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REPORTABLE

   IN THE SUPREME COURT OF INDIA   CIVIL ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) NO.374 OF 2012

Arun Kumar Agrawal      ...Petitioner

Versus

Union of India & Ors.         … Respondents

J U D G M E N T

SURINDER SINGH NIJJAR, J.

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

Agrawal  under  Article  32  of  the  Constitution  of  India;  

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

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

Securities  and  Exchange  Board  of  India  (hereinafter  

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

the post of Chairman.

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2. Stated  concisely,  the  petitioner  challenges  the  

appointment  of  respondent  No.4  on  the  following  

grounds :-

(a) Mr.  Sinha  failed  to  fulfill  one  of  the  eligibility  

condition as laid down in sub-section (5) of Section  

4  of  the Securities  and Exchange Board  of  India  

Act, 1992 (hereinafter referred to as ‘SEBI Act’), as  

well as the qualification contained in Government  

communication, which required that the Chairman  

shall be a person of high integrity.  

(b) The appointment of respondent No.4 is the result  

of  manipulation,  misrepresentation  and  

suppression  of  vital  material  before  the  Search-

cum-Selection  Committee  and  the  Appointment  

Committee of the Cabinet (hereinafter referred to  

as ‘ACC’).

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

of SEBI, is mala fide.      

3. Mr. Prashant Bhushan, learned counsel appearing  

for the petitioner, has made detailed submissions with regard  

to the manipulations and the maneuvers indulged in by the  

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petitioner with the active connivance of some other persons to  

successfully  mislead  the  Search  Committee  as  well  as  the  

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

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

under:-

“(5)  The  Chairman  and  the  other  members  referred to in clauses (a) and (d) of sub-section  (1)  shall  be  persons  of  ability,  integrity  and  standing  who have shown  capacity  in  dealing  with problems relating to securities marker  or  have special  knowledge  or  experience  of  law,  finance,  economics,  accountancy,  administration or in any other discipline which,  in the opinion of the Central Government, shall  be useful to the Board.”

4. Giving the factual background, he referred to the  

communication  dated  10th September,  2010  of  the  

Department of Economic Affairs inviting the application for the  

post  of  Chairman  SEBI.  In  paragraph  3  of  the  aforesaid  

communication which provided that “keeping in view the role  

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

person with high integrity, eminence and reputation preferably  

with more than 25 years of professional experience and in the  

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

submits that Mr. Sinha lacks integrity which is well illustrated  

by a reference to events leading to his appointment.  

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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  

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 the IAS (Cadre) Rules, 1954,  

which is applicable in case of deputation in an international  

organization,  NGO or  body  not  owned  by  the  Government.  

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

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

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

not  be  said  that  UTI  AMC  was  not  controlled  by  the  

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

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

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

IAS  officer  “under  a  company,  association  or  body  of  

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individuals,  whether  incorporated or  not,  which is  wholly  or  

substantially owned or controlled by the State Government,  

Municipal  Corporation  or  a  local  body  by  the  State  

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

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

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

the  deputation  of  Mr.  Sinha  was  against  the  accepted  

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

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

member  of  the  Board  of  UTI  AMC  was  aware  of  the  

recommendation  of  JPC.  He  deliberately  violated  the  

recommendations. According to Mr. Bhushan, the deputation  

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

officer who had overseen the organization to which he was  

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

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

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

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

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

to  file  affidavit/undertaking  that  person  sent  on  deputation  

was not privy to any sensitive information.  

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6. Continuing further,  Mr.  Bhushan pointed out that  

on appointment as CMD, UTI AMC on 13th January, 2006, Mr.  

Sinha  continued  to  get  pay  scale  of  Joint  Secretary,  even  

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

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

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

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

under  Rule  6(2)(ii).  On 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.  

22400-525-24500.  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 on 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 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  

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approved the remuneration package of Mr. Sinha keeping in  

view the remuneration package of CEO in the industry, roles  

and  responsibilities  of  the  CMD,  UTI  AMC  and  the  current  

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

• Fixed Pay Rs. 10 million per annum

• Variable 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.  This  

Committee had recommended the compensation to be paid to  

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

market  competitive  to  attract  appropriate  talent  from  the   

market.

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

show that the recommendation to appoint CMD, UTI AMC from  

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

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

deputation  was  denied.  Therefore,  in  order  to  continue  as  

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

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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 re-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  

remuneration as per the scheme of the organization to which  

an officer is sent on deputation. On 12th December, 2007, the  

Finance Ministry,  Department  of  Economic  Affairs  requested  

the Department of Personnel and Training (DOPT) to extend  

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

nine months under Rule 6(1). On 10th March, 2008, the ACC  

advised the Finance Ministry (Department of Economic Affairs)  

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

to  Mr.  Sinha  till  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  

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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  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 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 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.

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9. Mr.  Bhushan  had  laid  considerable  amount  of  

emphasis  on  these  facts  to  support  the  submission  that  

although the words in the aforesaid letters give the impression  

that the approval of the shareholders of the pay package and  

the  bonus  was  for  the  future  but  in  reality  the  resolution  

enhanced  the  emoluments  with  effect  from 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 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. 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 stated Rs.22,400–Rs.525-

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

basic pay.

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10. Mr. Bhushan pointed out that this information was  

necessary  for  getting  the  no-objection  from  the  Cadre  

Controlling  Authority  and  from  the  office  from  where  the  

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

Mr. Sinha gave false information in the application for seeking  

voluntary  retirement;  he  repeated the  same in  the  counter  

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

According to Mr. Bhushan, the averments made in paragraph  

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

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

emphasized that it is apparent from the annual report of UTI  

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

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

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

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

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

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

on  account  of  severance  payment.  He  submits  that  the  

severance  payment  is  payable  only  when  the  concerned  

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

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

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even  give  the  mandatory  three  months  notice,  and  

relinquished the charge without giving any opportunity to the  

organization  to  appoint  another  CEO.  Mr.  Bhushan  submits  

that Mr. Sinha wrongly received benefits of retirement when in  

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

given  false  information  repeatedly.  He  gives  a  false  

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

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

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

sensitive or strategic information of UTI AMC.     Mr. Bhushan  

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

was already on deputation  in the same organization at  the  

time of taking VRS.

11. Mr.  Bhushan  also  pointed  out  that  the  third  

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

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

such  higher  level  post  are  generally  not  advertised.  This  

statement was in answer to the question whether the post on  

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

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

mind  the  contribution  made  by  him  and  the  needs  of  the  

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

Bhushan submits that the statement about such higher level  

post  not  generally  being  advertised  was  against  the  Aapte  

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

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

AMC on 4th June, 2012. On the basis of the aforesaid facts, Mr.  

Bhushan submits that manipulation of deputation under Rule  

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

misrepresentation and distortion of facts in the application for  

voluntary  retirement  and re-employment  clearly  reflect  that  

respondent No.4 is not a man of integrity.

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

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

Whole  Time  Member  of  SEBI,  dated  1st June,  2011,  to  the  

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

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

being directly influenced by the Union Minister of Finance or  

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

reiterated that the letter by            Dr. Abraham contains  

unbiased information.  The  former  Whole Time Member  was  

only expressing his concern that under the leadership of Mr.  

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

compromised.   

13. Another  ground of  attack on the appointment  of  

the respondent No.4 pertains to the suppression of material  

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

AMC  before  the  Search-cum-Selection  Committee  and  the  

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

post of SEBI Chairman required the applicant to disclose scale  

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

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

Selection Committee was held   on 2nd November, 2010. The  

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

then points out that the second meeting of the Committee was  

held on 13th December, 2010, wherein the names of Mr. U.K.  

