This is Darius Khambata's first interview ever. He's agreed to talk because he wants to share his views on a few important issues in the news. We are delighted to listen. Mr. Khambata is one of Mumbai and India's best known lawyers. Yet his aversion to publicity has mean few know much about his professional life. He studied law at Harvard and returned to join Iqbal Chagla's chambers. That experience was invaluable he says.
Darius Khambata, Former Advocate General, Maharashtra: I remember the Indian Express group of matters in the early 1990s- tremendous set of matters where we got a chance to work with the leading legal minds of that time – Fali Nariman, Ram Jethmalani, Chidambaram, Arun Jaitley, Iqbal Chagla and host of people and we went to Madras and spent two weeks of the month there; matter shifted to Delhi so another week there. So, for two years a lot of travel, lot of interesting work in that matter. There were other big matters as well. There was the ANZ Grindlays arbitration against National Housing Bank which went on for two or three years. All these matters raised very complex issues of law and as juniors it was fascinating to research, it was fascinating to see how our research got translated into advocacy in court, it was a learning process. In fact this profession is always a learning process. I am learning even today. So, those are two matters I can think of. There were several others obviously but for me those two were defining matters in the early 1990s.
Menaka Doshi, CNBC-TV18: Defining in the sense of the complexity of the cases, the work that you had an opportunity to do or for other reasons, for instance the judgments that were issued on the matter?
Khambata: Defining because of the work that I got to do, because of the interaction that I had with other lawyers. I learnt how a matter develops, I learned how to present a matter in court because a lawyer is much more than just someone who knows the law. It is really an amalgam of qualities that you have to have. Research and knowledge of law is of course one of them but advocacy, how you analyze the case, strategy in court - all these things are important and in this profession you learn by a process of osmosis. You learn from your seniors and your contemporaries.
Doshi: How important was it for you to have worked with a senior like Iqbal Chagla to get the right start to your career?
Khambata: Critically important because what he taught us, and only by example and never by lecture, was values, values in the profession, how it is important to have those values and that winning a case at any cost is not a value. It is doing a good job and doing the best for your client and acting fairly as an officer of the court.
After working with Iqbal Chagla, Darius started his own practice. But he put that on hold when offered the job of Additional Solicitor General.
Doshi: Your five years in government service - you have sort of been in the midst of some landmark cases. For instance - I will mention the Adarsh case which was a political earthquake in the State so to speak and in this city. What do you take away from those five years in government service, both with the Centre and as well as with the State then as Advocate General?
Khambata: Again a fair amount of misconception about what it means to be a law officer. Several law officers before me have shown that you have to be independent. You are not a spokesperson for the government and you should not be. You have to exercise an independent will and a sense of judgment. Having said that, you are obviously still a lawyer appearing for a party which is the government. So, you do your best for them and you are not a vigilante. You are not going around trying to look up or look for exposes. You are a lawyer but you try to impart to the officers and to the politicians and ministers you deal with a sense there is right and there is wrong. They may not always understand that, but they always respect that.
I found that in my five and half years- in very few occasions- when I had to actually put my foot down and insist on taking a particular course of action I have found very often powers of persuasion worked. There are some excellent officers working both in the Central and State government, brilliant minds, dedicated and committed officers. I am not going to name any because I don’t want to exclude any but there are people I have come across who are really tremendous assets to our country and they are working silently. They see the force of logic and fairness. They don’t always take a stand that is bureaucratic or unfair.
There is of course a vast number of bureaucrats who are not willing to take decisions. That is really the biggest problem for a law officer- to get proper instructions and to get a decision taken. But a number of them also require security. If you are willing to say that I will get up in the court and I will defend your decision because I think it is right, then a surprisingly large number of them are willing to take decisions. It is when they are not so protected or when from higher ups they don’t get the assurance that their decisions will be protected and defended that they then lapse into not taking decisions.
Doshi: This is an interesting insight because I think the time that you spent in government- both Centre and State- was a time that India was witnessing probably its worst policy paralysis period ever. It was also the time when the CAG was issuing report after report indicating wrong doings in the way contracts were given out, natural resources were shared and so this gives us a bit of insight into the impact of what was happening at that point in time. You were in the middle of a big corruption case, what did you take away from how the government deals with this?
Khambata: I am not going to speak of any particular case. If you have a case where there are allegations of corruption, it is your duty to take up whatever defences are available in law in that case. However, it is certainly not your duty to protect the corrupt or to shelter a trail which leads to corruption. It is your duty to make sure that the investigative agencies do their job and to do it well.
