondent No.4 lacks the integrity

and does not meet the eligibility conditions laid down in sub-

section (5) of Section 4 of the SEBI Act. Additionally,

respondent No.4 does not fulfil the conditions contained in

communication of the government dated 10

th

September,

2010 which emphasizes, keeping in view the role and

importance of SEBI as a regulator, that it is desirable that only

a person with high integrity and reputation should be

appointed as Chairman of SEBI.

28. We have narrated the sequence of events relied upon by

the petitioner to establish that respondent No.4 is not a man

of high integrity. We have also narrated how the respondents

have, with equal vehemence, countered the submissions

made on behalf of the petitioner. All the respondents have

submitted that the writ petition filed by the petitioner ought to

be dismissed on the ground of maintainability alone. As

noticed earlier, we shall consider the preliminary objections

later.

38

Page 39 29.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

39

Page 40 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.

4

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

4

2013 (1) SCC 1.

40

Page 41 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 Section 11. In paragraph 303.1, it is observed

as follows :-

“303.1. Sub-section (1) of Section 11 of the SEBI

Act casts an obligation on SEBI to protect the

interest of investors in securities, to promote the

development of the securities market, and to

regulate the securities market, “by such measures

as it thinks fit”. It is therefore apparent that the

measures to be adopted by SEBI in carrying out its

obligations are couched in open-ended terms

having no prearranged limits. In other words, the

extent of the nature and the manner of measures

which can be adopted by SEBI for giving effect to

the functions assigned to SEBI have been left to

the discretion and wisdom of SEBI. It is necessary

to record here that the aforesaid power to adopt

“such measures as it thinks fit” to promote

investors’ interest, to promote the development of

the securities market and to regulate the securities

market, has not been curtailed or whittled down in

any manner by any other provisions under the SEBI

Act, as no provision has been given overriding

effect over sub-section (1) of Section 11 of the

SEBI Act.”

In sub-paras 303.2, 303.3 and 303.4, the powers of SEBI

under Section 11(2), 11(3) and 11(4) have been analysed and

41

Page 42 elaborately explained.

30. It becomes clear from the above that the functions

performed by SEBI are such that any malfunctioning in the

performance of such functions can disturb the economy of our

country. Keeping in view the aforesaid scope and ambit of the

discretionary powers conferred on the Members of the SEBI

Board, there is little doubt in our mind that only persons of

high integrity would be eligible to be appointed as

Chairman/Member of the SEBI. Section 4(5) inter alia

stipulates that the Chairman and other Members of the SEBI

shall be persons of “ability, integrity and standing who have

shown capacity in dealing with problems relating to securities

market.” Statutorily, therefore, a person cannot be appointed

as Chairman/Member of the SEBI unless he or she is a person

of high integrity. We, therefore, have no hesitation in

accepting the submission of Mr. Bhushan that the selection

and appointment of respondent No.4 could be challenged

before this Court in a writ petition under Article 32 of the

Constitution of India on the ground that he does not satisfy the

statutory requirements of a person of high integrity.

31.Since Mr. Bhushan has relied on the judgment of this

42

Page 43 Court in Centre for PIL & Anr. (supra) , it would be

appropriate to notice the observations made in that judgment

by S.H. Kapadia, C.J. in paragraph 2 of the judgment, it has

been observed as follows :-

“2. The Government is not accountable to the

courts in respect of policy decisions. However, they

are accountable for the legality of such decisions.

While deciding this case, we must keep in mind the

difference between legality and merit as also

between judicial review and merit review. …. If a

duty is cast under the proviso to Section 4(1) on

the HPC to recommend to the President the name

of the selected candidate, the integrity of that

decision-making process is got to ensure that the

powers are exercised for the purposes and in the

manner envisaged by the said Act, otherwise such

recommendation will have no existence in the eye

of the law.”

In our opinion, these observations are relevant as the

procedure prescribed for the appointment of Chairman, SEBI is

similar to the procedure which was prescribed for the selection

on the post of Central Vigilance Commissioner. This apart, it

has been emphasised that CVC is an integrity institution. The

reasons for the aforesaid view are stated in paragraph 39, it

has been observed as follows :-

“39. These provisions indicate that the office of

the Central Vigilance Commissioner is not only

given independence and insulation from external

influences, it also indicates that such protections

are given in order to enable the institution of the

CVC to work in a free and fair environment. The

43

Page 44 prescribed form of oath under Section 5(3)

requires the Central Vigilance Commissioner to

uphold the sovereignty and integrity of the

country and to perform his duties without fear or

favour. All these provisions indicate that the CVC

is an integrity institution. The HPC has, therefore,

to take into consideration the values,

independence and impartiality of the institution.

The said Committee has to consider institutional

competence. It has to take an informed decision

keeping in mind the abovementioned vital

aspects indicated by the purpose and policy of

the 2003 Act.”

32.Elaborating further, Kapadia, C.J., has further observed :

“43. Appointment to the post of the Central

Vigilance Commissioner must satisfy not only the

eligibility criteria of the candidate but also the

decision-making process of the

recommendation...”

33.In paragraph 44, it was clarified that “we should not be

understood to mean that personal integrity is not relevant. It

certainly has a co-relationship with institutional integrity.”

34.Keeping in view the aforesaid observations and the ratio

of the law laid down, let us now examine the issue with regard

to the validity of the recommendation made for the

appointment of Mr. Sinha together with the issue as to

whether Mr. Sinha does not fulfil the statutory requirement to

be appointed as the Chairman of SEBI.

DEPUTATION : Was it irregular, illegal or vitiated by

44

Page 45 colourable exercise of power?

35. It is a matter of record that respondent No.4 was on

deputation with UTI AMC since the year 2005. His deputation

was duly approved by the Ministry of Finance, DOPT and the

Government of Bihar, wherever applicable. Respondent No.4

was first appointed as CEO, UTI AMC by order dated 30

th

October, 2005. He was initially on deputation under Rule 6(2)

(ii) and subsequently under Rule 6(2)(i) of the IAS Cadre Rules.