Sinha and Mr. Himadri Bhattacharya were recommended for  

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

further  submitted  that  the  selection  of  Chairman  of  SEBI  

required  the  approval  of  the  ACC.  The  appointments  

recommended  to  the  ACC  have  to  be  sent  along  with  a  

standard Performa and annexures which are to be filled in by  

the Ministry recommending the appointment. The proposal for  

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

Finance  Ministry  vide  its  confidential  letter  

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

2010. Blatantly false information is given against the column  

requiring details about the pay scale presently enjoyed by the  

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

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

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

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

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

submitted that in between the first and the second meeting of  

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

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

verified  before  filling  up  the  application  form.  The  officials  

could have ascertained the particulars of his emoluments as  

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

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

has  given  a  totally  false  explanation  that  the  Finance  

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

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

assertion without any material to substantiate the same. Mr.  

Bhushan  submits  that  the  other  explanation  given  by  Mr.  

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Sinha  that  information  relating  to  emoluments  of  CMD,  UTI  

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

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

such  an  explanation  cannot  possibly  be  accepted.  The  

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

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

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

is  that  the  applicant  had  failed  to  disclose  the  correct  

particulars about his emoluments and the pay scale before the  

Search  Committee.  This  misinformation  was  also  placed  

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

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

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

in  its  second  meeting  had  recommended  two  names.  

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

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

placed before the ACC seeking approval for the appointment  

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

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

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

per annum. This  amount was probably  more than what the  

bureaucrats  senior  to  him  and  involved  in  the  selection  

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process were paid by the Government in their entire career.  

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

Mr. Sinha manipulated that there should be no advertisement  

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

the  case  of  advertisement,  he  would  have  to  reveal  the  

emoluments received by him. Relying on the aforesaid facts,  

Mr. Bhushan submits that since vital pieces of information was  

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

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

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

bearing  on  the  flow  of  investment,  Indian  and  Foreign,  

economic growth and the safety of  funds invested by large  

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

was  important  that  the  complete  facts  particularly  those  

having  direct  bearing  on  deciding  the  question  of  integrity  

should  have  been  placed  before  the  Search-cum-Selection  

Committee and the ACC. In support of the submission learned  

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

PIL & Anr. Vs. Union of India & Anr.  1   

14. The next ground of challenge of the petitioner to  

the appointment of Mr. Sinha as the Chairman of SEBI is that it  1 (2011) 4  SCC 1

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

accommodate  Mr.  Sinha  the  earlier  Chairman  of  SEBI  was  

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

Service of Chairman and Members) Rules were amended on  

23rd July, 2009 not to extend the term of the Chairman and the  

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

Division put up a proposal on 2nd September, 2009 for aligning  

the  terms  of  the  Chairman  and  WTM  by  giving  two  years  

extension  and  the  same  was  endorsed  by  the  Finance  

Secretary. After following the due procedure, consent for the  

extension  of  the  concerned  persons  was  taken  and  the  

proposal  for  extension  of  tenure  was  recommended  to  the  

DOPT by the Director, Capital Market Division by letter dated  

16th November, 2009.  According to Mr. Bhushan, from that  

stage manipulation started with the active cooperation of Ms.  

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

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

recommendation for extension, in the term of the Chairman  

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

Finance Secretary on 27th November, 2009 and was seen by  

her on 30th November, 2009. It was again sent to the Advisor  

for her perusal on 16th December, 2009 and noting was made  

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by her on 21st December, 2009 drawing the attention of the  

Finance Minister to Page 22 regarding the composition of the  

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

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

Paul, the then Finance Minister reversed his earlier decision to  

accord  extension  to  the  then  Chairman.  Subsequently,  the  

orders  were  issued  to  start  the  selection  process  for  the  

Chairman on 10th August, 2010. Suggestion of giving further  

extension to the existing officers was overruled. Mr. Bhushan  

submits that the justification given by the respondents in the  

counter  affidavit  for  non  grant  of  the  extension  is  wholly  

fallacious.  He  submits  that  the  justification  that  earlier  

Chairman  was  not  granted  extension  as  his  name  was  

reported  in  newspapers  of  being  involved  in  NSDL  Scam.  

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

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

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

his insistence that investigations were being held against the  

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

insider trading relating to RIL and Reliance Petroleum in which  

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

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

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facilitate  the  selection  of  Mr.  Sinha  there  was  illegal  and  

arbitrary  change  in  composition  of  Search-cum-Selection  

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

own to be appointed as experts of eminence on the Selection  

Committee. She also suggested Secretary (Financial Services)  

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

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

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

include  Secretary  (Financial  Services)  in  the  Search  

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

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

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

Finance Minister.  Mr. Bhushan submits that the record clearly  

shows that the object of the entire exercise of changing the  

Rules  was  to  ensure  that  the  Committee  desired  by  the  

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

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

Secretary,  remains  the  only  member  unconnected  with  the  

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

the  reply  affidavit  has  admitted  that  her  role  was  merely  

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

position that her role was merely advising without having any  

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

relating to further  extension  or  composition  of  Search-cum-

Selection  Committee  were  regularly  sent  to  her.  The  

composition  of  the  Search  Committee  was  changed  at  her  

behest.  Mr.  Bhushan  then  submitted  that  the  respondents  

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

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

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

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

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

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

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

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

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

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

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

vacant  for  17  months  to  accommodate  the  brother  of  

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

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

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

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

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

Finance  Minister.  These  reports  also  stated  this  was  being  

resisted  by  a  foreign  investor  and  whose  consent  was  

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

remain vacant for 17 months because the brother of Omita  

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

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

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

Khosla  was  adversely  commented  upon  by  the  Joint  

Parliamentary  Committee,  because  the  recommendations  of  

the  Committee  were  ignored.  The  Joint  Parliamentary  

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

which  massive  losses  were  incurred  by  the  Government  

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

following recommendations :-

“(V)  Government has stated that a professional  Chairman and Board of Trustees will manage UTI- II  and  that  advertisements  for  appointment  of  professional  managers  will  be  issued.  The  committee  recommended  that  it  should  be  ensured that the selection of the Chairman and  professional managers of UTI-II should be done in  a transparent manner,  whether they are picked  up from the public or private sector. If an official  from  the  public  sector  is  selected,  in  no  case  should  deputation  from the  parent  organization  be  allowed  and  the  person  chosen  should  be  asked to sever all connections with the previous  employer.  This  is  imperative  because under  no  

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circumstance should there be a public perception  that  the  mutual  fund  schemes  of  UTI-II  are  subject to guarantee by the Government and will  be bailed out in case of losses.”  

16. Mr.  Bhushan  submits  that  the  aforesaid  

recommendations were blatantly ignored in the selection of  

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

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

of the four criteria in the advertisement inserted for the post  

of  UTI  CMD in newspaper dated 4th June, 2012.  In fact,  the  

entire manipulation and  mala fide exercise, according to Mr.  

Bhushan, is exposed by the advertisement that was released  

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

race because the tenure of                 Ms. Omita Paul, Advisor   

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

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

the  advertisement  was  released  fulfilling  the  commitment  

given to the JPC by the Government in 2002.  