You have to sometimes nudge them; you have to give them that support and you have to give them the assurance that if they do their job, they will be protected ultimately from vendettas from politicians etc. As I said, I don’t think it is the role of a law officer to become vigilante. However it is a very gray line because there are cases where you do need to go into the files, you do need to ask searching questions to your officers. The policy I adopted and I made that very plain to the officers who came to me was that if I know a material fact which I feel is material to the case, I will disclose it to the court. I am not going to be party to suppressing facts or to misleading the court; that is out of the question. If you have a defence, I am willing to argue that a mistaken decision need not necessarily be a corrupt one and that you have to be given policy space but I am not willing to argue - when I know that you have taken a deliberately corrupt decision and I did do that in many matters. So, I did not broadcast it then and I am not going to broadcast it now and I think that worked.
Doshi: How difficult was that? Were you ever fearful that this might lead to the termination of your services as a law officer or that it might lead to vendetta in future cases if you return to private practice?
Khambata: I will tell you a couple of things. One is, I would have been delighted if that had led to my resignation. I am not one who would hanker after either of these offices. I would have been quite happy to demit them several months ago or years ago. I just felt it was my duty to serve out my term.
Having said that, I got tremendous support from the previous Chief Minister - Prithviraj Chavan. I think he is a wonderful man, a man of integrity, he is professional in his approach, he is committed to development, he had his share of problems which were not really my concern; they were political issues. I got tremendous support from him. He was also the Law Minister and he did support me in a number of tough decisions that I insisted on taking. So, I am truly grateful to him. I don’t think I could have survived if it had been someone different in office.
Doshi: Why did you decide then to stop being Advocate General, because it was on your wish that you didn’t want to continue and therefore your resignation thereafter?
Khambata: You are right; I had made it plain to them about a year ago actually that I was not interested in continuing beyond October in any view of the matter; even if the previous government returned. That is because I have done five and half years as law officer. That office carries inherent stresses and pressures in many ways. One, you don’t often get enough assistance in court, you have to do a lot of spade work on your own, that is one. Two, you don’t always get the correct instructions, you have to ferret for facts, you have to look for documents yourself, something that one is not used to as a private lawyer. You get cases where in some cases you are not sure whether your officers want you to win the matter.
One assumption we have in private matters is that your client wants to win. That is not always the case when you are instructed in government. You have to want to win and you have to want to do the right thing for the government; not always win. You have to concede some matters, you have to win some matters and you have to take that call. So all this carries with it a fair amount of collateral pressure and stress and you can do it for this long and maybe not much longer. So five and half years is good going.
Doshi: So if a junior lawyer came up to you today and said I have been offered the opportunity to serve as a law officer would you recommend it?
Khambata: Absolutely. It is a no brainer it is a phenomenal learning experience.
Doshi: Corruption is endemic in almost every phase of our life here in India, more so when you interact with the government. Given that you were in the thick of many corruption cases, in situations when you know a corrupt act has taken places and yet you are the government’s defender in that sense, what did you do?
Khambata: Most of these cases were at the investigation stage or pre-investigation. What I did was to ensure that the investigative agencies at least learnt from me that it had freedom of action. In some cases I actually had to nudge them along and they did respond positively. It was not my role in a matter to actually go through the files and come to a conclusion of corruption or not. That had to be left to the court and had to be left to the investigating agencies. Having said that, if in a particular case, I felt that there was something untoward and there were cases where certain orders had been passed, actions had been taken which I was not at all comfortable with, I did offer the government the option of pulling back, of saying we will retract that order, pass a fresh order or go to another officer and in some cases they did take my advice. Where they didn’t in some cases I have actually returned the brief.
Doshi: You have?
Khambata: Yes I have.
Doshi: You can do that as a law officer?
Khambata: I am not sure whether I can or cannot but I did because I was certainly not going to get up and defend something that was indefensible. In many other cases, I went to court and I had given prior notice of this to the government, I went to court and I conceded. It is not my duty as a law officer to defend the indefensible. So, there will be a lot of gray area. Perhaps some will say that case X or Y you should have conceded this one, you shouldn’t have fought that one - that is a matter of judgment. However it is the approach that is important.
Doshi: The reason I asked you this is because as a law officer, your client is the Constitution if I understand that correctly. It is not the government of the day.
