# S.C.R. 861 ARUN KUMAR AGRAWAL v. UNION OF INDIA & ORS

- **Citation:** [2014] 3 S.C.R. 861
- **Court:** Supreme Court of India
- **Decided:** 2013-11-01
- **Bench:** Surinder Singh Nijjar, Pinaki Chandra Ghose
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/s-c-r-861-arun-kumar-agrawal-v-union-of-india-ors-29812
- **Pages:** 68

## Headnote

CONSTITUTION OF IND/A, 1950:
Art.32 - Writ petition challenging appointment of
Chairman, SEBI - Held: Section 4(5) of SEBI Act inter alia
stipulates that Chairman and other Members of SEBI shall
A
B
c
be persons of "ability, integrity and standing who have shown
capacity in dealing with problems relating to securities market" 0
- Thus, statutorily, a person cannot be appointed as
Chairman/Member of SEBI unless he or she is a person of
high integrity - Therefore, selection and appointment of
Chairman, SEBI could be challenged before Supreme Court
in a writ petition under Art. 32 of the Constitution on the
E
ground that he does not satisfy the statutory requirements of
a person of high integrity - Securities and Exchange BoarrJ
of India Act, 1992 - s. 4(5).
SECURITIES AND EXCHANGE BOARD OF /NOIA
ACT, 1992:
F
s.4(5) - Appointment of Chairman of SEBI - Challenged
on the ground of integrity, ma/a fides, conspiracy etc. - Held:
SEBI is an institution of high integrity -- The functions
performed by it are such that any malfunctioning in G
performance of such functions can disturb economy of the
country - Therefore, only persons of high integrity would be
eligible to be appointed as Chairman/Member of SEBI - This
is imperative - There is no substance in the alleged
861
H
862
SUPREME COURT REPORTS
[2014] 3 S.C.R.
A irregularities regarding deputation of fourth respondent, the
alleged misstatement/non-disclosure about his pay scale/
sanctioned emoluments as disclosed -- There is nothing
which would render him a person of not high integrity - SEBI
(Terms and Conditions of Service and Members) Rules, 1992
B - r.3(5) -- /AS Cadre Rules - rr.6(2)(i) and 6(2)(ii).
Appointment of Chairman, SEBI - Allegation of ma/a fide
- Held: If the a/legations of ma/a fide are established, it would
vitiate the selection procedure, recommendation and
C appointment of fourth respondent as Chairman, SEBI - But,
burden of proving the allegations of ma/a fide. would lie very
heavily on petitioner - It was incumbent on petitioner not only
to make specific allegations, but also to produce very strong
evidence to lead to a clear conclusion that the selection was
actuated by ma/a fide - Petitioner has not made out a case
D of ma/a fide to vitiate the selection process and appointment
of fourth respondent as Chairman, SEBI.
Appointment of Chairman, SEBI - Allegation of
conspiracy - Held: The charge of conspiracy has to be taken
E seriously as it involves commission of very serious criminal
offence uls 120-B, /PC - 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
F conjectures, speculations and interpretation of notings in the
official files -Appointment of fourth respondent is strictly in
conformity with the procedure prescribed - Petitioner has not
placed on record any material to establish that any
conspiracy was hatched to ensure the selection of fourth
G respondent as Chairman, SEBI - All India Services (Deathcum-Retirement Benefits) Rules, 1958 - rr.16 and 26.
PUBLIC INTEREST LIT/GA TION:
Writ petition challenging appointment of Chairman, SEBI
H - Held: In the instant case, petitioner has unjustifiably attacked
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
863
ORS.
integrity of the entire selection process - The petition does not A
satisfy the test of utmost good faith which is required to
maintain public interest litigation -- On facts, petitioner could
not justify invoking the jurisdiction of the Court under Art. 32.