17. In reply to the preliminary objection raised by the  

respondents in the counter affidavit/replies, he submits that  

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

respondents including the Government have made concerted  

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

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

or entities having vested interests. It is also wrongly alleged  

that the petitioner had similarly challenged the appointment  

of another past Chairman of SEBI which was decided against  

him  with  imposition  of  costs.  The  respondents  have  also  

wrongly stated that this is the 4th similar petition on a similar  

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

Bhushan  submits  that  he  has  filed  several  notable  public  

interest  litigations  that  have  unearthed  corruption  and  

financial  irregularities.  The appointment  of  the petitioner  as  

Advisor to Prasar Bharti benefited the organization by about  

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

spectrum scam which eventually led to the registration of the  

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

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

the  petitioner  has  given  his  time  and  forgone  earnings  

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

and  continues  to  unravel  financial  scams  because  of  the  

paucity of people who both understand and are willing to take  

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

the petitioner had previously challenged the appointment of a  

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

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

with high integrity and compassion. However, his leniency in  

trusting  the  sharp  players  in  the  market  resulted  in  lot  of  

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

petitioner has challenged the extension that had been given  

to the then Chairman SEBI on the ground that the Government  

should reassess his performance after three years.  The writ  

petition was dismissed. The Chairman was given yet another  

extension in 2000 to make him the longest serving Chairman.  

What followed was the largest stock market scam in which the  

investors and the government lost tens of thousands of crores  

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

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

UNIT  64  scam.  Similarly  Mr.  Bhushan  submits  that  the  

respondents  have  wrongly  taken  the  preliminary  objection  

that  earlier  two  writ  petitions  having  been  filed  by  the  

petitioner  challenging  the  appointment  of  respondent  No.1  

having been dismissed as withdrawn. He further submits that  

the  respondents  have  wrongly  leveled  allegations  that  this  

petition  is  at  the  behest  of  some  other  person  who  is  

interested to continue as the Chairman of SEBI. The petitioner  

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has not prayed for the reinstatement of any of the previous  

incumbents.  The petitioner  only prays for  appointment  of  a  

person  as  the  Regulator  who  should  be  a  person  of  high  

integrity  functioning  in  a  transparent  manner.  Mr.  Bhushan  

submits  that  although  the  respondents  claim  that  the  

petitioner has suppressed material  facts,  the suppression of  

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

of concern.    

Respondents’ Submissions:

18. In  response  to  the  submission  made,  learned  

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

of  India,  has  submitted  that  public  interest  litigation  

jurisdiction is based on the principle of  Uberrimae fide which  

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

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

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

He  further  submits  that  this  is  a  very  unfair  petition.  

Documents have been presented before the Court in a very  

selective manner. The petitioner has admitted the suppression  

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

excuses.  The submission of the petitioner that the petition  

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was dismissed on the pleadings has been contended by Mr.  

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

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

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

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

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

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

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

petitions  filed  by  him  which  were  dismissed.  The  objection  

taken  is  that  the  petition  deserves  to  be  dismissed  for  

suppression  of  earlier  petition.  The  letter  given  to  the  

Registrar  gives  the  totally  distorted  version.  Similarly,  the  

petitioner  has  distorted  the  entire  sequence of  events  with  

regard to the deputation of Mr. Sinha.  

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

petition and the emphasis placed by the petitioner that “within  

a period of a day the emoluments too increased from around  

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

that  the  deputation  of  respondent  No.4  commences  on  3rd  

November, 2005 he became CEO, UTI AMC on 27th December,  

2006. The letter dated 16th April, 2006 which is very relevant  

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

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

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

deputation clearly show that Mr. Sinha was permitted to opt  

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

for him. The recommendations made by the Aapte Committee  

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

was  approved  by  the  Board  of  Directors  UTI  AMC  on  17th  

September, 2007. Actual sanction came on 11th April, 2008, as  

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

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

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

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

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

application for voluntary retirement was done four days after  

the approval on 15th April, 2008. Until then, the petitioner had  

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

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

has unnecessarily tried to create an impression that there has  

been any deliberate misrepresentation or concealment of fact  

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

commercial appointment, respondent No.4 had clearly stated  

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

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3rd November, 2005 till date. Respondent No.4 had to state the  

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

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

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

basis pay as Rs.23,450/-.

20. Learned  Attorney  General  submitted  that  the  

petitioner has wrongly alleged that respondent No.4 had given  

a  false  declaration  that  he  was  not  privy  to  any  sensitive  

information.  This  would  clearly  only  indicate  that  the  

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

sensitive information received in his official capacity. Learned  

Attorney General  submits that the petitioner  in fact  has an  

absurdity  of  facts  with  regard  to  compensation  which  were  

placed before the Ministry of Finance on 1st May, 2008. The  

Finance  Minister  approved  the  proposal.  It  was  specifically  

observed  that  there  is  no  conflict  of  interest  between  the  

Government  of  India  and  UTI  AMC.  On  17th April,  2008,  

Department of Personnel and Training sent a comprehensive  

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

prescribed format to seek permission under Rule 26 of the All  

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

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Asset  Management  Company  Ltd.  on  regular  basis,  post  

voluntary retirement. The proposal was thoroughly examined  

and duly  approved  by  all  the  authorities.  Learned  Attorney  

General drew our attention to paragraph 30 of the petition and  

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

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

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

submits that the allegations about the pattern of JPC directions  

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

appointment earlier. It is the submission of learned Attorney  

General  that  public  interest  litigation  cannot  be  filed  

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

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

target.  The allegations of  the petitioner that the rules were  

deliberately amended to hand pick Mr. Sinha are without any  

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

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

23rd July,  2009  there  was  no  rule  on  the  procedure  to  be  

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

before  July,  2009 selections  were  made  as  decided  by  the  

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

of the SEBI Chairman in 2008 the then Finance Minister had  

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approved  on  2nd November,  2007  that  the  High  Powered  

Search Committee (later  notified as  the Search Committee)  

which  had  four  members  and  one  Chairman.  The  Finance  

Minister noted that there should be one more outside expert.  

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

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

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

favour of the Finance Minister is without any basis.  

21. Learned Attorney General also pointed out that the  

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

January, 2008 had unanimously short listed two names in the  

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

However,  notwithstanding the recommendation of  Mr.  Sinha  

by  the  Selection  Committee,  Shri  Bhave  was  appointed  as  

Chairman, SEBI  on 15th February, 2008. In 2009, a statutory  

system was established for selection of Chairman/Whole Time  

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

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

Conditions of Service of Chairman and Members) Rules, 1992  

to include the provision relating to procedure to be followed  

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

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incorporating sub-rule (5) which required the recommendation  

of the Search-cum-Selection Committee consisting of Cabinet  

Secretary, Department of Economic Affairs, Chairman, SEBI for  

selection  of  WTM  and  two  experts  of  eminence  from  the  

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

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

experts of eminence from the relevant field were Shri Suman  

Bery, Director General, National Council of Applied Economic  

Research  (NCAER)  and  Prof.  Shekhar  Choudhary,  former  

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

Selection Committee was sent to the Department of Personnel  

& Training for  approval.  However on 23rd September,  2010,  

Department  of  Personnel  and  Training  pointed  out  that  

inclusion of the Secretary Financial Services was not within the  

Rules as amended on 23rd July, 2009. Therefore,  the matter  

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

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

suggested  that  there  could  be  an  amendment  to  the  rule  

based  on  the  Income  Tax  Appellate  Tribunal  Members  

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

these  rules,  the  Selection  Board  inter  alia consists  of  a  

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

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

was in these circumstances that the proposal  to amend the  

1992 Rules was approved.  

22. The  Search-cum-Selection  Committee  after  

scrutinizing the qualification and experience of the short listed  

candidates unanimously  placed respondent  No.4 first  in the  

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

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

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

the petitioner.  