Khambata: I always used to tell even the government lawyers on the panel - remember you are representing either the Union of India or the State of Maharashtra. You are not representing the government of the day.
Doshi: Unfortunately we have seen this happen with several senior lawyers in Delhi as well where if they or their opinions did not match the view of the government of the day, they have been indecorously asked to go. I am not taking names here because I know you will not comment on specific people. However that has happened, unfortunately, in this country. The government seems to be under the impression that law officers represent the government of the day; not the Constitution.
Khambata: Whatever be your client’s impression, you have to do what your duty calls. Law officers don’t represent that particular bureaucrat or minister who is instructing them in the matter. They represent the government of the day in the sense that that government carries the Executive authority of the Union of India or the State Government. They don’t represent it to the extent that you allow the person in power to corrupt the system or to pervert the system. There is a clear line. In most cases you can make out what is happening.
Doshi: Did you come away disillusioned?
Khambata: It was a mixed bag. In some cases there is disillusionment but in many cases it is optimism. There are very good officers and people in the system even today. They are not vociferous or they are silent workers but they are good silent, dedicated people in the system. I am actually optimistic, I used to ask them sometimes how do you survive and they would laugh it off and say that is our job and they do their job and I admire them for that.
The issue of judicial reform tops my list of interview topics. And it tops Darius Khambata's list of national priorities. I ask him about the proposed shift from the collegium system to a National Judicial Appointment Commission to appoint judges to the High Courts and Supreme Court.
Khambata: Every system has its time and place. When it was introduced, the collegium system certainly had a lot of positives to it. I think it has now seen its day. I am in favor of the Judicial Appointments Commission that is proposed. I think the structure is now reasonably balanced. The two eminent persons don’t have a veto power. There are always going to be complaints, there are always going to be people who are dissatisfied but we have had so many complaints about the collegium system as well. Let us give it a couple of years and see whether it works. I think it will. I am optimistic that this will give a balanced approach. You have the security of the Chief Justice of India and the two senior most judges of the Supreme Court with them on the Commission. That adds a lot of transparency. It ensures that the representatives of government - either the law minister or the two eminent persons who are then appointed - will not swing away the system or make it biased in its appointment. I think there is a balance in the Commission. Let us give it some time and let us see if it works.
Doshi: You don’t think that we are opening the door to interference from the executive and once opened, that door will be close to impossible to shut?
Khambata: When people say this, I look back to our Constitution. Our Constitution requires the Executive to appoint judges after consulting with the Chief Justice of India. The Supreme Court has read consultation and has widened that and ultimately has resulted in the collegium system as a form of consultation and binding consultation. So, the pendulum has been swinging. I don’t think that this Commission takes away much of the power of the judiciary. I think it gives them a very strong representation - three out of six on the Commission. That is a balance. I would hope that the two eminent persons who are selected are also balanced people. I am not pessimistic inherently. I think we need to give this system some time to work. Every democracy has its own system. In the US, for example, it is unabashedly a political appointment to the Supreme Court.
Doshi: But that is how it is unabashedly; not this half way measure. The NJAC has drawn a lot of criticism. Even in its reiterated draft where it has sort of evened out the balance and taken away the veto, it has drawn a lot of criticism and there is I think the fear as well that we now have a majority government in place, one that has considerable strength at least in the Lok Sabha if not in the Rajya Sabha- if you combine that with the Executive interference in judicial appointments, then you are going to regret it one day?
Khambata: In a Constitutional democracy, you will always have one arm or the other in ascendency at any particular point of time. The whole ethos of a Constitutional democracy is balance. You can't always reach the perfect balance and plateau at that point. You will have a bit of to and fro. I don’t think that this Commission doesn’t allow for that balance. So, I am willing to give it a try.
Doshi: Judicial appointments is just one part of the reform that the judiciary and the country needs. I know this is a burning issue with you and something you wanted to address, the reason why you agreed to this interview. So I am going to leave it open to you to talk about what you think some of the other important arms of reform need to be?