The instant writ petition was filed by the petitioner 8
purporting to be in public interest, challenging the
appointment of respondent no. 4 as Chairman of the
Securities Exchange Board of India (SEBI) on the
grounds: (a) that respondent no. 4 failed to fulfill one of
the eligibility condition as laid down in sub-s. (5) of s.4 C
of the Securities and Exchange Board of India Act, 1992
(SEBI Act), as wel

## Text

_Characters 0–39,936 of 139,367. This is a partial read: ask again with offset=39936 for what follows._

[2014} 3 S.C.R. 861
ARUN KUMAR AGRAWAL
v.
UNION OF INDIA & ORS.
(Writ Petition (Civil) No. 374 of 2012)
NOVEMBER 01, 2013
[SURINDER SINGH NIJJAR AND
PINAKI CHANDRA GHOSE, JJ]
CONSTITUTION OF IND/A, 1950:
Art.32 - Writ petition challenging appointment of
Chairman, SEBI - Held: Section 4(5) of SEBI Act inter alia
stipulates that Chairman and other Members of SEBI shall
A
B
c
be persons of "ability, integrity and standing who have shown
capacity in dealing with problems relating to securities market" 0
- Thus, statutorily, a person cannot be appointed as
Chairman/Member of SEBI unless he or she is a person of
high integrity - Therefore, selection and appointment of
Chairman, SEBI could be challenged before Supreme Court
in a writ petition under Art. 32 of the Constitution on the
E
ground that he does not satisfy the statutory requirements of
a person of high integrity - Securities and Exchange BoarrJ
of India Act, 1992 - s. 4(5).
SECURITIES AND EXCHANGE BOARD OF /NOIA
ACT, 1992:
F
s.4(5) - Appointment of Chairman of SEBI - Challenged
on the ground of integrity, ma/a fides, conspiracy etc. - Held:
SEBI is an institution of high integrity -- The functions
performed by it are such that any malfunctioning in G
performance of such functions can disturb economy of the
country - Therefore, only persons of high integrity would be
eligible to be appointed as Chairman/Member of SEBI - This
is imperative - There is no substance in the alleged
861
H
862
SUPREME COURT REPORTS
[2014] 3 S.C.R.
A irregularities regarding deputation of fourth respondent, the
alleged misstatement/non-disclosure about his pay scale/
sanctioned emoluments as disclosed -- There is nothing
which would render him a person of not high integrity - SEBI
(Terms and Conditions of Service and Members) Rules, 1992
B - r.3(5) -- /AS Cadre Rules - rr.6(2)(i) and 6(2)(ii).
Appointment of Chairman, SEBI - Allegation of ma/a fide
- Held: If the a/legations of ma/a fide are established, it would
vitiate the selection procedure, recommendation and
C appointment of fourth respondent as Chairman, SEBI - But,
burden of proving the allegations of ma/a fide. would lie very
heavily on petitioner - It was incumbent on petitioner not only
to make specific allegations, but also to produce very strong
evidence to lead to a clear conclusion that the selection was
actuated by ma/a fide - Petitioner has not made out a case
D of ma/a fide to vitiate the selection process and appointment
of fourth respondent as Chairman, SEBI.
Appointment of Chairman, SEBI - Allegation of
conspiracy - Held: The charge of conspiracy has to be taken
E seriously as it involves commission of very serious criminal
offence uls 120-B, /PC - 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
F conjectures, speculations and interpretation of notings in the
official files -Appointment of fourth respondent is strictly in
conformity with the procedure prescribed - Petitioner has not
placed on record any material to establish that any
conspiracy was hatched to ensure the selection of fourth
G respondent as Chairman, SEBI - All India Services (Deathcum-Retirement Benefits) Rules, 1958 - rr.16 and 26.
PUBLIC INTEREST LIT/GA TION:
Writ petition challenging appointment of Chairman, SEBI
H - Held: In the instant case, petitioner has unjustifiably attacked
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
863
ORS.
integrity of the entire selection process - The petition does not A
satisfy the test of utmost good faith which is required to
maintain public interest litigation -- On facts, petitioner could
not justify invoking the jurisdiction of the Court under Art. 32.
