Regulating India – I – An Introduction

Author(s): Sanjay Sen

This is the first essay in a three-part series. 

Regulating India – Introduction

The first essay sets the context for the regulating India essay series by tracing the exponential growth of tribunals as a parallel judiciary in India and provides an overview of the unsettled constitutional issues presented by tribunals.

While the origin of tribunals in India can be traced to the creation of the Income Tax Appellate Tribunal in 1941,¹ its exponential growth is seen only after the 42^nd amendment to the Constitution² in 1976.  Tribunals were initially designed to discharge judicial or quasi-judicial functions like in the case of the Income Tax Appellate Tribunal or Central and State Administrative Tribunals. The Administrative Tribunals were tasked to adjudicate complaints and disputes on matters of recruitment and conditions of employment of persons appointed to public services and posts³. Similarly, a tribunal was also created for the armed forces, for resolving complaints and disputes that arose in relation to appointment, commission and condition of service of members of the armed forces⁴. Tribunals that were created for adjudication of tax disputes, both in areas of direct as well as indirect taxes⁵,  were effectively supplementing the role of courts, by providing an alternate platform for resolution of disputes⁶. When the courts were being unburdened, the tribunal system of adjudication proceeded to relax the rigour of procedures that were generally followed by civil courts and were thus seen as harbingers of faster disposal of cases.

The Law Commission⁷ in 2017 summarised the reasons for the growth of tribunal in the following words:

“[d]ue to  growing commercial ventures and activities by the Government in different sectors, along with the expansion of Governmental activities in the social and other similar fields, a need has arisen for availing the services of persons having knowledge in specialised fields for effective and speedier dispensation of justice as the traditional mode of administration of justice by the Courts of law was felt to be unequipped with such expertise to deal with the complex issues arising in the changing scenario.”

In some cases, tribunals were also vested with certain statutory powers that were special or necessary to deal with the subject in question. These special powers were not generally available to ordinary civil courts. As a result, such tribunals could fashion remedies based on the provisions statute. The relief that could then be granted by these tribunals were beyond what ordinary courts could grant. For example, the powers available to an Industrial Tribunal (also called a Labour Court) vastly exceeded the power of a civil court organised under the provisions of the Civil Procedure Code, 1908. This aspect has been recognised by the Supreme Court from time to time ⁸ and more recently in Apollo Tyres Ltd. v. C.P. Sebastian, (2009)⁹

“9. There are many powers which the Labour Court or Industrial Tribunal enjoy which the civil court does not enjoy e.g. the power to enforce contracts of personal service, to create contracts, to change contracts, etc. These things can only be done by the Labour Court or Industrial Tribunal but cannot be done by a civil court. A contract for personal service includes all matters relating to the service of the employee e.g. confirmation, suspension, transfer, termination, etc.”

 In matters of administration of Companies under the Companies Act, 1956¹⁰, the High Courts were initially vested with special ‘company jurisdiction’. Subsequently, this jurisdiction was carved out and substantially transferred to the Company Law Board¹¹. In 2013 the entire company jurisdiction was vested in the National Company Law Tribunal. Like in the case Industrial Tribunals, the Company Court and now the NCLT also has special powers which are not available to an ordinary civil court. The Supreme Court while recognising such special powers in the context of administration of companies in Radharamanan v. Chandrasekara Raja, (2008)¹², observed as follows:

“25. In Pearson Education Inc. v. Prentice Hall India (P) Ltd. [(2007) 136 Comp Cas 294 : (2006) 134 DLT 450] as regards the jurisdiction of the Company Law Board and the High Court under Sections 397/398 and 402, a learned Single Judge of the Delhi High Court held: (DLT p. 466, para 27)

“27. … Jurisdiction of the CLB (and ultimately of this Court in appeal) under Sections 397/398 and 402 is much wider and direction can be given even contrary to the provisions of the articles of association. It has even right to terminate, set aside or modify the contractual arrangement between the company and any person [see Sections 402(d) and (e)]. Section 397 specifically provides that once the oppression is established, the Court may, with a view to bringing to an end the matters complained of, make an order as it thinks fit. Thus, the Court has ample power to pass such orders as it thinks fit to render justice and such an order has to be reasonable. It is also an accepted principle that ‘just and equitable’ provision in Section 402(g) is an equitable supplement to the common law of the company to be found in its memorandum and articles of association.”

As pointed out by the Law Commission owing to growth in “commercial ventures and activities by the Government in different sectors”, the number of tribunals has grown significantly. With the passage of time, the legislature has vested tribunals with the power to regulate certain sectors and, therefore, it was no longer limited to mere adjudication of disputes or the ability to fashion special remedies, as was seen earlier. The Supreme Court recognised this trend in Cellular Operators Assn. of India v. Union of India, (2003)¹³, when it held as follows:

“33. The regulatory bodies exercise wide jurisdiction. They lay down the law. They may prosecute. They may punish. Intrinsically, they act like an internal audit. They may fix the price, they may fix the area of operation and so on and so forth. While doing so, they may, as in the present case, interfere with the existing rights of the licensees.” 