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

learned Attorney General submitted that in fact the present  

petition  is  a  mala  fide attempt  to  resurrect  the  challenge  

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

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

allegations against two highly respected dignitaries who were  

appointed  expert  members  of  the  Selection  Committee.  

Learned Attorney General also submitted that the submissions  

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

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

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

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

Government being unnecessarily involved in a scandal. In the  

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

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

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

of 2011 was as follows :

“Issue  a  writ  of  mandamus  or  any  other  appropriate writ, order or, direction to quash and  declare void constitution of sub-committee of the  Search-cum-Selection  Committee  under  Shri  U.K.Sinha, Chairman SEBI for conducting interview  to  the  post  of  whole  time  members  and  proceedings/recommendation thereof.”  

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

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

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

as under :

“Issue  a  writ  of  mandamus  or  any  other  appropriate  Writ,  order  or  direction  to  direct  Respondent Nos.1 & 2 to act in accordance with  the  Government  of  India  Notification  No.2/106/2006-RE,  dated  23rd July,  2009  which  stipulates enhancement of  the tenure of  existing  Chairman and Whole Time directors of SEBI from  three (3) to five (5) years.”

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

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repeats the prayer which was made in the earlier writ petition.  

It  was  submitted by  the  learned  Attorney  General  that  the  

present  writ  petition  is  a  camouflage  for  the  earlier  writ  

petitions  which  were  dismissed.  Learned  Attorney  General  

submitted  that  the  submission  of  Mr.  Bhushan  that  why  a  

person, who was earning crores, would expect a position on  

which he was only to be paid lacs, is too absurd to be even  

taking  cognizance  of.  Respondent  No.4  accepted  the  

Chairmanship of SEBI as a matter of national duty and as a  

matter of honour. Finally, learned Attorney General submitted  

that  in  the  interest  of  justice  the  tendency  among  the  

petitioners to make wild allegations in public interest litigation  

needs to be curbed.                                                                

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

Rajesh  Dwivedi  appearing  for  respondent  No.  4  have  also  

raised  a  preliminary  objection  on  the  ground  of  

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

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

the  writ  petition  has  been  filed  as  surrogate  litigation  on  

behalf of an individual who was very anxious to continue as  

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

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

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

relevant  for  the adjudication of  the issues  raised.   Learned  

senior counsel submits that a litigant is duty bound to make  

full and true disclosure of the facts without any reservation,  

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

proposition,  he  relies  on  State  of  Madhya  Pradesh Vs.  

Narmada Bachao Andolan & Anr.  2   and  K.D. Sharma Vs.  

Steel Authority of India Limited & Ors.  3  .  The factual basis  

for the aforesaid submission is that the petitioner had filed a  

writ  petition  in  the  Delhi  High  Court  against  the  then  

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

cost.   A  Special  Leave  Petition  against  the  same  was  

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

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

same issue was dismissed by this Court.  Dismissal of these  

petitions  has  also  been  suppressed  by  the  petitioner.  

Mr. Salve reiterates the submissions of the Attorney General  

that  public  interest  litigation  is  founded  on  the  principle  of  

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

2 (2011) 7 SCC 639 3 (2008) 12 SCC 481

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

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

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

reiterated the submissions of  the Attorney General  that  Mr.  

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

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

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

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

reference  to  the  motivated  complaint  made  by  the  Whole  

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

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

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

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

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

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

Chairman of NSDL.

Conclusions:

27.   We  have  considered  the  submissions  made  by  the  

learned counsel for the parties. Although all the respondents  

have raised the preliminary issue about the maintainability of  

the writ petition, we shall consider this submission after we  

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have  considered  the  issue  on  merits.  The  foremost  issue  

raised by the petitioner and emphasized vehemently by Mr.  

Parshant Bhushan is that respondent No.4 lacks the integrity  

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

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

respondent  No.4  does  not  fulfil  the  conditions  contained  in  

communication  of  the  government  dated  10th September,  

2010  which  emphasizes,  keeping  in  view  the  role  and  

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

a  person  with  high  integrity and  reputation  should  be  

appointed as Chairman of SEBI.

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

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

of high integrity. We have also narrated how the respondents  

have,  with  equal  vehemence,  countered  the  submissions  

made on behalf  of  the petitioner.  All  the respondents  have  

submitted that the writ petition filed by the petitioner ought to  

be  dismissed  on  the  ground  of  maintainability  alone.  As  

noticed earlier,  we shall  consider  the preliminary objections  

later.  

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29. We agree with Mr. Bhushan that SEBI is an institution of  

high  integrity.  A  bare  perusal  of  the  SEBI  Act  makes  it  

apparent that SEBI was established to protect the interests of  

investors  in  securities  and to  promote  the  development  of,  

and to regulate the securities market.  In fact,  the SEBI Act  

gives wide ranging powers to the Board to take such measures  

as it thinks fit to perform its duty to protect the interests of  

investors  in  securities  and to  promote  the  development  of,  

and to regulate the securities market. These measures may  

provide  for  regulating the business  in stock exchanges and  

any other securities markets. Further measures are set out in  

Sections 11(1), (2)(a to m) to enable SEBI to perform its duties  

and functions  efficiently.  Section  11(2)(a)  provides  that  the  

Board  may  take  measures  to  undertake  inspection  of  any  

book, register, or other document or record of any listed public  

company  or  a  public  company  which  intends  to  get  its  

securities listed on any recognised stock exchange. The Board  

can exercise  its  power  where  it  has  reasonable  grounds  to  

believe  that  such  company  has  been  indulging  in  insider  

trading  or  fraudulent  and  unfair  trade  practices  relating  to  

securities  market.  To  enforce  its  directions,  the  Board  has  

powers under Section 11(4) to issue any suspension/restraint  

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orders  against  the  persons  including  office  bearers  of  any  

stock exchange or self regulatory organisation. It can impound  

and  retain  the  proceeds  or  securities  in  respect  of  any  

transaction which is under investigation.  The wide sweep of  

the powers of SEBI leaves no manner of doubt that it is the  

supreme authority for the control and regulations and orderly  

development of the securities market in India. It would not be  

mere  rhetoric  to  state  that  in  this  era  of  globalisation,  the  

importance  of  the  functions  performed  by  SEBI  are  of  

paramount  importance  to  the  well  being  of  the  economic  

health  of  the  nation.  Therefore,  Mr.  Bhushan  is  absolutely  

correct in emphasising that the Chairman of SEBI has to be a  

person of high integrity. This is imperative and there are no  

two ways about it. The importance of the functions performed  

by SEBI has been elaborately examined by this Court in the  

case of Sahara India Real Estate Corporation Ltd. & Ors.  

Vs. Securities  and  Exchange  Board  of  India  &  Anr.4  

Justice  Radhakrishnan, upon  examination  of  the  various  

provisions of the SEBI Act, has observed that it  is a special  

law, a complete code in itself containing elaborate provisions  

to protect interest of the investors. The paramount duty of the  

Board  under  the  SEBI  Act  is  to  protect  the  interest  of  the  4 2013 (1) SCC 1.