The instant writ petition was filed by the petitioner 8
purporting to be in public interest, challenging the
appointment of respondent no. 4 as Chairman of the
Securities Exchange Board of India (SEBI) on the
grounds: (a) that respondent no. 4 failed to fulfill one of
the eligibility condition as laid down in sub-s. (5) of s.4 C
of the Securities and Exchange Board of India Act, 1992
(SEBI Act), as well as the qualification contained in
Government communication, which required that the
Chairman should be a person of high integrity; (b) that
appointment of respondent No.4 was the result of
manipulation, misrepresentation and suppression of vital D
material before the Search-cum-Selection Committee and
the Appointment Committee of the Cabinet 'ACC'; (c) that
the appointment of respondent No.4, was mala fide; and
{d) that a conspiracy was hatched to ensure selection of
respondent no. 4 as Chairman, SEBI. The petitioner E
alleged that respondent no. 4 was wrongly sent on
deputation to Unit Trust of India Asset Management
Company Ltd. (UTI AMC) and further, the deputation was
in violation of the policy of not allowing deputation to an
officer who had overseen the organisation to which he
F
was being deputed; that there was suppression of
material facts relating to remuneration of respondent no.
4 as CMD, UTI AMC before the Search-cum-Selection
Committee and the ACC. As regards the mala tides, it was
stated by the petitioner, that the earlier Chairman of SEBI G
was denied extension in tenure and in order to facilitate
the selection of respondent no. 4, there was illegal and
arbitrary change in composition of Search-cum-Selection
Committee.
On behalf of the respondents, besides contesting the H
864
SUPREME COURT REPORTS
[2014] 3 S C.R.
A petition on merits, a preliminary objection was raised as
to the maintainability of the writ petition as the same was
alleged not to have been filed in public interest, but as a
surrogate litigation on behalf of an individual who was
anxious to continue as Chairman, SEBI; and that the writ
B petition did not disclose all the facts relevant for
adjudication of the issues raised.
Dismissing the writ petition, the Court
C
HELD: 1.1 SEBI is an institution of high integrity.
Therefore, the Chairman of SEBI has to be a person of
high integrity. This is imperative. 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
D 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. [para 29) [897-B, FE
H; 898-A]
Sahara India Real Estate Corporation Ltd. & Ors. Vs.
Securities and Exchange Board of India & Anr. 2012 (12)
SCR 1 = 2013 (1) SCC 1 • referred to.
1.2 The functions performed by SEBI are such that
F any malfunctioning in the performance of such functions
can disturb the economy of the country. Therefore, only
persons of high integrity would be eligible to be
appointed as Chairman/Member of the SEBI. Section 4(5)
of SEBI Act inter alia stipulates that the Chairman and
G other Members of the SEBI shall be persons of "ability,
integrity and standing who have shown capacity in
dealing wlt.h problems relating to securities market."
Statutorily, therefQre, a person cannot be appointed as
Chairman/Member of the SEBI unless he or she is a
H person of high integrity. [para 30) [899-B-E]
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
865
ORS.
1.3 Therefore, selection and appointment of A
respondent No.4 could be challenged before this Court
in a writ petition under Art. 32 of the Constitution of India
on the ground that he does not satisfy the statutory
requirements of a person of high integrity. [para 30) [899E-F]
B
Centre for PIL & Anr. Vs. Union of India & Anr. 2011 (4)
SCR 445 = 2011 (4) SCC 1 - referred to.
DEPUTATION : Was it irregular, illegal or vitiated by
colourable exercise of power?