The terms and conditions of service of respondent No.4 at UTI

AMC were settled on 16

th

April, 2007. This was in conformity

with the letter dated 31

st

October, 2005 written by the DOPT

accepting the request made by the Government of Bihar in its

letter dated 28

th

October, 2005 for approval of deputation of

respondent No.4 with UTI AMC for a period of two years under

Rule 6(2)(ii) of IAS Cadre Rules. The letter further indicated

that terms and conditions applicable in the aforesaid

deputation were under examination and would be

communicated shortly. The deputation was converted from

Rule 6(2)(ii) to Rule 6(2)(i), upon clarification of the

applicability of the appropriate rule. This fact is noticed by the

petitioner himself whilst stating that although on 6

th

November, 2007, the proposal for extension of deputation of

45

Page 46 Mr. Sinha was for two years, but the extension was granted

only for a period of three months until 2

nd

February, 2008, as

an interim measure. This, according to the petitioner himself,

was because some general issue regarding deputation under

Rule 6(2)(ii) of IAS (Cadre) Rules, 1954 was being examined.

Therefore, we are unable to accept the submission of Mr.

Bhushan that respondent No.4 was in any manner responsible

for being sent on deputation initially under Rule 6(2)(ii) and

subsequently under Rule 6(2)(i). The “Final Consolidated

Deputation Guidelines for All India Service” issued on

28

th

November, 2007 would also indicate that respondent No.4

cannot be said to be, in any manner, responsible for being

sent on deputation under Rule 6(2)(ii). Nor can it be said that

any individual officer aided Mr. U.K. Sinha to gain any unfair

advantage. Therefore, it cannot be said that his deputation

under Rule 6(2)(ii) was approved in colourable exercise of

power.

“ False Declaration in Form L”

36.A perusal of Office Memorandum dated 1

st

May, 2008

sent by the Department of Economic Affairs in reference to the

letter sent by DoP&T seeking comments of DEA under Rule

46

Page 47 26(3) of All India Services (Death-cum-Retirement Benefits)

Rules, 1958 would show that necessary facts relating to the

service of respondent No.4 in the six years prior to the

response dated 1

st

May, 2008 had been faithfully set out. The

Memorandum records the following facts:-

“Shri U.K. Sinha had been working as Joint Secretary

(Capital Markets) in DEA from 2nd June, 2002 to

29th October, 2005. Before joining DEA (Main) he

had been Joint Secretary in the erstwhile Banking

Division (presently Department of Financial

Services) from 30th October, 2000 to 1st June, 2002.

·With the approval of the competent authority,

he has been on deputation to Unit Trust of India

Asset Management Company (UTI AMC) as its

CMD since 3rd November, 2005, and his term

there expires on 31st May, 2008. Going by his

experience and qualifications, the name of Shri

Sinha had been unanimously shortlisted by the

Chairmen of the sponsors of UTI AMC [State

Bank of India (SBI), Life Insurance Corporation of

India (LIC), Bank of Baroda (BoB) and Punjab

National Bank (PNB)]. The Government has

approved his deputation to UTI AMC, in public

interest.

·UTI AMC is a company formed by SBI, PNB, BoB

and LIC, each having equal shareholding. It is

registered with Securities and Exchange Board

47

Page 48 of India (SEBI) and is engaged in activities

pertaining to mutual fund, portfolio

management, venture fund management,

pension fund and offshore fund management.

The UTIAMC is managing the 'financial assets of

over Rs. 50,000/- crores.

·Considering the challenges that UTI AMC faces

in the prevailing market conditions and the

need for continuity necessitated by the

structural changes undertaken in the Company,

the Chairman of SBI, in consultation with other

stakeholders of UTI AMC (viz. LIC, BoB and PNB)

has offered to Shri Sinha a four year tenure as

CMD of UTIAMC w.e.f. 1

st

June, 2008, or earlier

without break of continuity on the

understanding that Shri Sinha will take

voluntary retirement from Government service

and that Shri Sinha will be entitled for salary

and perquisites decided by the Compensation

Committee of the Board of the Company from

time to time. Hon'ble Finance Minister has

approved this proposal.

2. The Department of Economic Affairs supports

the request of Shri U.K. Sinha for post retirement

commercial employment with UTI AMC as its CMD

and certify the following:

·The proposed employment of Shri U.K. Sinha

with UTIAMC as its CMD is in public interest and

has the approval of Hon'ble Finance Minister.

48

Page 49 ·There is no conflict of interest between the

Government of India and the UTIAMC.

·UTIAMC, formed by SBI, PNB, BoB and LIC, is

neither involved in activities prejudicial to

India's foreign relations, national security and

domestic harmony nor is undertaking any form

of intelligence gathering prejudicial to India.

·In the prevailing financial markets condition, the

fixed pay of Rs. 1 crore per annum, along with

performance related payouts and other usual

perks, offered by UTIAMC to Shri Sinha is

considered reasonable.

·As per the information available in DEA, the

service record of Shri U.K. Sinha is clear,

particularly with respect in integrity and

dealings with NG0s.

3. Department of personnel &, Training is

accordingly requested kindly to grant requisite

permission to Shri U.K. Sinha, under intimation to

this Department.

4. This issues with the approval of Hon'ble Finance

Minister.

(S.K. Verma)

Director to the Government of India…”

37.Keeping in view the aforesaid, we are not satisfied that

the petitioner has made any false declaration in 'Form L',

Clause 9 read with Rule 26(3) of All India Services (Death-cum-

49

Page 50 Retirement Benefits) Rules, 1958, while working in his

previous job as Chairman, UTI AMC. Mr. Bhushan has pointed

out the following mis-statements and opinions :-

i.In Serial-5, pay scale for the post of Addl. Secretary

was mentioned although respondent No.4 was

drawing the higher pay scale approved by UTI AMC.

ii.In Serial 9, the 2

nd

declaration was false as

respondent No.4 was working as CEO cum CMD of UTI

AMC during the last 3 years on deputation and

therefore he was privy to sensitive or strategic

information relating to areas of interest or work of UTI

AMC.

iii.A mis-statement had been made that generally such

posts are not advertised and that was against the JPC

Recommendation.