Khambata: All our talk of development, economic development will come to zero unless we can give the common man a judicial system which gives him recourse and makes him feel that he has recourse. To a large extent, in cases of social injustice, in cases of discrimination there is recourse by way of public interest litigation. However we need to now give that recourse even to a dispute, a private dispute, a commercial dispute between two individuals, two citizens with utmost respect and I think lawyers are mainly responsible for this. I don’t think that we are giving the common man a feel that if he has a dispute with a citizen or with anyone else that he can walk into court and get cheap timely justice within a specific timeframe. The general view is if you file a suit, it is going to take years. Somehow all the stakeholders have to get together and change that. Nobody can say we have always done this, so we must continue to do this. I speak first of the lawyers. For example, it is one of my passions that courts now introduce some limit on the time the lawyers take to argue matters. I am not talking about the usual example of the US Supreme Court of half an hour and red light and a green light; that won't work in our system. I am talking about a realistic, may be even a generous time limit but some estimate how long the argument is going to take and some gentle adherence to that limit; that is one.
Two, the pleadings that are filed in court today by lawyers - they are atrocious. Most the pleadings are now humongous especially in the High Courts you see and in Bombay particularly I think we have gone into this mode of 100 or 200 page pleading. Any good lawyer will tell you it is not necessary. You can easily compress what you have to say into 20 or 30 pages. I am not asking for a 5 page pleading, I am saying 20 or 30 page pleading. If you can't state your case in 20 or 30 pages, it is not worth making. So, some limit on pleading, some limit on the structuring of arguments. Arguments are going on for too long, they are going on over too long a period of time. Written submissions must be encouraged. Written submissions before you orally argue; not after. There are various ways in which the system can be managed better. I think the anxiety up to now has been let’s give the lawyer the longest rope, the fullest opportunity; so he doesn’t go away dissatisfied. In an ideal system - where we have all the time in the world - that is great but when we have huge burden of arrears, when we have such a huge number of litigations coming into our system every year we can't afford that mentality. We have to tighten up.
Doshi: If these things are obvious even to someone like me who is never practiced or studied law why is it that we haven't been able to move on any of this?
Khambata: I think it is unfair to say we haven't been able to move. There are a number of judges, several of them who are doing a great job and they are moving in this direction, arguments before them are focused, they are involved in the case, there is some consciousness of time but I think I am again a firm believer that sometimes even a good judge may in the long run not too good for the system because if you have a good judge you think everything is working fine. You don't see that so many other cases which are not going well before other courts and particularly subordinate courts. I think we have now got to translate the actions of good judges into a good or a better system. The procedures and systems now have to change.
Doshi: Why haven't they, that is my question, why are we leaving it up to individual initiative?
Khambata: I think again a number of factors - there is a fair degree of vested interest, lawyers to some extent must share the responsibility for that but all I am saying is that it is now high time we rolled up our sleeves and address that.
Doshi: You would say that is priority number one?
Khambata: That is to my mind priority number one. Everything else will fall in to place but if you don't have a good judicial system and a system that gives you recourse things are going to go in the wrong direction.
Doshi: Where do you stand on the tribunalisation of justice debate. It evokes several emotional responses across those who work in law and judiciary; we have had one Supreme Court decision as of last year or 2014 which struck down the National Tax Tribunal Bill as not being good enough to replace a court system. We have a resource problem with most of our tribunals and now we have this existential crisis- where do you stand on this debate?
Khambata: I think tribunalisation is good in general but you cannot transfer to a tribunal the ultimate power of judicial review that is reposed in a court under our Constitution- whether it is the High Court or the Supreme Court. So, I think careful tribunalisation is the order of the day. As the Supreme Court said, the National tax Tribunal Act crossed a line. There are several other tribunals- the setting up of which- has been upheld by courts.
So, it is not that this sounds death knell for tribunalisation per se. It is only this particular Act which went a little too far. I am in favor of tribunalisation because there are specialized areas which Tribunals have to look after. You have to setup tribunals who are specialized in certain fields; all that work really can't be done by the High Court and then ultimately by the Supreme Court. So, in principle it is very good, I think we have been following it now for several years but there are lines that can't be crossed.
This week the government of India shut down 32 websites citing jihadi propoganda by them as the reason- once again highlighting the absolute powers that Section 66A of the Information Technology Act gives the government. The Section gives the government the power to arrest a person who posts any information which he knows to be false, but for the purpose of causing annoyance, inconvenience, danger, obstruction…..by making use of such computer resource or a communication device… the wording of section gives authorities ample latitude to clamp down on any comments , even annoying ones! Currently, the Supreme Court is hearing a PIL challenging Section 66A as unconstitutional and against freedom of speech. Darius Khambata was Advocate General when a young girl in Maharashtra was booked under this Section for posting against the traffic disruption caused by Shiv Sena leader Bal Thackeray's funeral procession. Maharashtra has witnessed other police action in similar matters of alleged violation of Section 66A
Khambata: I think that case was a good example where the government took an extremely responsible stand. Yes, there were some transgressions in Maharashtra when a cartoonist got arrested. He then refused to apply for bail but ultimately, when the powers that were considered in the matter and then they came to me, the government took an extremely responsible stand. It effectively said in most areas that it had no case. It took that stand openly in court. It took a stand that was pro-freedom of speech. So there will always be aberrations or transgressions at lower levels where maybe certain officers don’t understand the law in all its nuance, but I think our system is strong enough to correct that.