C
2.1 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. o
Respondent No.4 was first appointed as CEO, UTI AMC
by order dated 30.10.2005. He was initially on deputation
under r.6(2)(ii) and subsequently under r.6(2)(i) of the IAS
Cadre Rules. The terms and conditions of service of
respondent No.4 at UTI AMC were settled on 16.4.2007. E
This was in conformity with the letter dated 31.10.2005
written by the DOPT accepting the request made by the
Government of Bihar in its letter dated 28.10.2005 for
approval of deputation of respondent No.4 with UTI AMC
for a period of two years under r.6(2)(ii) of IAS Cadre
F
Rules. The letter further indicated that terms and
conditions applicable in the said deputation were under
examination and would be communicated shortly. The
deputation was converted from r.6(2)(ii) to r.6(2)(i), upon
clarification of the applicability of the appropriate rule.
[para 35) [901-D-H]
G
2.2 Therefore, it cannot be said that respondent No.4
was in any manner responsible for being sent on
deputation initially under r.6(2)(ii) and subsequently
under r.6(2)(i) or that his deputation under r.6(2)(ii) was
H
866
SUPREME COURT REPORTS
[2014] 3 SC.R
A approved in colourable exercise of power. [para 35] (902B-C, D]
"False Declaration in Form L"
2.3 A perusal of Office Memorandum dated 1.5.2008 sent
B by the Department of Economic Affairs in reference to the
letter sent by DoP&T seeking comments of DEA under r.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
c response dated 1.5.2008 had been faithfully set out.
Therefore, it cannot be said that the petmoner has made any
false declaration in 'Form L', Clause 9 read with r.26(3) of
All India Services (Death-cum-Retirement Benefits) Rules,
1958, while working in his previous job as Chairman, UTI
D AMC. [para 36-37] (902-E-F; 904-H; 905-A]
2.4 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
E application for voluntary retirement had been processed.
He was, however, required to obtain approval under r.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
F the time of retirement. Undoubtedly, respondent No.4 was
drawing the pay scale of Rs.22400-525-24500. He also
stated his pay to be Rs.23,450/-. There is no legal infirmity
in the said statement by respondent No.4. It is a settled
proposition of law that deputationist would hold the lien
G in the parent department till he is absorbed on any post.
[para 38] [905-E-H]
State of Rajasthan & Anr. Vs. S.N. Tiwari & Ors. 2009 (4)
SCR 448 = 2009 (4) SCC 700; and Triveni Shankar Saxena
Vs. State of UP. & Ors. 1991 (3) Suppl. SCR 534 = 1992 (1)
H Suppl. SCC 524 - referred to.
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
867
ORS.
2.5 In response to Column No.7 Form L, respondent A
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. It
must be noticed that respondent No.4 had sought
retirement from the IAS w.e.f. 15.5.2008 to enable him to B
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. The Board of UTI AMC by
resolution dated 12.4.2008 approved that the CMD can c
draw revised compensation w.e.f. 27.12.2006. Till that
date, he was still placed in the scale of Additional
Secretary, Government of India. The fact that emoluments
were paid to respondent No.4 w.e.f. 27.12.2006 would not
affect the statement made by respondent No.4 in Form 0
'L' filled on 15.4.2008. Therefore, it cannot be said that
respondent No.4 had deliberately suppressed the
information regarding his salary. [para 40] [906-F-G; 907A-D]
2.6 Respondent No.4 in his capacity as a Joint E
Secretar~/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 F
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 advantage to the
Organization in which he is seeking a future position. In
the case of respondent No.4, he was already working as G
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 H
868
SUPREME COURT REPORTS
[2014] 3 S.C.R.