38.In our opinion, the respondents have rightly pointed out

that respondent No.4 was on deputation in UTI AMC when he

filled up Form `L'. At that time, he held lien on the post of

Additional Secretary, Government of India. His application for

voluntary retirement had been processed. He was, however,

required to obtain approval under Rule 26 for commercial

employment-post retirement. Sr.No.5 of Form `L' requires the

person seeking approval to state the pay scale of the post and

pay drawn by the Officer at the time of retirement.

50

Page 51 Undoubtedly, respondent No.4 was drawing the pay scale of

Rs.22400-525-24500. He also stated his present pay to be

Rs.23,450/-. There is no legal infirmity in the aforesaid

statement by respondent No.4. It is a settled proposition of

law that deputationist would hold the lien in the parent

department till he is absorbed on any post. The position of law

is quite clearly stated by this Court in State of Rajasthan &

Anr. Vs. S.N.Tiwari & Ors.

5

“18. This Court in Ramlal Khurana v. State of

Punjab observed that: (SCC p. 102, para 8)

“8. … Lien is not a word of art. It just

connotes the right of a civil servant to hold

the post substantively to which he is

appointed.”

19. The term “lien” comes from the Latin term

“ligament” meaning “binding”. The meaning of lien

in service law is different from other meanings in

the context of contract, common law, equity, etc.

The lien of a government employee in service law

is the right of the government employee to hold a

permanent post substantively to which he has

been permanently appointed.”

39.Similarly, in the case of Triveni Shankar Saxena Vs.

State of U.P. & Ors.

6

, it has been held as under:-

5

(2009) 4 SCC 700

6

1992 Supp. (1) SCC 524

51

Page 52 “24. A learned Single Judge of the Allahabad High

Court in M.P. Tewari v. Union of India following the

dictum laid down in the above Paresh Chandra

case and distinguishing the decision of this Court

in P.L. Dhingra v. Union of India has observed that

“a person can be said to acquire a lien on a post

only when he has been confirmed and made

permanent on that post and not earlier”, with

which view we are in agreement.”

40.In response to Column No.7 of the same Form,

respondent No.4 has quite clearly mentioned that he has been

offered a fixed pay of Rs. 1.00 crore per annum alongwith

performance related payment and other usual perks. The

letter containing the offer was enclosed with the Form. The

letter clearly states that the Board of Directors, UTI AMC, after

going through the prevailing practice in the Industry, has fixed

a compensation of Rs.1.00 crore per annum alongwith

performance related perks and other usual prerequisites. The

shareholders of the UTI AMC have also indicated their

concurrence to the above compensation. It must be noticed

that respondent No.4 had sought retirement from the IAS

w.e.f. 15

th

May, 2008 to enable him to join UTI AMC on a

regular basis as its CMD. Therefore, it cannot be said that at

the time when he filled the Form for seeking VRS, respondent

No.4 was not drawing the pay scale stated by him. We do not

find much substance in the allegation that respondent No.4

52

Page 53 had deliberately suppressed the information regarding his

salary. The fact that emoluments paid to respondent No.4

w.e.f. 27

th

December, 2006 would not affect the statement

made by respondent No.4 in Form `L' filled on 15

th

April, 2008.

The Board of UTI AMC by resolution dated 12

th

April, 2008

approved that the CMD can draw revised compensation w.e.f.

27

th

December, 2006. Till that date, he was still placed in the

scale of Additional Secretary, Government of India.

41.The next submission of Mr. Bhushan is that Mr. Sinha

had wrongly stated in reply to Sr. No. 9(ii) in Form `L' that he

was not privy to any sensitive or strategic information in the

last three years of service. This submission of the petitioner is

based only on assumption and cannot be accepted without

any supporting material. Respondent No.4 in his capacity as a

Joint Secretary/Additional Secretary to Government of India

was required to state whether he was privy to any sensitive

information in his official capacity. The information would be

required if the Officer was in receipt of information whilst

working as Officer in the Government and is aware of the

sensitive proposals or other decisions which are not otherwise

known to others and which can be used for giving undue

53

Page 54 advantage to the Organization in which he is seeking a future

position. In the case of respondent No.4, he was already

working as CMD-cum-CEO in the UTI AMC. Therefore, there

was no question of respondent No.4 having been privy to any

sensitive information with regard to UTI AMC at the time when

he was posted as Joint Secretary/Additional Secretary in the

Government of India. In fact, respondent No.4 in the same

Form No. L at Sr.No.7-C had stated that he was earlier working

as Director in UTI AMC and was appointed as CEO cum MD

from 3

rd

November, 2005 and CMD from 13

th

January, 2006.

The declaration is in fact in conformity with the 3

rd

proviso to

Rule 26 of All India Service (DCRB) Rules which envisages that

an Officer in deputation of an Organization under Cadre rules

can be absorbed in the same Organization post VRS. The word

“Service” in Sr. No. 9(ii) in Form L is in contrast to the

work of proposed Organization.

42.We are also not much impressed by the submission on

behalf of the petitioner that the deputation was in violation of

policy of not allowing deputation to an Officer who has over-

seen the Organization to which he was being deputed. As

noticed earlier, respondent No.4 had no role to play in the

54

Page 55 grant of approval of deputation, once he fully disclosed that he

had been working as Joint Secretary Banking. He had no

further role to play. It is a too farfetched submission that

whilst respondent No.4 worked as Joint Secretary Banking that

he can be said to have over-seen the Organization of UTI AMC.

The petitioner had unnecessarily and without any basis tried

to confuse that respondent No.4 would be disqualified for

deputation in UTI AMC as he would have been privy to

receiving some sensitive information with regard to its

functioning. As noticed earlier, Rule 36 of All India Service

(DCRB) Rules envisages that an Officer on deputation to an

Organization can be absorbed in the same Organization after

seeking voluntary retirement.

43.We may also notice here that even the petitioner has not

pleaded that UTI AMC is a Government owned Company under

Section 617 of the Companies Act. Mr. Bhushan tried to

establish that it is a Government controlled company as the

shares are all held by instrumentalities of the State. In our

view, UTI AMC can not be said to be a Government company.