On 66A specifically, yes, there is some vagueness in language. I think the words used - inconvenience or annoyance - is very vague and too wide and perhaps the Supreme Court, which is hearing the matter, might read that down. I don’t think there is a case made out for striking down the entirety of the Section.
Doshi: How else do you stop the police from arresting because currently they are empowered by this Section to move ahead and arrest on the basis of someone causing annoyance through communication. So the only way you stop that abuse is if either there is a substantive reading down by the SC or the Section is scrapped.
Khambata: Precisely, so a reading down would address that without actually striking down the Section or perhaps a limited striking down. I think the Section has its usefulness as well because we are now moving into an age of cyber war of hacking, of using the internet space to cause harm and injury. These are real concerns that people have. In any democracy, you always balance that with the imperative of freedom of speech. It is always a case of balance and you have to reach the right balance, perhaps 66A- as it is currently drafted - doesn’t contain that balance.
Doshi: Would you say, in this country, freedom of speech almost always comes second to everything else?
Khambata: I disagree with that. I think we have a very strong ethos of freedom of speech; not only the media.
Doshi: Yet books get banned, newspaper articles on educational institutions are blocked.
Khambata: I think in those cases, the individuals concerned have not been willing to stand up for their rights and fight.
Doshi: I don’t think anybody wants to spend a night in jail.
Khambata: But the police system is not the only court; you have courts, you go to court, you raise the issue in court, get protection of the court while the matter is being argued and then raise your concerns in court. In some cases the individuals concerned or the entities concerned do not have the stomach for the fight. In any democracy you have to be willing to fight for your rights. You cannot expect your rights to be put in your lap on a platter.
Doshi: So Section 66A should be read down; not scrapped?
Khambata: I think so.
Doshi: That is your view on this?
Khambata: Yes.
Darius Khambata was on a committee appointed by the Law Commission to recommend changes to the Arbitration Act. He hopes that is done soon. But equally important is a re-write of the Companies Act, 2013; he says. You heard that right...not just some amendments- the bill for which has been already introduced in parliament - a full scale rewrite!
Khambata: I thought that the new Act was meant to simplify the 1956 Act. It has had the reverse effect. It is one of the most confusing, complicated Acts. There are all sorts of issues as you know that arise under the act. Lot of work for lawyers but not good for the system ultimately. So the government needs to take a long hard look at the Act as a whole, not just tinkering with a few Sections.
Doshi: We have been doing that for several years now. This Act has gone through several iterations; it has gone to the Standing Committee twice before it was passed into law.
Khambata: Why has that happened, I don’t know. But it still requires a complete relook and a revamp. It won’t take long. The problem with our system is Committees, Commissions. Really what the government needs to do is to set up a small team; three or four people or five people at most, get the law redrafted. Let that team go out and elicit views and collect opinions and go ahead into it. It is a matter of three months.
Doshi: How is it different from a committee except that three or four people will be less representatives than a Rajya Sabha… (interrupted by guest)
Khambata: Because that Committee doesn’t end there. If it goes to a Standing Committee, it then has to go back to parliament. The Standing Committee may not have time because it has all sorts of other laws it is looking at. There are all sorts of delays inherent in our system. What needs to be done for the Companies Act, for the arbitration act is arbitration act, though I am a party to it, I believe it is a good set of amendment, it may not please everyone but it certainly will set us down the correct road to making India an arbitration friendly country. Unfortunately we have got the reputation of not being pro-arbitration which may be unjustified but that is the reputation we have, we have got to break out of that.
We have tremendous legal talent in India; costs of arbitration are on the whole cheaper. We are wasting a huge asset that can be exploited by not having a cogent Arbitration Act and not addressing some of the roadblocks that have occurred. The amendments are ready; I don’t see why the government should not incorporate them immediately.