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investors and to prevent unscrupulous operators to enter and  

remain in the securities market. It is reiterated in paragraph  

67 that  SEBI  is  also  duty  bound  to  prohibit  fraudulent  and  

unfair trade practice relating to securities markets. Similarly,  

Justice Khehar in the concurrent judgment has emphasised the  

importance of the functions performed by SEBI in exercise of  

its powers under Section 11. In paragraph 303.1, it is observed  

as follows :-

“303.1. Sub-section (1) of Section 11 of the SEBI  Act  casts  an  obligation  on  SEBI  to  protect  the  interest of investors in securities, to promote the  development  of  the  securities  market,  and  to  regulate the securities market, “by such measures  as it  thinks fit”.  It  is therefore apparent that the  measures to be adopted by SEBI in carrying out its  obligations  are  couched  in  open-ended  terms  having no prearranged limits. In other words, the  extent of the nature and the manner of measures  which can be adopted by SEBI for giving effect to  the functions assigned to SEBI have been left  to  the discretion and wisdom of SEBI. It is necessary  to record here that the aforesaid power to adopt  “such  measures  as  it  thinks  fit”  to  promote  investors’ interest, to promote the development of  the securities market and to regulate the securities  market, has not been curtailed or whittled down in  any manner by any other provisions under the SEBI  Act,  as  no  provision  has  been  given  overriding  effect  over  sub-section  (1)  of  Section  11  of  the  SEBI Act.”

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

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

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elaborately explained.   

30.   It  becomes  clear  from  the  above  that  the  functions  

performed by SEBI  are such that any malfunctioning in the  

performance of such functions can disturb the economy of our  

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

discretionary powers conferred on the Members of the SEBI  

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

high  integrity  would  be  eligible  to  be  appointed  as  

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

stipulates that the Chairman and other Members of the SEBI  

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

shown capacity in dealing with problems relating to securities  

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

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

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

accepting the submission of  Mr.  Bhushan that the selection  

and  appointment  of  respondent  No.4  could  be  challenged  

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

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

statutory requirements of a person of high integrity.  

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

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

appropriate to notice the observations made in that judgment  

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

been observed as follows :-  

“2. The  Government  is  not  accountable  to  the  courts in respect of policy decisions. However, they  are accountable for the legality of such decisions.  While deciding this case, we must keep in mind the  difference  between  legality  and  merit  as  also  between judicial review and merit review. …. If a  duty is cast under the proviso to Section 4(1) on  the HPC to recommend to the President the name  of  the  selected  candidate,  the  integrity  of  that  decision-making process is got to ensure that the  powers are exercised for the purposes and in the  manner envisaged by the said Act, otherwise such  recommendation will have no existence in the eye  of the law.”

    In our opinion,  these observations are relevant as the  

procedure prescribed for the appointment of Chairman, SEBI is  

similar to the procedure which was prescribed for the selection  

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

has been emphasised that CVC is an integrity institution. The  

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

has been observed as follows :-

“39. These provisions indicate that the office of  the  Central  Vigilance  Commissioner  is  not  only  given independence and insulation from external  influences, it also indicates that such protections  are given in order to enable the institution of the  CVC to work in a free and fair environment. The  

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prescribed  form  of  oath  under  Section  5(3)  requires  the  Central  Vigilance  Commissioner  to  uphold  the  sovereignty  and  integrity of  the  country and to perform his duties without fear or  favour. All these provisions indicate that the CVC  is an integrity institution. The HPC has, therefore,  to  take  into  consideration  the  values,  independence and impartiality of the institution.  The said Committee has to consider institutional  competence. It has to take an informed decision  keeping  in  mind  the  abovementioned  vital  aspects  indicated by the purpose  and policy  of  the 2003 Act.”

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

“43. Appointment  to  the  post  of  the  Central  Vigilance Commissioner must satisfy not only the  eligibility  criteria  of  the  candidate  but  also  the  decision-making  process  of  the  recommendation...”

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

understood to mean that personal integrity is not relevant. It   

certainly has a co-relationship with institutional integrity.”  

34. Keeping in view the aforesaid observations and the ratio  

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

to  the  validity  of  the  recommendation  made  for  the  

appointment  of  Mr.  Sinha  together  with  the  issue  as  to  

whether Mr. Sinha does not fulfil the statutory requirement to  

be appointed as the Chairman of SEBI.  

DEPUTATION :  Was it  irregular,  illegal  or  vitiated by  

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colourable exercise of power?

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

deputation with UTI AMC since the year 2005. His deputation  

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

Government of Bihar, wherever applicable. Respondent No.4  

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

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

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

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

AMC were settled on 16th April, 2007. This was in conformity  

with the letter dated 31st October, 2005 written by the DOPT  

accepting the request made by the Government of Bihar in its  

letter dated 28th October, 2005 for approval of deputation of  

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

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

that  terms  and  conditions  applicable  in  the  aforesaid  

deputation  were  under  examination  and  would  be  

communicated  shortly.  The  deputation  was  converted  from  

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

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

petitioner  himself  whilst  stating  that  although  on  6th  

November, 2007, the proposal for extension of deputation of  

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

only for a period of three months until 2nd February, 2008, as  

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

was because some general issue regarding deputation under  

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

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

Bhushan that respondent No.4 was in any manner responsible  

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

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

Deputation Guidelines for All India Service” issued              on  

28th November, 2007 would also indicate that respondent No.4  

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

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

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

advantage.  Therefore, it cannot be said that his deputation  

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

power.  

“  False Declaration in Form L”   

36. A perusal  of  Office  Memorandum dated 1st May,  2008  

sent by the Department of Economic Affairs in reference to the  

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

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

Rules, 1958 would show that necessary facts relating to the  

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

response dated 1st May, 2008 had been faithfully set out.  The  

Memorandum records the following facts:-

“Shri U.K. Sinha had been working as Joint Secretary  (Capital  Markets)  in  DEA  from  2nd  June,  2002  to  29th  October,  2005.  Before  joining DEA (Main)  he  had been Joint  Secretary  in  the erstwhile  Banking  Division  (presently  Department  of  Financial  Services) from 30th October, 2000 to 1st June, 2002.  

• With the approval  of  the competent authority,  he has been on deputation to Unit Trust of India  Asset  Management Company (UTI  AMC) as  its  CMD since 3rd November,  2005, and his term  there expires on 31st May, 2008. Going by his  experience and qualifications, the name of Shri  Sinha had been unanimously shortlisted by the  Chairmen  of  the  sponsors  of  UTI  AMC  [State  Bank of India (SBI), Life Insurance Corporation of  India  (LIC),  Bank  of  Baroda  (BoB)  and  Punjab  National  Bank  (PNB)].  The  Government  has  approved his deputation to UTI AMC, in public  interest.

• UTI AMC is a company formed by SBI, PNB, BoB  and LIC,  each having equal  shareholding.  It  is  registered with Securities and Exchange Board  

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of  India  (SEBI)  and  is  engaged  in  activities  pertaining  to  mutual  fund,  portfolio  management,  venture  fund  management,  pension  fund  and  offshore  fund  management.  The UTIAMC is managing the 'financial assets of  over Rs. 50,000/- crores.  

• Considering the challenges that UTI AMC faces  in  the  prevailing  market  conditions  and  the  need  for  continuity  necessitated  by  the  structural changes undertaken in the Company,  the Chairman of SBI, in consultation with other  stakeholders of UTI AMC (viz. LIC, BoB and PNB)  has offered to Shri Sinha a four year tenure as  CMD of UTIAMC w.e.f. 1st June, 2008, or earlier  without  break  of  continuity  on  the  understanding  that  Shri  Sinha  will  take  voluntary  retirement from Government  service  and that  Shri  Sinha  will  be  entitled  for  salary  and  perquisites  decided  by  the  Compensation  Committee of the Board of the Company from  time  to  time.  Hon'ble  Finance  Minister  has  approved this proposal.  