A No.4 in the same Form No. Lat Sr.No.7-C had stated that
he was earlier working as Director in UTI AMC and was
appointed as CEO cum MD from 3.11.2005 and CMD from
13.1.2006. The declaration is in fact in conformity with the
3rd proviso to Rule 26 of All India Service (DCRB) Rules
B 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
c
Organization. [para 41] [907-E-H; 908-A-B]
2.7 It can also not be said 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. Respondent No.4 had no role to play in
D the grant of approval of deputation, once he fully
disclosed that he had been working as Joint Secretary
Banking. It can also not be accepted that whilst
respondent No.4 worked as Joint Secretary Banking he
can be said to have over-seen the Organization of UTI
E AMC. [para 42] [908-C-D]
2.8 UTI AMC cannot 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 reemployment in a Commercial Organization. The Central
F 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
G AMC is not a "Government Company" u/s 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
H on the Board to decide what process to follow and whom
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
869
ORS.
to appoint. When the selected candidate is not a
A
government employee having a lien on a government job,
then the government would have nothing to do with the
selection process. [para 43] [908-G-H; 909-A-E]
2.9 As regards the grievance of the petitioner that
8
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,
it is significant to note that in reply to the said question,
respondent No.4 categorically stated that such higherleve.1 posts are generally not advertised. The statement C
made by respondent No.4 that such higher posts are
generally not advertised, cannot be said to be a
misleading or a false statement. Keeping in mind the
contribution made by him and the needs of the Company,
the shareholders had made the offer to him. In any event,
D
it would be the decision to be taken by the Board of
Directors. Respondent No.4 would clearly have no say
in the matter. [para 45-46] [910-D-E; 911-A-B, E]
2.10 The Government of India never adopted the
policy of not sending IAS Officer on deputation to UTI
E
AMC and informed the Parliament in its 3rd action taken
report submitted in December, 2004. The decision to
grant approval of commercial employment post
retirement under r.26 was taken by the Government of
India. The post was filled up by Board of Directors and
F
shareholders of UTI AMC. It was entirely for them to
adopt such policy of appointment as they deem fit.
Respondent No.4 has complied with all the conditions of
deputation, and as such, there is nothing which would
render him a person of not high integrity. The G
Appointment Committee of the Cabinet (ACC) had
approved the extension of tenure of respondent no.4 as
CMD UTI AMC till 31.5.2008. [para 48] [914-B-D]
2.11 Therefore, there is no substance in the alleged
irregularities regarding deputation of respondent No.4,
H
870
SUPREME COURT REPORTS
(2014] 3 S.C.R.
A the alleged misstatement/non-disclosure about his pay
scale/sanctioned emoluments as disclosed in the letter
dated 16.4.2007; the alleged appointment of respondent
No.4 so as to be contrary to recommendations made by
the AAPTE Committee on July, 2007; the alleged false
B declaration under r.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 advertisement of
higher-level posts. [para 49] [914-E-G]
C Was the recommendation and appointment of
respondent no. 4 as Chairman, SEBI vitiated by MALA
FIDE exercise of powers?
3.1 Undoubtedly, if the allegations of mala fide are
established, it would vitiate the selection procedure,
D recommendation and the appointment of respondent no.
4 as the Chairman, SEBI. But the burden of proving the
allegations of mala fide would lie very heavily on the
petitioner. It was incumbent on the petitioner not only to
make specific allegations, but to produce very strong
E evidence to lead to a clear conclusion that the selection
was actuated by mala fide. [para 50 and 61) [914-H; 915A-B; 923-E]
Purushottam Kumar Jha Vs. State of Jharkhand & Ors.,
F 2006 (1) Suppl. SCR 215 = 2006 (9) SCC 458; Indian Railway
Construction Co. Ltd. Vs. Ajay Kumar, 2003 (2) SCR 387 =
2003 (4) SCC 579; and Saradamani Kandappan Vs. S.
Rajalakshmi & Ors. 2011 (8) SCR 87 4 = 2011 (12) SCC 18;
S. Partap Singh Vs. State of Punjab 1964 SCR 733 and E.P.
G Royappa Vs. State of T.N. 1974 (2) SCR 348 = 1974 (4) SCC
3 - referred to.
3.2 This Court holds that there was no mala fides
involved in denying the extension to the earlier Chairman.