It was for this very reason that respondent No.4 had to make a

request for VRS to seek re-employment in a Commercial

Organization. We are also not much impressed by the

55

Page 56 objection of the petitioner that the deputation of respondent

No.4 was contrary to the recommendation of JPC. Subsequent

to the recommendation of JPC, the Parliament had passed UTI

(Transfer of Undertaking and Repeal) Act, 2002 which was

gazetted on 17

th

December, 2002 and came into force w.e.f.

29

th

October, 2002. Under the Act, UTI was bifurcated into

SUUTI and UTI Mutual Fund, managed by UTI AMC. The Central

Government transferred its entire share holding in UTI AMC to

Life Insurance Corporation, Punjab National Bank, Bank of

Baroda and SBI. The entire consideration for the aforesaid

transfer was received by the Central Government. Therefore,

it becomes quite evident that UTI AMC is not a “Government

Company” under Section 617 of the Companies Act. In the

affidavit filed, this has been the consistent stand taken by the

Central Government and the CAG in various writ petitions filed

by the petitioner. In a company like the UTI AMC, it is for the

shareholder on the Board to decide what process to follow and

whom to appoint. When the selected candidate is not a

government employee having a lien on a government job,

then the government would have nothing to do with the

selection process. In this case, the shareholders made a

request to the Government for the deputation of respondent

56

Page 57 No.4. They again made a request for extending his deputation

beyond two years. In April 2008, respondent No.4 was offered

commercial employment provided he took VRS. At each stage,

permission was duly granted by the competent authority after

duly following the prescribed procedure as per the rules of

executive business. Therefore, we do not find any justifiable

reason to doubt the legality of the manner in which

respondent No.4 continued to work in UTI AMC since he

initially came on deputation in October, 2005.

44.Mr. Bhushan has vehemently argued that respondent

No.4 had deliberately concealed or distorted the information in

his application for voluntary retirement. We have already

noticed that in filling up the Form `L', respondent No.4 had

correctly stated the pay scale of the post at the time of

seeking voluntary retirement. We have also earlier held that

respondent No.4 cannot be said to have been privy to any

sensitive information relating to areas of interest of work of

UTI AMC whilst he was holding the post of Joint Secretary. In

fact in reply to Column No. C of Form `L' i.e. “Whether the

Officer had during the last three years of his official career,

any dealing with the Firm/Company/Cooperative Society etc?”

Respondent No.4 had clearly stated that in his capacity as

57

Page 58 Joint Secretary in the Department of Economic Affairs, Capital

Market of his Division, he was also inducted as a Director on

the Board of UTI AMC. In the meanwhile, he was appointed as

MDMCU and CMD w.e.f. 3

rd

November, 2005 and 13

th

January,

2006, respectively by the Board of Directors of UTI AMC.

45.The next grievance of the petitioner is that respondent

No.4 had made a mis-statement in Column No.7F of Form `L'

whilst giving information as to whether the post which has

been offered to him was advertised, if not, how was offer

made? In reply to the aforesaid question against, respondent

No.4 categorically stated that such higher-level posts are

generally not advertised. Keeping in mind the contribution

made by him and the needs of the Company, the shareholders

had made the offer to him. Alongwith this reply, respondent

No.4 had attached copy of the letter dated 3

rd

April, 2008. We

have already noticed that UTI AMC is a company incorporated

under the Companies Act. As such all the decisions are made

by the Board of Directors. The shareholders are Life Insurance

Corporation, PNB, BOP and SBI. We have earlier noticed that

respondent No.4 was initially on deputation with UTI AMC

since 2005. In 2008, he was offered the post of CMD on

58

Page 59 contractual basis. Consequently, according to the service

rules, he sought his voluntary retirement from the parent

cadre, Bihar. This was duly processed by the State of Bihar

and approved by the Central Government. UTI AMC is

managed on a commercial basis. Therefore, in a commercial

company as a part of good governance, it is the responsibility

of the Board to ensure succession planning at the top. As a

normal practice, nominations are made by the Board and

share-holders, either directly or through a search firm and the

post is rarely advertised. In any event, it would be the decision

to be taken by the Board of Directors. Respondent No.4 would

clearly have no say in the matter.

46.We are also of the opinion that there is nothing so

outlandish or farfetched in the statement made by respondent

No.4 that “such higher-level posts are generally not

advertised”. It is a matter of record that previously Shri

M. Damodaran, an IAS Officer of the rank of Additional

Secretary, the post was not advertised. Subsequently also,

the appointment of Mr. S.B. Mathur and Administrator Mr. K.N.

Tripathi Raj was made without any advertisement. In fact,

both the appointments were made without even resorting to

59

Page 60 the Search-cum-Selection Process. The erstwhile Chairman of

SEBI was also appointed without any advertisement. It is also

a matter of common knowledge that the posts such as the

Government of Reserve Bank of India are hardly ever

advertised. Similarly, the post of Chairman, SEBI was

advertised for the first time in 2008. Prior to that, it was not

advertised. The statement made by respondent No.4 that such

higher posts are generally not advertised, cannot be said to be

a misleading or a false statement. It is a statement setting out

general practice of appointments in the commercial world on

such posts.