In the same judgment, the Supreme Court subtly distinguished the difference between the jurisdiction exercised by civil courts and those by statutory tribunals. It said:

“38. Similarly, the civil court’s jurisdiction in service matters is circumscribed by the provisions of the Special Relief Act, 1963.

39. However, the jurisdiction of the Industrial Tribunal or the Labour Court in a similar situation having regard to the provision of Section 11-A of the Industrial Disputes Act, 1947 is much wider and akin to the appellate power.

…..”

Thereafter, in PTC India Ltd. v. Central Electricity Regulatory Commission, (2010)¹⁴, a Constitutional Bench of the Supreme Court after analysing the provisions of the Electricity Act, 2003, proceeded to make the following observation:

“53. Applying the abovementioned tests to the scheme of the 2003 Act, we find that under the Act, the Central Commission is a decision-making as well as regulation-making authority, simultaneously. Section 79 delineates the functions of the Central Commission broadly into two categories —mandatory functions and advisory functions. Tariff regulation, licensing (including inter-State trading licensing), adjudication upon disputes involving generating companies or transmission licensees fall under the head “mandatory functions” whereas advising the Central Government on formulation of National Electricity Policy and tariff policy would fall under the head “advisory functions”. In this sense, the Central Commission is the decision-making authority. Such decision-making under Section 79(1) is not dependent upon making of regulations under Section 178 by the Central Commission. Therefore, functions of the Central Commission enumerated in Section 79 are separate and distinct from functions of the Central Commission under Section 178. The former are administrative/adjudicatory functions whereas the latter are legislative.”

This demonstrates the manner in which the jurisdiction of tribunals, particularly in sectors that are at the core of the country’s economy have undergone a change. While pursuing global trends and pressed with an urgent need to rationalise government budgets, several economic activities were placed under private ownership¹⁵. Goods and services that were earlier at the disposal of the State, and often designated to serve a dominant social purpose, were now privately produced and sold. Though this transition had to negotiate political challenges, it undoubtedly required a strong legislative backbone to support the enhanced jurisdiction as well as the sectoral expanse of tribunals.

The word privatize first appeared in a dictionary in 1983.¹⁶ The initial definition of the word privatize was restrictive, to mean to “make private, especially to change (as a business or industry) from public to private control of ownership”¹⁷. It was later expanded to mean reduction of the role of government or increasing the role of the private sector, in activities and ownership of assets¹⁸. However, with time the distinction between public and private has become elusive. To enable privatization, several routes were taken. The familiar ones are those that allowed – deregulation of sectors, sale of state-owned assets (companies) and the execution of contracts or grant of concessions, through a public-private partnership model.

Special laws were enacted to promote private investment in certain sectors. The purpose was not limited to replacing State’s dominance on such sectors, but it also aimed at creating a market for such good and services. Recognition of true economic cost and commercial value of such goods and services were identified as essential prerequisites for market entry. Legislations promoting private investments and creation of market, also provided guidelines for determination of tariff and user charges. The laws impelled independent assessment of costs by expert tribunals through a quasi-legal process¹⁹. In order to make the economic model sustainable, other supporting laws and policies were also enacted to address matters relating to the raising and deployment of capital²⁰, rationalisation of company law, introduction of bankruptcy code, regulation of competition, environment etc. This development of laws, along with the judicial formulations of administrative matters led to what Roscoe Pound described as the growth of executive justice in administrative tribunals²¹.

Delegation of power by the legislature permitted such tribunals to frame subordinate laws that have specific applications. Returns on investments were not completely left to market dynamics, but also depended on regulations framed by tribunals. For tribunals operating in economic areas apart from being vested with the powers of making subordinate laws, the legislature additionally aggregated and vested in the tribunals the powers earlier exercised by administrators and the judiciary. This was justified on the grounds that it provided flexibility and speed that was necessary to meet emerging situations, coupled with the fact that sectors required services of experts with special knowledge.

Though the Indian courts recognised that the doctrine of separation of power as a basic constitutional norm, the integration of powers of all three branches of the State in a single tribunal has not been seriously questioned. Legislations that created tribunals and authorised it to function in parallel with the traditional system of the courts, also empowered tribunals to make laws and to discharge executive functions that were earlier in the hands of career bureaucrats.

Tribunals are now an integral part of our legal fabric. But the laws that create tribunals and vests jurisdiction continue to fester tension between the various organs of the State. The extent of delegation that can be permitted without undermining the constitutional principles of separation of power has been a matter of some concern. To overcome legal challenges, legislations that create tribunals are required to ensure functional and institutional independence of tribunals.