It has been rightly pointed out that no illegality was
H committed in making the amendment in the rules
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
871
ORS.
pertaining to the selection of Chairman/WTM of SEBI. It A
is borne out from the record that prior to 23.7. 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 2.11. 2007. This B
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. It has
also been pointed out that the amendment of the rules c
had no relevance to the consideration of recommendation
of respondent no. 4 to be appointed as Chairman of the
SEBI. [para 54-55) [916-F; 917-F-H; 918-A]
3.3 The amendment in r.3 of the SEBI (Terms and
Conditions of Service and Members) Rules, 1992 was to D
provide for more participation by the expert members.
Therefore, sub-r. (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, E
SEBI for selection of WTM and two eminent expert from
relevant field. The record indicates that respondent No.4
was unanimously placed at Sr.No.1 by the Search-cumSelection Committee.[para 55) [918-C-D, G)
3.4 The petitioner has falsely contended that rules F
concerning the constitution of Search-cum-Selection
Committee amended through notification dated 7.10.2010
were to ensure the selection of respondent no. 4. The
rules were amended in exercise of the powers conferred
on the Finance Minister u/s 29 of the SEBI Act. The said G
notification issued by the Finance Ministry has not been
challenged by the petitioner. It is also significant to note
that prior to the amendment, the procedure for selection
of Chairman, SEBI was determined by the Finance
Minister. From perusal of the entire record, it cannot be H
872
SUPREME COURT REPORTS
(2014] 3 S.C.R.
A said that the petitioner has made out a case of mala fide
to vitiate the proceedings of the Search-cum-Selection
Committee. [para 56] [919-8-D]
3.5 Applications for filling the post of Chairman were
8
invited on 10.9.2010. Respondent no. 4 did not apply in
response to the said invitation. Out of the 19 applicants,
in the first meeting of the Committee held on 2.11.2010,
five were short listed. In addition, the Search-cumSelection Committee also decided to invite respondent
C no. 4 for interaction, who at the relevant time, was CMD,
UTI AMC. The Search-cum-Selection Committee based on
the qualification, experience and personal interaction with
the short listed candidates, recommended the names of
respondent no. 4 and another person in that order of
merit, for being considered for appointment as Chairman
D SE81. There is no illegality in the procedure adopted by
the Search-cum-Selection Committee. The Finance
Minister proposed the appointment of respondent no. 4
as Chairman, SE81, for an initial period of three years from
the date he resumes the charge or till he attain the age
E of 65 years, whichever is earlier. The proposal was sent
to the ACC on the express approval of the then Finance
Minister. It is therefore evident that respondent no. 4 had
not role to play in the whole procedure except for
accepting the invitation of the Search-cum-Selection
F Committee for interaction. [para 56-57] [919-8-C; 920-CH; 921-A]
4.1 The charge of conspiracy has to be taken
seriously as it involves the commission of very serious
G criminal offence u/s 120-8 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
H of notings in the official files. [para 60] [923-C-D]
ARUN KUMAR AGRAWAL v. UNION OF INDI~ &
873
ORS.
4.2 The appointment of respondent no. 4 is strictly
A
in conformity with the procedure prescribed by service
rules, i.e, rr. 16 and 26 of the AIS (DCRB) Rules, 1958. The
official record discloses that the Chairman, SEBI is
appointed by the Central Government by following an
established process_ by the ACC headed by the Prime
B
Minister. This is done on the basis of Search-cumSelection Committee of the Government of India. The
opinion of other independent arid reputed experts in the
field of Economics, Finance and Management is also
taicen through an institutional mechanism approved by c
the DOPT. The petitioner has not placed on record any
material to establish that any conspiracy was hatched to
ensure the selection of respondent No.4. [para 61-62]
{923-F-H; 924-E-F]
..
State of Madhya Pradesh Vs. Narmada Bachao Ando/an
D
& Anr. 2011 (6) SCR 443 = 2011 (7) SCC 639; and K.D.
Sharma Vs. Steel Authority of India Limited & Ors. 2008 (10)
SCR 454 = 2008 (12) SCC 481 - referred to.