47.We also do not find much substance in the submission of

Mr. Bhushan that in order to facilitate the appointment of

respondent No.4, the recommendations of the JPC that the

post should be advertised, was deliberately concealed. A

perusal of paragraph 21.9 of the recommendations dated 12

th

December, 2002 would show that the Government had stated

that a professional Chairman and Board of Trustees would

manage UTI II. It was also stated that advertisement for the

appointment of professional Manager will be issued. The

Committee also recommended that it should be ensured that

60

Page 61 the selection of the Chairman and Professional Managers of

UTI should be done in a transparent manner whether they are

picked up from the public or private Sectors. It was further

pointed out that if an official from the public sector is selected,

in no case the deputation from the parent organization be

allowed and the person chosen should be asked to severe all

connections with the previous employer. This, according to the

Government, was imperative because under no circumstances

should there be any public perception that the mutual fund

scheme of UTI-II are subject to guarantee by the

Government and would be bailed out in case of losses. In the

affidavit filed by UOI, the entire service history of respondent

No.4 has been set out from the time he joined erstwhile

banking division of the Department of Economic Affairs (DEA)

as Joint Secretary w.e.f. 30

th

October, 2000. Thereafter, he was

posted as DEA (Main) on 2

nd

June, 2002; he was assigned the

charge of CM Division and was relieved by DEA on 28

th

October, 2005 on completion of his Central Deputation. At that

time a proposal was received in DEA from Chairman, SBI on

behalf of the shareholders of UTI AMC regarding initial

appointment of respondent No.4 as CEO, UTI AMC for a period

of two years. This was forwarded by the DEA to the

61

Page 62 Department of Personnel and Training (DOPT) with the

approval of the then Finance Minister. The deputation of

respondent No.4 was considered under Rule 6(2)(ii) which

provides for deputation of a cadre Officer under an

international organization, an autonomous body not controlled

by the Government or a private body. The aforesaid

deputation can be made only in consultation with the State

Government on whose cadre the Officer is borne. We had

earlier noticed that due procedure was followed when

respondent No.4 was sent on deputation. However, at the risk

of repetition, since the petitioner has made such a grievance

about the same, it will be apt to notice that DOPT had agreed

with the proposal of DEA with the consent of Government of

Bihar for deputation of respondent No.4 for a period of two

years under Rule 6(2)(ii) and conveyed to the Government of

Bihar, Department of Economic Affairs through Letter

No.14017/26/2005-AIS-(II) dated 31

st

October, 2005. As

noticed earlier, the deputation of respondent No.4 as CEO, UTI

was conveyed to UTI vide DOPT letter dated 16

th

April, 2007.

The terms and conditions clearly provided that the Officer

could draw the pay of the organization or the government pay

scale which was beneficial to respondent No.4. Respondent

62

Page 63 No.4 had made a representation to DOPT vide his application

dated 29

th

January, 2007 requesting to allow him to draw the

pay in the scale of Additional Secretary to the Government of

India as he had already been empanelled to the said post or

the pay of CMD of UTI AMC whichever is beneficial to him. The

competent authority approved the release of pay of Additional

Secretary to respondent No.4 w.e.f. 10

th

February, 2007, the

information was duly communicated to UTI. Furthermore, DEA

by its letter dated 19

th

July, 2007 had requested DOPT for

extension of deputation of respondent No.4 as CMD of UTI

AMC for a further period of two years beyond 2

nd

November,

2007 under Rule 6(2)(ii) of the IAS Cadre Rule 1954 on the

same terms and conditions. However, the deputation was

extended only for a period of three months beyond

2

nd

November, 2007, as an interim measure till the issue of

deputation of IAS Officer under Rule 6(2)(ii) of IAS Cadre Rules

1954 was finalized. Therefore, the deputation was extended

upto 2

nd

February, 2008. Thereafter the matter was again

taken up by the DEA, DOPT for consideration of the case of

respondent No.4 under Rule 6(1) of the IAS Cadre Rules under

which an Officer may be deputed to service under the Central

Government or under State Government or under a Company,

63

Page 64 Organization, Body of Individuals whether incorporated or not,

which is wholly substantially owned or controlled by the

Central Government or by any other State Government.

Therefore, ultimately, according to the consolidated

guidelines, the deputation of respondent No.4 was covered

under Rule 6(1)(i) of the IAS Cadre Rules.

48.There is not much substance in the submission that just

for the sake of accommodating respondent No.4, the

recommendations of the JPC were concealed from the

Government. This submission is fallacious on the face of it as

the recommendations of the JPC were placed before the

Parliament and Government of India directly. Respondent No.4

had no role to play in that procedure. In fact, the Government

of India submitted action taken report in context of the

recommendations from time to time and was fully aware of it.

The Government of India never adopted the policy of not

sending IAS Officer on deputation to UTI AMC and informed

the Parliament in its 3

rd

action taken report submitted in

December, 2004. The decision to grant approval of

commercial employment post retirement under Rule 26 was

taken by the Government of India. The post was filled up by

64

Page 65 Board of Directors and shareholders of UTI AMC. It was entirely

for them to adopt such policy of appointment as they deem fit.

We fail to understand that even upon respondent No.4

complying with all the conditions of deputation, it would

render him a person of not high integrity. We may notice here

that the Appointment Committee of the Cabinet (ACC) had

approved the extension of tenure of respondent no.4 as CMD

UTI AMC till 31

st

may, 2008.

49.This takes us past the alleged irregularities regarding

deputation of respondent No.4, the alleged misstatement/non-

disclosure about his pay scale/sanctioned emoluments as

disclosed in the letter dated 16

th

April, 2007; the alleged

appointment of respondent No.4 is contrary to

recommendations made by the AAPTE Committee on July,

2007; the alleged false declaration under Rule 26(3)(ii) of AIS

Death-cum-Retirement Rules that in the last three years of his

career he had not been privy to sensitive and strategic

information of UTI AMC; the alleged false statement about

higher-level posts are generally not advertised.

Was the recommendation and appointment of Mr. U.K.

Sinha vitiated by MALA FIDE exercise of powers?

65

Page 66 50.Mr. Bhushan submitted that the appointment of Mr.

Sinha, as Chairman, SEBI was made mala fide. Undoubtedly, if

the allegations of mala fide are established, it would vitiate

the selection procedure, recommendation and the

appointment of Mr. U.K.Sinha as the Chairman, SEBI. But the

burden of proving the allegations of mala fide would lie very

heavily on the petitioner. The law in relation to the standard

of proof required in establishing a plea of mala fide has been

repeatedly stated and restated by this Court. Mr. Salve had

relied on the three judgments of this Court viz., Purushottam

Kumar Jha Vs. State of Jharkhand & Ors.,

7

Indian

Railway Construction Co. Ltd. Vs. Ajay Kumar,

8

and

Saradamani Kandappan Vs. S. Rajalakshmi & Ors.