2.  The  Department  of  Economic  Affairs  supports  the request of Shri U.K. Sinha for post retirement  commercial employment with UTI AMC as its CMD  and certify the following:  • The  proposed  employment  of  Shri  U.K.  Sinha  

with UTIAMC as its CMD is in public interest and  has the approval of Hon'ble Finance Minister.

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• There  is  no  conflict  of  interest  between  the  Government of India and the UTIAMC.

• UTIAMC,  formed by SBI,  PNB,  BoB and LIC,  is  neither  involved  in  activities  prejudicial  to  India's  foreign  relations,  national  security  and  domestic harmony nor is undertaking any form  of intelligence gathering prejudicial to India.

• In the prevailing financial markets condition, the  fixed pay of Rs. 1 crore per annum, along with  performance  related  payouts  and  other  usual  perks,  offered  by  UTIAMC  to  Shri  Sinha  is  considered reasonable.  

• As  per  the  information  available  in  DEA,  the  service  record  of  Shri  U.K.  Sinha  is  clear,  particularly  with  respect  in  integrity  and  dealings with NG0s.  

3.  Department  of  personnel  &,  Training  is  accordingly  requested  kindly  to  grant  requisite  permission to Shri U.K. Sinha, under intimation to  this Department.  

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

(S.K. Verma) Director to the Government of India…”

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

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

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

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Retirement  Benefits)  Rules,  1958,  while  working  in  his  

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

out the following mis-statements and opinions :-

i. In Serial-5, pay scale for the post of Addl. Secretary  was  mentioned  although  respondent  No.4  was  drawing the higher pay scale approved by UTI AMC.

ii. In  Serial  9,  the  2nd declaration  was  false  as  respondent No.4 was working as CEO cum CMD of UTI  AMC  during  the  last  3  years  on  deputation  and  therefore  he  was  privy  to  sensitive  or  strategic  information relating to areas of interest or work of UTI  AMC.

iii. A mis-statement had been made that generally such  posts are not advertised and that was against the JPC  Recommendation.

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

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

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

Additional Secretary, Government of India. His application for  

voluntary retirement had been processed.  He was, however,  

required  to  obtain  approval  under  Rule  26  for  commercial  

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

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

pay  drawn  by  the  Officer  at  the  time  of  retirement.  

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

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

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

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

law  that  deputationist  would  hold  the  lien  in  the  parent  

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

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

Anr. Vs. S.N.Tiwari & Ors.  5   

“18. This  Court  in  Ramlal  Khurana v.  State  of  Punjab observed that: (SCC p. 102, para 8)

“8.  …  Lien  is  not  a  word  of  art.  It  just  connotes the right of a civil servant to hold  the  post  substantively  to  which  he  is  appointed.”

19. The  term “lien”  comes  from  the  Latin  term  “ligament” meaning “binding”. The meaning of lien  in service law is different from other meanings in  the context of contract, common law, equity, etc.  The lien of a government employee in service law  is the right of the government employee to hold a  permanent  post  substantively  to  which  he  has  been permanently appointed.”

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

State of U.P. & Ors.  6  , it has been held as under:-

5 (2009) 4 SCC 700 6 1992 Supp. (1) SCC 524

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“24. A learned Single Judge of the Allahabad High  Court in M.P. Tewari v. Union of India following the  dictum  laid  down  in  the  above  Paresh  Chandra  case and distinguishing the decision of this Court  in P.L. Dhingra v. Union of India has observed that  “a person can be said to acquire a lien on a post  only  when  he  has  been  confirmed  and  made  permanent  on  that  post  and  not  earlier”,  with  which view we are in agreement.”

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

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

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

performance  related  payment  and  other  usual  perks.  The  

letter containing the offer was enclosed with the Form. The  

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

going through the prevailing practice in the Industry, has fixed  

a  compensation  of  Rs.1.00  crore  per  annum  alongwith  

performance related perks and other usual prerequisites. The  

shareholders  of  the  UTI  AMC  have  also  indicated  their  

concurrence to the above compensation. It  must be noticed  

that  respondent  No.4  had  sought  retirement  from  the  IAS  

w.e.f.  15th May,  2008  to  enable  him to  join  UTI  AMC on  a  

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

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

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

find much substance in the allegation that respondent No.4  

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had  deliberately  suppressed  the  information  regarding  his  

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

w.e.f.  27th December,  2006 would  not  affect  the  statement  

made by respondent No.4 in Form `L' filled on 15th April, 2008.  

The  Board  of  UTI  AMC by  resolution  dated 12th April,  2008  

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

27th December, 2006. Till that date, he was still placed in the  

scale of Additional Secretary, Government of India.

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

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

was not privy to any sensitive or strategic information in the  

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

based only  on assumption  and cannot  be accepted without  

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

Joint  Secretary/Additional  Secretary  to  Government  of  India  

was required to state whether he was privy to any sensitive  

information in his official capacity. The information would be  

required  if  the  Officer  was  in  receipt  of  information  whilst  

working  as  Officer  in  the  Government  and  is  aware  of  the  

sensitive proposals or other decisions which are not otherwise  

known  to  others  and  which  can  be  used  for  giving  undue  

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advantage to the Organization in which he is seeking a future  

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

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

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

sensitive information with regard to UTI AMC at the time when  

he was posted as Joint Secretary/Additional Secretary in the  

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

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

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

from 3rd November, 2005 and CMD from 13th January, 2006.  

The declaration is in fact in conformity with the 3rd proviso to  

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

an Officer in deputation of an Organization under Cadre rules  

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

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

work of proposed Organization.

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

behalf of the petitioner that the deputation was in violation of  

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

seen  the  Organization  to  which  he  was  being  deputed.  As  

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

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

had  been  working  as  Joint  Secretary  Banking.  He  had  no  

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

whilst respondent No.4 worked as Joint Secretary Banking that  

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

The petitioner had unnecessarily and without any basis tried  

to  confuse  that  respondent  No.4  would  be  disqualified  for  

deputation  in  UTI  AMC  as  he  would  have  been  privy  to  

receiving  some  sensitive  information  with  regard  to  its  

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

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

Organization can be absorbed in the same Organization after  

seeking voluntary retirement.  

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

pleaded that UTI AMC is a Government owned Company under  

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

establish that it is a Government controlled company as the  

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

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

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

request  for  VRS  to  seek  re-employment  in  a  Commercial  

Organization.  We  are  also  not  much  impressed  by  the  

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objection of the petitioner that the deputation of respondent  

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

to the recommendation of JPC, the Parliament had passed UTI  

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

gazetted on 17th December, 2002 and came into force w.e.f.  

29th October,  2002.  Under  the  Act,  UTI  was  bifurcated  into  

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

Government transferred its entire share holding in UTI AMC to  

Life  Insurance  Corporation,  Punjab  National  Bank,  Bank  of  

Baroda  and  SBI.  The  entire  consideration  for  the  aforesaid  

transfer was received by the Central Government. Therefore,  

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

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

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

Central Government and the CAG in various writ petitions filed  

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

shareholder on the Board to decide what process to follow and  

whom  to  appoint.  When  the  selected  candidate  is  not  a  

government  employee  having  a  lien  on  a  government  job,  

then  the  government  would  have  nothing  to  do  with  the  

selection  process.  In  this  case,  the  shareholders  made  a  

request to the Government for the deputation of respondent  

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

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

commercial employment provided he took VRS. At each stage,  

permission was duly granted by the competent authority after  

duly  following the prescribed procedure  as per  the rules  of  

executive business. Therefore, we do not find any justifiable  

reason  to  doubt  the  legality  of  the  manner  in  which  

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

initially came on deputation in October, 2005.  