5. As regards the maintainability of the writ petition
E
as a public interest litigation, the petitioner has
unjustifiably attacked the integrity of the entire selection
process. The petition does not satisfy the test of utmost
good faith which is required to maintain public interest
litigation. In the facts of the instant case, the petitioner
F
cannnot justify invoking the jurisdiction of this Court
under Art. 32 of the Constitution of India. [para 63] [926H; 927-A, D, E-F]
Case Law Reference:
2011 (4) SCR 445
referred to
G
para 13
2011 (6) SCR 443 .
referred to
para 26
2008 (10) SCR 454
referred to
para 26
2012 (12) SCR 1
referred to
Para 29
H
874
SUPREME COURT REPORTS
[2014] 3 S.C.R.
A
2009 (4) SCR 448
referred to
Para 39
1991 (3) Suppl. SCR 534 referred to
Para 39
2006 (1) Suppl. SCR 215 referred to
Para 50
2003 (2) SCR 387
referred to
Para 50
B
2011 (8) SCR 87 4
referred to
Para 50
964 SCR 733
referred to
Para 51
1974 (2) SCR 348
referred to
Para 51
CIVIL ORIGINAL JURISDICTION : Writ Petition (Civil) No.
c 374 of 2012.
Under Article 32 of the Constitution of India.
Goolam E. Vahanvati, AG, Mohan Parasaran, SG, Paras
Kuhad, ASG, Harish Salve, Altaf Ahmed, Harish N. Salve,
D Prashant Bhushan, Rohit Kumar Singh, Prashant Kumar,
Anurag Sharma, Joseph Pookkatt (for Ap & J Chambers),
Rupesh Kumar, Jitin Chaturvedi, Shalaj Mridul, Sushma Suri,
Rajesh lnamdar, Saniya Hasani, Suruchi Suri, Devdatt Kamat,
Chanchal Kumar Ganguli, Bhargava V. Desai, Shreyas
E Mehrotra, Gopal Singh, Manish Kumar, Chandan Kumar, T.A.
F
Khan, Syed Tanweer Ahmed, B.V. Bairam Das for the
appearing Parties.
The Judgment of the Court was delivered by
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
G (hereinafter referred to as 'SEBI') and his consequential
removal from the post of Chairman.
H
2. Stated concisely, the petitioner challenges the
appointment of respondent No.4 on the following grounds :-
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
875
ORS. [SURINDER SINGH NIJJAR, J]
(a)
Mr. Sinha failed to fulfill one of the eligibility
A
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
B
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 SearchC
cum-Selection Committee and the Appointment
Committee of t:;e Cabinet (hereinafter referred to
as 'ACC').
(c)
The appointment of respondent No.4, a Chairman
of SEBI, is mala fide.
D
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
petitioner with the active connivance of some other persons to
E
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
F
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 G
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 10th September, 2010 of the Department
H
870
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[2014] 3 S.C.R.
A
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
B
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.
c
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 1st July,
2003. Whilst working as such he was appointed as Additional
D
Director on the Board of Unit Trust of India Asset Management
Company Ltd. (hereinafter referred to as 'UTI AMC').
Thereafter, on 3rd 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 th~ IAS (Cadre) Rules, 1954,
E
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
F
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 individuals, whether
G
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
H
motive. He points out that the deputation of Mr. Sinha was
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
877
ORS. [SURINDER SINGH NIJJAR, J.]
against the accepted assurance given to the J.P.C. on the
A
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
B
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 UC. According to Mr. Bhushan, Mr. Sinha c
was privy to sensitive information. Under the rules, Mr. Sinha
was required to file affidaviUundertaking that person sent on
deputation was not privy to any sensitive information.
6. Continuing further, Mr .. Bhushan pointed out that on
appointment as CMD, UTI AMC on 13th January, 2006, Mr.