9

The

law concerning the aforesaid issue is so well settled that it was

hardly necessary to make any reference to previous

precedent. We may, however, notice the observations made

by this Court in the aforesaid three cases. In Purushottam

Kumar Jha’s case (supra), this court held that :

“23. It is well settled that whenever allegations as

to mala fides have been levelled, sufficient

particulars and cogent materials making out prima

facie case must be set out in the pleadings. Vague

7

(2006) 9 SCC 458

8

(2003) 4 SCC 579

9

(2011) 12 SCC 18

66

Page 67 allegation or bald assertion that the action taken

was mala fide and malicious is not enough. In the

absence of material particulars, the court is not

expected to make “fishing” inquiry into the matter.

It is equally well established and needs no authority

that the burden of proving mala fides is on the

person making the allegations and such burden is

“very heavy”. Malice cannot be inferred or assumed.

It has to be remembered that such a charge can

easily be “made than made out” and hence it is

necessary for the courts to examine it with extreme

care, caution and circumspection. It has been rightly

described as “the last refuge of a losing litigant”.

(Vide Gulam Mustafa v. State of Maharashtra; Ajit

Kumar Nag v. GM (PJ), Indian Oil Corpn. Ltd.)”

51. In Indian Railway Construction Co. Ltd. Vs. Ajay

Kumar (supra), this court reiterated the law laid down in S.

Partap Singh Vs. State of Punjab and E.P. Royappa Vs.

State of T.N. on the standard of proof required to establish

the plea of mala fide in the following words:-

“It cannot be overlooked that the burden of

establishing mala fides is very heavy on the person

who alleges it. The allegations of mala fides are

often more easily made than proved, and the very

seriousness of such allegations demands proof of a

high order of credibility. As noted by this Court in

E.P. Royappa v. State of T.N. courts would be slow to

draw dubious inferences from incomplete facts

placed before it by a party, particularly when the

imputations are grave and they are made against

the holder of an office which has a high

responsibility in the administration.”

52. Further, in Saradamani Kandappan’s case (supra)¸

67

Page 68 this court again emphasized that the contention of fraud has

to be specifically pleaded and proved.

53. Keeping in mind the aforesaid observations, we shall now

examine the material placed before us by the petitioner to

establish the allegations of mala fide exercise of power.

54. The first instance of mala fide relied upon by Mr. Bhushan

that number of steps were taken deliberately to deny

extension to the earlier Chairman. According to Mr. Bhushan,

the moving spirit in the strategic plan to deny the extension to

Mr. C.B. Bhave was respondent No.6. The allegations made by

the petitioner have been emphatically denied by UOI, Mr.

Sinha, respondent No.4 and Ms. Omita Paul, respondent No.6.

As far as the grievance of the petitioner that Mr. C.B. Bhave

was denied extension just to accommodate respondent No. 4

is concerned, we are inclined to accept the submission of Mr.

Mohan Parasaran, learned Solicitor General, that there was no

mala fides involved in taking that decision. Learned Solicitor

General pointed out that in 2009 when the name of Mr.

Bhave was being considered for an extension, serious

controversies came to be unearthed with regard to the entire

68

Page 69 NSDL issue relating to the IPO scam during which Mr. Bhave

was the CMD of NSDL. A two member “Special Committee”

consisting of Dr. G. Mohan Gopal and Mr. V. Leeladhar that

was appointed by SEBI to look into the matter passed three

orders. In one of these orders, there was a serious indictment

of NSDL. The media reports published in connection with this

controversy adversely commented upon the role of Mr. Bhave

as CMD of NSDL. Even Mr. J.S. Verma, former CJI, had voiced

his concern about possible shielding of Mr. Bhave by SEBI. Dr.

G. Mohan Gopal wrote a letter dated 8

th

April, 2009, wherein

he criticized the action of SEBI on the role played by Mr Bhave.

According to Mr. Parasaran, the then Finance Minister perused

some of the relevant documents cited above before making

the note on 22

nd

December, 2009, that led to denial of

extension to Mr. Bhave. In these circumstances, the noting

made by the Finance Minister that led to denial of extension to

Mr. Bhave cannot ever be considered unreasonable, let alone

mala fide. Thus, we are inclined to accept the submission of

Mr. Parasaran that there is no mala fides involved in denying

an extension of Mr. Bhave.

55.The learned Attorney General, in our opinion, rightly

69

Page 70 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 23

rd

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 2

nd

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 29

th

November,

2008, it was Shri C.B. Bhave who was appointed Chairman,

SEBI on 15

th

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

70

Page 71 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 23

rd

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

71

Page 72 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.

56. Mr. Salve has made very detailed submissions on behalf

of respondent No.4. Giving us the entire sequence of how the

rules were amended. Mr. Salve has rightly pointed out that the

petitioner has falsely contended that rules concerning the

constitution of Search-cum-Selection Committee amended

through notification dated 7

th

October, 2010 were to ensure

the selection of Mr. Sinha. The applications for filling up the

post of SEBI Chairman were invited on 10

th

September, 2010.

It is noteworthy that Mr. Sinha did not apply in response to the

invitation. Further more, the rules were amended in exercise

of the powers conferred on the Finance Minister under Section

29 of the SEBI Act. The aforesaid notification issued by the

Finance Ministry has not been challenged by the petitioner.

We also notice here that prior to the amendment, the

procedure for selection of Chairman, SEBI was determined by

the Finance Minister. Having perused the entire record, we are

not satisfied that the petitioner has made out a case of mala

72

Page 73 fide to vitiate the proceedings of the Search-cum-Selection

Committee. The first meeting of the Search-cum-Selection

Committee was held on 2

nd

November, 2010. Upon

deliberations, the Committee decided to invite Mr. Sinha

alongwith five others. We may notice here that Shri Suman

Bery did not attend the meeting. The suitability of respondent

No.4 had to be determined by the Search-cum-Selection

Committee. We are unable to discern any illegality in the

procedure adopted by the Search-cum-Selection Committee.