44. Mr.  Bhushan  has  vehemently  argued  that  respondent  

No.4 had deliberately concealed or distorted the information in  

his  application  for  voluntary  retirement.  We  have  already  

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

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

seeking voluntary retirement. We have also earlier held that  

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

sensitive information relating to areas of interest of work of  

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

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

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

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

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

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Joint Secretary in the Department of Economic Affairs, Capital  

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

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

MDMCU and CMD w.e.f. 3rd November, 2005 and 13th January,  

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

45. The next grievance of the petitioner is that respondent  

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

whilst  giving information  as  to  whether  the  post  which has  

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

made? In reply to the aforesaid question against, respondent  

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

generally  not  advertised.  Keeping  in  mind  the  contribution  

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

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

No.4 had attached copy of the letter dated 3rd April, 2008. We  

have already noticed that UTI AMC is a company incorporated  

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

by the Board of Directors. The shareholders are Life Insurance  

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

respondent  No.4  was  initially  on  deputation  with  UTI  AMC  

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

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contractual  basis.  Consequently,  according  to  the  service  

rules,  he  sought  his  voluntary  retirement  from  the  parent  

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

and  approved  by  the  Central  Government.  UTI  AMC  is  

managed on a commercial basis. Therefore, in a commercial  

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

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

normal  practice,  nominations  are  made  by  the  Board  and  

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

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

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

clearly have no say in the matter.  

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

outlandish or farfetched in the statement made by respondent  

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

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

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

Secretary,  the post  was not advertised.  Subsequently also,  

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

Tripathi  Raj  was  made  without  any  advertisement.  In  fact,  

both the appointments were made without even resorting to  

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

SEBI was also appointed without any advertisement. It is also  

a matter of  common knowledge that the posts such as the  

Government  of  Reserve  Bank  of  India  are  hardly  ever  

advertised.  Similarly,  the  post  of  Chairman,  SEBI  was  

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

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

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

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

general practice of appointments in the commercial world on  

such posts.  

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

Mr.  Bhushan  that  in  order  to  facilitate  the  appointment  of  

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

post  should  be  advertised,  was  deliberately  concealed.   A  

perusal of paragraph 21.9 of the recommendations dated 12th  

December, 2002 would show that the Government had stated  

that  a  professional  Chairman  and  Board  of  Trustees  would  

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

appointment  of  professional  Manager  will  be  issued.  The  

Committee also recommended that it should be ensured that  

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the selection of the Chairman and Professional  Managers of  

UTI should be done in a transparent manner whether they are  

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

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

in no case  the deputation from the parent organization be  

allowed and the person chosen should be asked to severe all  

connections with the previous employer. This, according to the  

Government, was imperative because under no circumstances  

should there be any public perception that the mutual fund  

scheme  of     UTI-II  are  subject  to  guarantee  by  the  

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

affidavit filed by UOI, the entire service history of respondent  

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

banking division of the Department of Economic Affairs (DEA)  

as Joint Secretary w.e.f. 30th October, 2000. Thereafter, he was  

posted as DEA (Main) on 2nd June, 2002; he was assigned the  

charge  of  CM  Division  and  was  relieved  by  DEA  on  28th  

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

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

behalf  of  the  shareholders  of  UTI  AMC  regarding  initial  

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

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

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Department  of  Personnel  and  Training  (DOPT)  with  the  

approval  of  the  then  Finance  Minister.  The  deputation  of  

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

provides  for  deputation  of  a  cadre  Officer  under  an  

international organization, an autonomous body not controlled  

by  the  Government  or  a  private  body.  The  aforesaid  

deputation can be made only in consultation with the State  

Government  on  whose  cadre  the  Officer  is  borne.  We  had  

earlier  noticed  that  due  procedure  was  followed  when  

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

of repetition, since the petitioner has made such a grievance  

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

with the proposal of DEA with the consent of Government of  

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

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

Bihar,  Department  of  Economic  Affairs  through  Letter  

No.14017/26/2005-AIS-(II) dated             31st October, 2005. As  

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

was conveyed to UTI vide DOPT letter dated 16th April, 2007.  

The  terms  and  conditions  clearly  provided  that  the  Officer  

could draw the pay of the organization or the government pay  

scale  which was beneficial  to  respondent  No.4.  Respondent  

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

dated 29th January, 2007 requesting to allow him to draw the  

pay in the scale of Additional Secretary to the Government of  

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

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

competent authority approved the release of pay of Additional  

Secretary to respondent No.4 w.e.f. 10th February, 2007, the  

information was duly communicated to UTI. Furthermore, DEA  

by  its  letter  dated  19th July,  2007 had  requested  DOPT for  

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

AMC for a further period of two years beyond 2nd November,  

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

same  terms  and  conditions.  However,  the  deputation  was  

extended  only  for  a  period  of  three  months  beyond  

2nd November, 2007, as an interim measure till  the issue of  

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

1954 was finalized. Therefore,  the deputation was extended  

upto  2nd February,  2008.  Thereafter  the  matter  was  again  

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

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

which an Officer may be deputed to service under the Central  

Government or under State Government or under a Company,  

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Organization, Body of Individuals whether incorporated or not,  

which  is  wholly  substantially  owned  or  controlled  by  the  

Central  Government  or  by  any  other  State  Government.  

Therefore,  ultimately,  according  to  the  consolidated  

guidelines,  the  deputation  of  respondent  No.4  was  covered  

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

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

for  the  sake  of  accommodating  respondent  No.4,  the  

recommendations  of  the  JPC  were  concealed  from  the  

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

the  recommendations  of  the  JPC  were  placed  before  the  

Parliament and Government of India directly. Respondent No.4  

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

of  India  submitted  action  taken  report  in  context  of  the  

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

The  Government  of  India  never  adopted  the  policy  of  not  

sending IAS Officer on deputation to UTI AMC and informed  

the  Parliament  in  its  3rd action  taken  report  submitted  in  

December,  2004.  The  decision  to  grant  approval  of  

commercial employment post retirement under Rule 26 was  

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

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

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

We  fail  to  understand  that  even  upon  respondent  No.4  

complying  with  all  the  conditions  of  deputation,  it  would  

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

that  the  Appointment  Committee  of  the  Cabinet  (ACC)  had  

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

UTI AMC till 31st may, 2008.

49. This  takes  us  past  the  alleged irregularities  regarding  

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

disclosure  about  his  pay  scale/sanctioned  emoluments  as  

disclosed  in  the  letter  dated  16th April,  2007;  the  alleged  

appointment  of  respondent  No.4  is  contrary  to  

recommendations  made  by  the  AAPTE  Committee  on  July,  

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

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

career  he  had  not  been  privy  to  sensitive  and  strategic  

information  of  UTI  AMC;  the  alleged  false  statement  about  

higher-level posts are generally not advertised.  

Was the recommendation and appointment of Mr. U.K.  Sinha vitiated by MALA FIDE exercise of powers?