D
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
E
under Rule 6(2)(ii). On 29th 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. 22400-525F
24500. On 1st March, 2007, the salary of Mr. Sinha was -fixed
in the aforesaid scale, with effect from 10th February, 2007. A
communication was also sent c;>n 16th 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
G
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 27th December, 2007. Mr. Bhushan
thereafter laid considerable emphasis on the fact that on 27th
September, 2007 the Board UTI AMC approved the
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[2014] 3 S.C.R.
A remuneration package of Mr. Sinha keeping in view the
remuneration package of CEO in the industry, ro~es and
responsibilities of the CMD, UTI AMC and the current surge of
the salary structure in the market, as follows :-
B
c
•
•
Fixed Pay
Rs. 10 million per annum
Variable Pay
upto 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.
o 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.
E
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.
F Bhushan states that on 6th 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 2nd February, 2008. This was because some general
issue regarding deputation under Rule 6(2)(ii) was being reG examined. On 28th 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
H remuneration as per the scheme of the organization to which
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
879
ORS. [SURINDER SINGH NIJJAR, J.]
an officer is sent on deputation. On 12th December, 2007, the
A
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 10th March, 2008, the ACC
advised the Finance Ministry (Department of Economic Affairs)
B
that extension of tenure as CMD of UTI AMC has been granted
to Mr. Sinha till 31st 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 c
replacement of Mr: Sinha by that date. Mr. Bhushan points out
that in the meantime on 25th March, 2008, the shareholders
approved the emoluments of Mr. Sinha as recommended with
effect from 27th December, 2006. This, according to Mr.
Bhushan, was not permissible since 28th November, 2007 or 0
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 10th 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 31st May, 2008. In the
E
recommendation letter, it was proposed to offer four years
tenure to Mr. Sinha as CMD of UTI AMC with effect from 1st
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
F
from the Government Service. A formal letter for extension of
tenure was issued to Mr. Sinha on 11th April, 2008 by the UTI
AMC. On 12th April, 2008 the Board of UTI AMC approved that
the CMD can draw revised compensation with effect from 27th
December, 2006.
G
9. Mr. Bhushan had laid considerable amount of emphasis
on these faCtl? 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 H
880
SUPREME COURT REPORTS
[2014] 3 S.C.R.
A
the future but in reality the resolution enhanced the emoluments
with effect from 27th December, 2006. Mr. Sinha in fact drew
emoluments on that basis with effect from 27th December,
2006. This fact, according to Mr. Bhushan, is evident from the
annual return of UTI AMC for the year 2007-2008. The annual
B
return shows his salary for the year ended 31st 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
27th December, 2006 to 31st March, 2007 consequent to his
salary restructured with effect from 27th December, 2006.
C 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 15th April,
2008. Whilst giving the answer to column No.5 in the form of
application to accept the commercial appointment, Mr. Sinha
D stated Rs.22,400-Rs.525-Rs.24,500/- as his pay scale and Rs.
23,450/- as his present basic pay.
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
E
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
F
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 20082009, 2009-2010 and 2010-2011 (10% months), Mr. Sinha got
remuneration of Rs.2.15 crores, Rs. 2.36 crores and Rs.3.62
G 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
H only when the concerned organization asks the CEO to leave.
ARUN KUMAR AGRAWAL v. UNION OF INDIA &
881
ORS. [SURINDER SINGH NIJJAR, J.]
In the case of Mr. Sinha, UTI AMC did not ask him to leave. In
A
fact, Mr. Sinha did not 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
B
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 c
pointed out that this statement is patently false as Mr. Sinha
was already on deputation in the same organization at the time
of taking YRS.
11. Mr. Bhushan also pointed out that the third deliberate
mis-statement made by Mr. Sinha in the application to accept
D
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
E
contribution made by him and the needs of the company, the
shareholders have made the offer to him. Mr. Bhushan submin>
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
F
was issued to fill the post Of CMD, UTI AMC on 4th June, 2012.
On the basis of the aforesaid facts, Mr.