Doshi: Let me ask you specifically. What changes would you like to seen immediately to the Arbitration Act based on the report that you all have issued?
Khambata: Narrower scope of judicial review. What has happened is that many courts feel that they are entitled to take or they ought or to take a second to take a second look at awards. Now arbitration, to start with, is consensual. It can’t be imposed on. You go into it with eyes wide open in the form of a contract. Parties therefore have chosen a particular form of dispute resolution which is that the arbitral tribunal will decide their disputes and not a court. So the very concept that a court should be having a second look is the anti-thesis of arbitration.
Doshi: But the Supreme Court has already dealt with that in certain judgments especially with foreign based arbitration.
Khambata: In some judgments, the Supreme Court has extended the parameters of review and those have caused concern. The idea is now to provide a regime which is very clear cut and what we have tried to do in the amendments is this. We have produced a standard of review for foreign awards that is for arbitration cell outside India and for international commercial arbitrations held within India. So as long as one foreign party is involved which would be a very narrow standard of review which is the public policy standard. So it is not even that a mistake of law or a mistake of fact in the award will cause it setting aside on non-enforcement. It is only if the award does something that is so unconscionable, that it is contrary to the fundamental public policy of India that enforcement can be refused or it can be set aside.
As far as domestic awards are concerned, there is a legitimate point of view that a large number of arbitrators are not judicially trained and there are complains about the manner in which they go about the arbitration and the way the write the awards. Therefore, for purely domestic awards, we have adopted the public policy standard and then added one further standard which is the standard which the Supreme Court enunciated in Saw Pipes- of patent illegality. But again that was criticized as being too wide and vague; so we narrowed that. We have said illegality on the face of the award and we have added a negative proviso or prohibiting proviso which prohibits a court from setting aside an award by reappraising evidence or merely on ground of a mistaken application of the law. So there are certain clear parameters now set down in the Act. This will go a long way.
The other major area of reform in the Act is the disclosure of interest to be made by arbitrators. There is a long list which we have incorporated from the International Bar Association Standards, a very extensive list of disclosures that are to be made and many of those disqualify an arbitrator. So there is a lot of movement in these amendments.
Doshi: So this should be priority number two?
Khambata: I think it should be, Companies Act first.
Doshi: What do you want changed in the Companies Act. Several of the provisions are very good, they are in favor of the better governance standards across corporate India?
Khambata: They are and obviously those should not be changed. There is probably not enough time to go into too much detail but what I would like to say is this- the scheme of the Act needs to be relooked at, it is too complicated, several of the sections appear to be inconsistent with each other, some of the sections which I have had occasion to look at lead to a non-sequitur which is you go up a blind alley and then don’t know where you get out of. There are many areas like this.
Doshi: Is all this just because of it is new? Could it be just like that?
Khambata: There will always be teasing problems with an Act and I concede that but if you have read the Companies Act or large sections of it as many of us have, there are some insuperable problems of drafting. It needs a lot of tidying up and lot of clarity which is not their concern.
Doshi: So you are saying the only way that can be done is if the entire Act is relooked at?
Khambata: Large sections of it.
Doshi: The problem with the old Act was that it got not amended so many times that it became unwieldy and complex and therefore we thought it was time to do a new Act also in keeping with the times, right?
Khambata: The new Act is an aggregate of amendments, it reads like that. It should have been a holistic, clean focused Act. It is a compendium of amendments.
Doshi: So you are saying that just an Amendment Bill is not good enough. It needs an entire relook.
Khambata: It needs a relook.
Darius Khambata may not care for publicity or controversy but his recent appointment on a Finance Ministry panel has landed him right in the centre of the hottest new debate- should RBI's regulatory orders be subject to appeal? Khambata is on a task force that is studying the recommendations of the FSLRC Committee to create a Ffinancial Sector Appellate Tribunal and give it appeal jurisdiction over RBI's regulatory decisions. That FSLRC suggestion has not gone well with the RBI and its governor.
Doshi: We have heard from the RBI and the RBI governor himself who said that if some of the suggestions of the FLSRC are implemented, you will be reducing regulators to paper tigers including of course the RBI whose regulatory decisions could then come under scrutiny or review. What do you make of the task you are charged with right now?