We also find substance in the submission of Mr. Salve that

the petitioner has made much a do about the non-mention of

the pay scale of the petitioner in the Performa sent to the ACC

which was enclosed with the Confidential Letter No. DO

No.2/23/2007-RE dated 13

th

December, 2010. The letter

clearly mentions that Search-cum-Selection Committee was

constituted under Rule 3 of the SEBI Rules, 1992. The Search-

cum-Selection Committee consisted of :-

1. Shri K.M.Chandrasekhar, Cabinet Secretary - Chairman

2. Shri Ashok Chawla, Finance Secretary - Member

3. Shri R.Gopalan, Secretary (DFS) - Member

4. Shri Devi Dayal, Former Secretary (Banking) - Member

5. Prof. Shekhar Chaudhuri, Director, IIM Kolkata - Member

73

Page 74 6. Dr. Suman K.Bery, Director General, NCAER - Member

57.Applications were invited by circulating the vacancy

position to all cadre controlling authorities in the Government

of India and States on 10

th

September, 2010. The vacancy was

simultaneously put on the Website of the Ministry of Finance,

Department of Personnel and Training. It was also advertised

in three largest circulating English Newspapers of the country

on 18

th

September, 2010. It is clearly mentioned that out of

the 19 applicants, who were respondents to the advertisement

in the first meeting of the Committee held on 2

nd

November,

2010, five were short listed. In addition, the Search-cum-

Selection Committee also decided to invite Mr. Sinha CMD, UTI

AMC for interaction. The Search-cum-Selection Committee

based on the qualification, experience and personal

interaction with the short listed candidates, recommended the

names of Mr. U.K. Sinha and Mr. Himadri Bhattacharya in that

order of merit, for being considered for appointment as

Chairman SEBI. The letter further mentions that the Finance

Minister proposed the appointment of Mr. U.K. Sinha as

Chairman, SEBI, for an initial period of three years from the

date he resumes the charge or till he attain the age of 65

years, whichever is earlier. It is noted that willingness of Mr.

74

Page 75 Sinha has been obtained and was enclosed with the letter. On

this basis, it was requested that approval of the ACC be

obtained for the appointment of Mr. Sinha as Chairman, SEBI.

The letter also notes that the prescribed Performa, duly filled

in, is also enclosed. We fail to see what role Mr. Sinha had

to play in the whole procedure except for accepting the

invitation of the Search-cum-Selection Committee for

interaction. Even if the pay scale has not been mentioned, it

cannot cast a shadow on the integrity of the proceedings held

by the Search-cum-Selection Committee. It is also to be

noticed that the proposal was sent to the ACC on the express

approval of the then Finance Minister. It is noteworthy that the

then Finance Minister was Mr. Pranab Mukherjee. He is

renowned for his transparency in the performance of his

official functions. He is at present the President of India.

58. Mr. 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

75

Page 76 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

76

Page 77 years. Secondly, an employee could not exercise 100% of the

option in one go. It was spread over four years, 10% in the 4

th

year, 20% in the 5

th

year, 30% in the 6

th

year and last 40%

in the 7

th

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 27

th

December, 2007. The minutes of the meeting of the Board

dated 12

th

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 17

th

September, 2007 to

grant respondent No.4 market based compensation, the

matter was pending with the share holders. It was only on 12

th

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 17

th

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 31

st

January, 2011, he

surrendered his entire ESOP and rescinded all his rights to

77

Page 78 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 the ACC.

59. This brings us to the issue whether there was a conspiracy

hatched to ensure the selection of respondent No.4 as

Chairman, SEBI. The petitioner stated that the conspiracy

involved taking seven steps, namely:-

i.Mr.Sinha would seek voluntary retirement from

IAS.

ii.SBI Chairman would move to make a fresh offer.

iii.Mr.Sinha would seek approval for post retirement

commercial employment.

iv.Ministry of Finance would recommend commercial

employment.

v.DOPT would approve the same and waive the

waiting period.

vi.All concerned persons in the decision making

process would designate the employment with UTI

AMC as commercial employment.

vii.File would not be sent to the PMO/ACC for

information or approval.

78

Page 79 60.We have already considered all the points raised by the

petitioner in the earlier part of the judgment. Therefore, it is

not necessary to repeat the same. This, apart, the charge of

conspiracy has to be taken seriously as it involves the

commission of very serious criminal offence under Section

120-B of the IPC. Such a charge of criminal intent and conduct

had to be clearly pleaded and established by evidence of very

high degree of probative value. No notice of such allegations

can be taken based only on pure conjectures, speculations

and interpretation of notings in the official files.

61. The observations made by this Court in the judgments

noticed earlier make it clear that it was incumbent on the

petitioner not only to make specific allegations, but to produce

very strong evidence to lead to a clear conclusion that the

selection was actuated by mala fide. The 7 steps relied upon

by the petitioner to establish conspiracy per se do not amount

to conspiracy to mislead the ACC. It is unbelievable to expect

such a coordinated overt and covert operation to have been

even conceived, let alone successfully executed just to have

Mr. U.K. Sinha appointed as Chairman, SEBI. The appointment

of Mr. Sinha is strictly in conformity with the procedure

79

Page 80 prescribed by service rules, i.e, Rules 16 and 26 of the AIS

(DCRB) Rules, 1958. The files were sent to PMO as and when

required by rules of business. In matter of VRS and post

retirement commercial employment, there is no requirement

under the rules of business of sending the file to PMO/ACC. We

find substance in the submission of Mr. Salve that the

petitioner has not placed on record any material to establish

that any conspiracy was hatched to ensure the selection of

respondent No.4.

62. The submissions made by the learned Attorney

General and Mr. Salve have also been supported by learned

Solicitor General appearing on behalf of respondent No.6. Mr.