In a dynamic economic environment, tribunals working in the areas of economic or infrastructure regulations are expected to promote investor confidence and at the same time secure consumer satisfaction. To this task, one has to factor the vagaries attached to policy shifts, both at the Central and State levels and also, uncertainties that arise on account of an interdependent global economy. While tribunals are required to act independently in terms of the overall legislative policy, it also has to have the requisite competence to discharge its mandate. This aspect has generated controversy from time to time, for courts have made various observations on legislative deficiencies that compromise both the independence and competence ²² of tribunals. It is a fact that governments often have a dominant commercial interest in sectors that are now under the jurisdiction of tribunals. Such interest manifests when governments itself or through its wholly-owned companies compete with the private sector directly in the market or have executed binding contracts with the private companies to buy products and services (for consumption or redistribution), which contracts form the basis for private sectors investments. The government also initiates and develops laws and policies in tune with the day’s political agenda, in sectors where they have a direct commercial interest. The government also exercise a pervasive control over the process of selection of members of tribunals. The staff of tribunals are often on deputation from various departments and ministries of the government. This enables the government to not only exercise control over the tribunal’s inner workings but also enables it to have an information-tab on the tribunals, which may become a crucial tool for safeguarding conflicting interests. The Law Commission has essentially concluded that governments are litigating parties in most of the litigations²³ in the country. Since the commercial disputes that arise on account of engagements with governments are then adjudicated by tribunals, the courts have insisted on securing the tribunals functional and institutional independence. In a constitutional democracy, one of the basic tenets of rule of law is to have an impartial tribunal to adjudicate disputes involving citizens and the State.

The challenges to the functioning of tribunals also extend to its engagement with the private sector that operates on its sense of profit and returns and attempts to secure itself gainfully through several complex instruments that keep emerging in the fields of commerce, finance and accounts. Private participation is valued not only on account of the money it brings, but it is also expected that such participation will bring in advance-technology and processes that will provide better methods for rationalising the use of resources and improve efficiency. All this will contribute towards enhanced consumer satisfaction and sectoral growth. This expectation has to then be tailored to meet the conflicting public-demands for low tariff and user charges.

Tribunals operating in economic areas additionally have a mandate to develop markets and introduce competition²⁴. In sectors that were opened for private participation, the engagement by tribunals has had a beneficial impact on consumers. In the past two decades, significant growth has been seen in sectors like airlines and airports, print and digital media, electricity, insurance and mobile telephones. While new technology and products have been introduced, the inefficiencies of the State sectors have also been exposed. Consumers have been benefitted from the creation of markets.

While consumers may have benefitted on account of competition, the economy driven by tribunals has also grown on the shoulders of such consumers – who are the ones that finally underwrite the costs and aspirations of the sector investors. The dominant sources of revenues in such sectors are user-charges and tariffs. In the case of media and related services, the dominant revenue sources are the advertisers, who then seek to influence consumer-choices and consumption patterns.

Consumers are central in the liberal economic agenda, where goods and services are sold at prices that allows recovery of the economic cost of such good and services. There is also a growing recognition that subsidies that are to be provided should be direct rather than being factored in tariff and user charges. Though the functioning of tribunals has a profound impact on consumption and quality of life, the tribunals are not seen as those traditional democratic institutions over which the civil society, directly or indirectly, exert influence. In this context, the participation of the civil society²⁵ (which encompasses the general body of consumers) in an evolving economic regime that is now getting more and more tribunalised has become relevant.  Though some levels of participation of consumers (public) take place in relation to the affairs of the tribunals, such participation is generally initiated on the basis of an agenda drawn-up by the more dominant class i.e. the government or the private stakeholder. Sometimes even the tribunal suo moto initiates dialogues. However, civil society seldom dictates the agenda. Civil society’s engagement is either restricted to giving their comments or recoding objections on proposals floated by others. More often, there is no engagement with civil society at all. There are a few NGOs who have made it their solemn purpose to engage, and represent the interests of consumers or a category of consumers. With time many NGOs either align themselves with certain interest-groups or get drawn into activism by taking extreme positions. The political class, directly or through its executive branch, motivated by some immediate political benefits (that can accrue in favour of their constituents) exerts their views aggressively.

To understand the efficacy of the regulatory enterprise, it may be worthwhile to conduct regulatory research and audits. The regulatory laws and policies that come with an underlying reform-initiative, has to be examined not only from the perspective of the benefits that accrue in favour of consumers but also for other stakeholders, including concerns of the civil society and the environment. Since large economic interests are involved, laws and policies have shades that expose the workings of lobbies and interest groups.

While tribunals have been tasked to manage and regulate several key sectors, legislatively the political class has been distanced from the tribunal. But they have continued to exert influence. Similarly, the traditional judiciary has been legislatively kept away on account of tribunalisation of sectors is invited from time to time to intervene and exert their constitutional strength, to balance the centres of power.

The civil society has also not carved out a space to make meaningful inroads and question that functioning of tribunals. Even the mainstream media has not made any purposive inquiry on the functioning of tribunals and the quality of its engagement in relation to the economic development of the country. Leaflets and newsletters exchanged by industry groups have a sectoral approach and have also kept the civil society out of their discussions. Though legislative and policy deficits are blamed for economic failures in certain core sectors, one seldom questions the functioning of tribunals.

All views expressed are personal.