Khambata: Appellate Tribunals are not just mirror images of courts. The whole thrust of tribunalisation has been because you need expertise and specialized knowledge. So there is going to be a certain degree of intrusiveness that Tribunals will display, which maybe a traditional court would not have. Having said, that I am very clearly of the view that even Tribunals cannot get into matters of policy. Courts can’t and neither can tribunals. There is no question to my mind of sitting in judgment or appeal over a policy decision of the RBI or any regulator for that matter. I know the line is a difficult one to draw but courts have drawn it and the attempt must be made to draw it.
So, to the extent that the draft code crosses that line, I am in disagreement with it. Having said that you will turn to me and ask me what about regulatory powers in individual cases.
Doshi: Specifically the Reserve Bank of India’s regulatory powers and this has nothing to do with monetary policy making. Just its decisions- for instance - on Foreign Exchange Management Act (FEMA) or other related regulatory spaces?
Khambata: Even a regulator must accept that in our system of democracy and rule of law decisions have to be transparent and they have to meet a certain standard. The standard is usually regarding the decision making process. It ought not to be about the merits of the decision itself unless it is completely disproportionate or perverse. As long as we keep that disciple in mind, I don’t think it is a bad thing that there is some appellate forum for a citizen or anyone else to go to and appeal over a decision of a regulator like the RBI. We have been doing it for years over SEBI’s decisions. So I don’t see why the RBI should be on any different footing.
Doshi: Should I quote to you what Raghuram Rajan - the current Governor of the RBI-had to say with regards to this very point. I don’t think he seemed or came off in favor of what the FSLRC suggests. So I will quote to you exactly what he said and that was- “Past experience suggests that entities like to justify their existence, and if set up, a tribunal will intervene more than necessary. a lot of regulatory action stems from the regulator exercising sound judgment based on years of experience. In doing so, it fills in the gaps in laws, contracts, and even regulations. Not everything the regulator does can be proven in a court of law. Courts do not interfere in the specific decisions of a corporate board – using the business judgment rule…In the same way, there are a range of regulatory decisions where regulatory judgment should not be second guessed. To the extent that private parties with their high-priced lawyers can check the regulator, that healthy respect for a regulator dissipates. So the final danger is that the regulator could become a paper tiger, and lose its power of influencing good behaviour, even in areas that are not subject to judicial review.” - It seems to me that from the comments that he has made that the current governor of the RBI is not a fan of the FSLRC report or the suggestion of the creation of an FSAT and the committee with which you are immediately concerned. Are you in favour of an FSAT?
Khambata: I am. I see the point the governor is making. I see where he is coming from but we all have to realize that even regulators have to act within the law. That is our system of democracy. We have always had recourse to a court of law to challenge the decision of a regulator and courts have laid down certain guidelines and principles; areas where they will interfere, areas where they will not interfere. I have no doubt that a specialized appellate tribunal will do the same thing. I do not think there is need or justification for such apprehension. I think, yes, we have to make very clear that policy matters cannot be gone into and it should not be gone into. And there will be that expertise that a regulator has where even a specialized tribunal will not be able to sit in judgment over that.
Having said that I do not think any regulator should even want to make all its decisions- regulatory decisions- immune from judicial scrutiny; that is not good. It is not good for the system. The regulator and its officers must know that there is someone who will at least have a barebones type of review of their decision making process though not of their decision.
So I think it is where you draw the line and the line cannot be drawn very easily. There will be decisions that cross the line, there will be decision that will stay within. I do not think we should say that there is no need for an appellate forum because then all you are doing is you are clogging up the courts with writ petitions. In any case people were filing writ petitions against Reserve Bank of India (RBI’s) decisions. You are transferring them.
Doshi: Not that many?
Khambata: They are, there are enough in the system and you are transferring those to an appellate forum. I do not think that the appellate forum should be sitting in judgment over policy, certainly not but I do not see why it can’t sit in over the decision making process of the RBI in a particular individual order in a particular case. Where does the citizen go otherwise?
Doshi: Mr. Khambata I think you will come to know that the five years that you have spent in government were a cake walk compared to the job that you have currently been handed as the committee member because there is a large group of companies that will back the move towards an FSAT because they have always felt that they had no recourse to appeal an RBI decision, a regulatory decision not a monetary policy decision and then there are yet many in the economy who believe that you will be whittling down the regulatory power of the RBI.
Khambata: No, I take that. There is still space for relooking at certain provisions of the proposed financial code and the government is doing that and has asked Justice Srikrishna to do that. So, I do not think it is cast in stones. I am sure they will be looking at this sort of provisions and making it very clear that policy matters are outside the purview.
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