Prasaran submitted that baseless allegations have been made

against respondent No.6. She was neither the recommending

authority nor the appointing authority for the post of SEBI. She

was appointed as Advisor to the Finance Minister on 26

th

June,

2009. Mr. Prasaran, in our opinion, has rightly made a

grievance that all the actions taken by respondent No.6 in the

execution of her duty have been deliberately warped and

distorted to unnecessarily involve her in the trumped up

controversy. Her role as Advisor was limited to

advising/assisting the Finance Minister on the work assigned

80

Page 81 to her. The nature of work was, therefore, different from the

role of a functionary who performed an assigned line of

functions. She could have neither recommended respondent

No.4 for appointment nor negated any recommendation. By

making a detailed reference to the official record, Mr. Prasaran

has pointed out that the Chairman, SEBI is appointed by the

Central Government by following an established process by

the ACC headed by the Prime Minister. This is done on the

basis of Search-cum-Selection Committee of the Government

of India. The opinion of other independent and reputed

experts in the field of Economics, Finance and Management is

also taken through an institutional mechanism approved by

the DOPT. We are inclined to accept the submission of the

learned Solicitor General that the allegations made against

respondent No.6 are imaginary and based on a distorted

interpretation of the official notes appended with the writ

petition. With regard to the non-extension of Mr. C.B. Bhave,

the learned Solicitor General relied upon the averments made

in the counter affidavit filed by the UOI in Writ Petition No.391

of 2011. The aforesaid affidavit has been attached as

Annexure R-4 to the counter affidavit filed by respondent No.6

in the present writ petition. In the aforesaid affidavit, it has

81

Page 82 been set out that prior to July, 2009; selections were

made by the Committee as decided by the Finance Minister

from time to time. As noticed earlier, the name of Dr. S.A.

Dave, Chairman, CMIE was added as an expert member of the

high powered Selection Committee constituted by the Finance

Minister for the selection of Chairman, SEBI in 2008. Even at

that time, Mr. Sinha was short-listed and placed at Sr.No.1.

Out of the two names short listed as noticed by us earlier in

spite of the recommendations, it was C.B. Bhave who was

appointed. In 2009, a statutory system was established for the

selection of Chairman/Whole time Member of SEBI. In this

back-ground, Rule 3 was amended by introducing sub-rule (5)

which provided that the Chairman and every whole time

member shall be appointed by the Central Government on the

recommendation of the Selection-cum-Search Committee

consisting of the (i) Cabinet Secretary as the Chairman, (ii)

Secretary, Department of Economic Affairs, (iii) Chairman,

SEBI (for selection of whole time members) (iv) two experts of

eminence from the relevant field to be nominated by the

Central Government. In 2010, it was decided to initiate action

for a fresh selection for the post of Chairman, SEBI. Therefore,

a note was initiated on 18

th

July, 2010 for the constitution of a

82

Page 83 Committee. Various names were suggested for inclusion as

experts. While approving the constitution of the Selection

Committee, the Finance Minister also observed that going by

earlier precedent, the Committee should have composition

that includes Secretary, Finance Services, who functionally

deals with special critical aspects of the capital market. Thus,

with the addition of the Secretary Finance Services, the

number of nominees in the Search-cum-Selection Committee

became five. Unlike in the past, the composition of the

Selection Committee was sent to the DOPT for approval.

However, on 23

rd

September, 2010, DOPT pointed out as

noticed earlier that inclusion of Secretary Finance Services

was not within the rules amended on 23

rd

July, 2009 which led

to the amendment of the rules. To rectify this shortcoming,

the amendment of the rules became necessary. It was within

the powers of the Central Government to make the aforesaid

amendment, which was carried out in accordance with the

rules. It is, therefore, difficult to accept the submission of the

petitioner that the amendment in the rules was made to

ensure the non-extension of Mr. C.B. Bhave as Chairman, SEBI.

In fact, Mr. Bhave was not granted the extension for the

reasons which have been given in detail by Mr. Prasaran in his

83

Page 84 submission, the same need not be reiterated. We are also

unable to take the allegations made by Dr. Abraham seriously,

as the same seem to be actuated by ulterior motive. It is a

direct attack on the integrity of respondent No.4. The opinion

expressed by Dr. Abraham, in his lengthy letter, cannot be

given much credence unless it is supported by very convincing

material. We are also not much impressed by the submission

of Mr. Bhushan that the constitution of the Search-cum-

Selection Committee was changed at the instance of

respondent No.6. As narrated by the Solicitor General, the

ultimate selection was made by a Selection Committee

consisting of Members who were all serving Officers in the

Government. Therefore, it is difficult to accept the submission

that 3 out of 5 members were hand-picked by respondent

No.6 to select Mr. Sinha. We are also unable to see any merit

in the submission of the petitioner that the post of CMD, UTI

AMC was kept vacant for 17 months to accommodate the

brother of respondent No.6. In our opinion, the allegations are

malicious and without any basis, and therefore, cannot be

taken into consideration.

63. This now brings us to the preliminary objections

84

Page 85 raised by the respondents that the writ petition deserves to be

dismissed on the ground that it is not a bona fide petition.

According to the respondents, the petitioner has been set up

by interested parties. We entirely agree with the submissions

made by the learned Attorney General that the first

requirement for the maintainability of a public interest

litigation is the uberrimae fide of the petitioner. In our opinion,

the petitioner has unjustifiably attacked the integrity of the

entire selection process. It is virtually impossible to accept the

submission that respondent No.6 was able to influence the

decision making process which involves the active

participation of the ACC, a high powered Search-cum-Section

Committee with the final approval of the Finance Minister and

the Prime Minister. The proposition is so absurd that the

allegations with regard to mala fide could have been thrown

out at the threshold. We have, however, examined the entire

issue not to satisfy the ego of the petitioner, but to

demonstrate that it is not entirely inconceivable that a petition

disguised as “public interest litigation” can be filed with an

ulterior motive or at the instance of some other person who

hides behind the cloak of anonymity even in cases where the

procedure for selection has been meticulously followed. The

85

Page 86 respondents have successfully demonstrated how the

petitioner has cleverly distorted and misinterpreted the official

documents on virtually each and every issue. In our opinion,

the petition does not satisfy the test of utmost good faith

which is required to maintain public interest litigation. We

have 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.

86

Page 87 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 1

st

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. Abrham’s 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

87

Page 88 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.

64. We find no merit in this petition which is

accordingly dismissed.

……………………………

J.

[Surinder Singh Nijjar]

……………………………J.

[Pinaki Chandra Ghose]

New Delhi;

November 01, 2013.

88