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

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

the allegations of  mala fide are established, it  would vitiate  

the  selection  procedure,  recommendation  and  the  

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

burden of proving the allegations of  mala fide would lie very  

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

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

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

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

Kumar  Jha Vs.  State  of  Jharkhand  &  Ors.,  7    Indian  

Railway  Construction  Co.  Ltd. Vs.  Ajay  Kumar,  8    and  

Saradamani Kandappan Vs.  S. Rajalakshmi & Ors.  9    The  

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

hardly  necessary  to  make  any  reference  to  previous  

precedent. We may, however, notice the observations made  

by this Court in the aforesaid three cases. In  Purushottam  

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

“23. It is well settled that whenever allegations as  to  mala  fides  have  been  levelled,  sufficient  particulars and cogent materials making out  prima  facie case must be set out in the pleadings. Vague  

7 (2006) 9 SCC 458 8 (2003) 4 SCC 579 9 (2011) 12 SCC 18

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allegation  or  bald  assertion  that  the  action  taken  was mala fide and malicious is not enough. In the  absence  of  material  particulars,  the  court  is  not  expected to make “fishing” inquiry into the matter.  It is equally well established and needs no authority  that  the  burden  of  proving  mala  fides  is  on  the  person making the allegations and such burden is  “very heavy”. Malice cannot be inferred or assumed.  It  has to be remembered that  such a  charge can  easily  be  “made  than  made  out”  and  hence  it  is  necessary for the courts to examine it with extreme  care, caution and circumspection. It has been rightly  described as “the last  refuge of  a  losing litigant”.  (Vide  Gulam Mustafa v.  State of  Maharashtra;  Ajit  Kumar Nag v. GM (PJ), Indian Oil Corpn. Ltd.)”

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

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

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

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

the plea of mala fide in the following words:-

“It  cannot  be  overlooked  that  the  burden  of  establishing mala fides is very heavy on the person  who  alleges  it.  The  allegations  of  mala  fides  are  often more easily made than proved, and the very  seriousness of such allegations demands proof of a  high order of credibility. As noted by this Court in  E.P. Royappa v. State of T.N. courts would be slow to  draw  dubious  inferences  from  incomplete  facts  placed before  it  by a party,  particularly  when the  imputations are grave and they are made against  the  holder  of  an  office  which  has  a  high  responsibility in the administration.”

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

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this court again emphasized that  the contention of fraud has  

to be specifically pleaded and proved.

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

examine the material  placed before us  by the petitioner  to  

establish the allegations of mala fide exercise of power.  

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

that  number  of  steps  were  taken  deliberately  to  deny  

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

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

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

the  petitioner  have  been  emphatically  denied  by  UOI,  Mr.  

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

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

was denied extension just to accommodate respondent No. 4  

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

Mohan Parasaran, learned Solicitor General, that there was no  

mala fides involved in taking that decision. Learned Solicitor  

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

Bhave  was  being  considered  for  an  extension,  serious  

controversies came to be unearthed with regard to the entire  

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

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

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

was appointed by SEBI to look into the matter passed three  

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

of NSDL. The media reports published in connection with this  

controversy adversely commented upon the role of Mr. Bhave  

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

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

G. Mohan Gopal wrote a letter dated 8th April, 2009, wherein  

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

According to Mr. Parasaran, the then Finance Minister perused  

some of the relevant documents cited above before making  

the  note  on  22nd December,  2009,  that  led  to  denial  of  

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

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

Mr. Bhave cannot ever be considered unreasonable, let alone  

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

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

an extension of Mr. Bhave.  

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

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pointed out that no illegality  was committed in making the  

amendment  in  the  rules  pertaining  to  the  selection  of  

Chairman/WTM of SEBI. It  is borne out from the record that  

prior to 23rd July, 2009, there was no rule on the procedure to  

be followed in the selection of Chairman/whole time Member  

of SEBI. The selection procedure for the Chairman of SEBI in  

2008 was approved by the Finance Minister on 2nd November,  

2007. This procedure envisaged that the selection has to be  

made on  the  recommendation  of  the  high  powered  Search  

Committee.  The  composition  of  the  Search  Committee  was  

changed on the orders of the Finance Minister. The learned  

Attorney General also pointed out that the amendment of the  

rules  had  no  relevance  to  the  consideration  of  

recommendation of Mr. Sinha to be appointed as Chairman of  

the SEBI. The Attorney General had also pointed out that in  

spite of the change in the Selection Committee and in spite of  

Mr. Sinha having been short-listed at No.1 by the Search-cum-

Section  Committee  in  its  meeting  held  on  29th November,  

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

SEBI on 15th February,  2008. We also find substance in the  

submission of learned Attorney General that the amendment  

in Rule 3 of the Security Exchange Board of India (Terms and  

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Conditions  of  Service  and  Members)  Rules,  1992  was  to  

provide  for  more  participation  by  the  expert  members.  

Therefore, sub-rule (5) of the aforesaid rules was incorporated  

which requires that recommendation of Search-cum-Selection  

Committee will  consist  of  Cabinet Secretary,  Department  of  

Economic Affairs, Chairman, SEBI for selection of WTM and two  

expert eminent from relevant field. We have also been taken  

through the necessary correspondence for the inclusion of Shri  

Suman  Berry  and  Shekhar  Chaudhary,  two  experts  of  

eminence  from  the  relevant  filed  for  the  selection  of  

Chairman, SEBI in 2010. But it was noticed that inclusion of  

Secretary  Finance  Services  was  not  within  the  rules  as  

amended on 23rd July, 2009. Upon discussion with the Ministry  

of Law, it was decided that the amendment in the rules could  

be made in line with the rule prevalent for the selection made  

to the Income Tax Appellate Tribunal.  In view of the record  

produced  in  this  court,  we  are  of  the  opinion  that  the  

submission  made on behalf  of  the petitioner  is  not  correct.  

Learned  Attorney  General  submitted  that  the  Search-cum-

Selection Committee,  after scrutinizing the qualification and  

experience of the short-listed candidates unanimously placed  

respondent No.4 first in the merit list. We have also perused  

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the  record  and  it  appears  that  respondent  No.4  was  

unanimously  placed at  Sr.No.1  by the Search-cum-Selection  

Committee. It  has wrongly been submitted on behalf of  the  

petitioner that respondent No.4 was placed at No.2 and yet he  

was appointed ignoring the person who was placed at No.1.      

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

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

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

petitioner  has  falsely  contended  that  rules  concerning  the  

constitution  of  Search-cum-Selection  Committee  amended  

through notification dated 7th October,  2010 were to ensure  

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

post of SEBI Chairman were invited on 10th September, 2010.  

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

invitation. Further more, the rules were amended in exercise  

of the powers conferred on the Finance Minister under Section  

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

Finance Ministry has not been challenged by the petitioner.  

We  also  notice  here  that  prior  to  the  amendment,  the  

procedure for selection of Chairman, SEBI was determined by  

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

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

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

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

Committee  was  held  on  2nd November,  2010.  Upon  

deliberations,  the  Committee  decided  to  invite  Mr.  Sinha  

alongwith five others.  We may notice here that Shri  Suman  

Bery did not attend the meeting. The suitability of respondent  

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

Committee.  We  are  unable  to  discern  any  illegality  in  the  

procedure adopted by the Search-cum-Selection Committee.  

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

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

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

which  was  enclosed  with  the  Confidential  Letter  No.  DO  

No.2/23/2007-RE  dated  13th December,  2010.  The  letter  

clearly  mentions  that  Search-cum-Selection  Committee  was  

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

cum-Selection Committee consisted of :-

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

2. Shri Ashok Chawla, Finance Secretary           -    Member

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

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

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

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

57. Applications  were  invited  by  circulating  the  vacancy  

position to all cadre controlling authorities in the Government  

of India and States on 10th September, 2010. The vacancy was  

simultaneously put on the Website of the Ministry of Finance,  

Department of Personnel and Training. It was also advertised  

in three largest circulating English Newspapers of the country  

on 18th September, 2010. It is clearly mentioned that out of  

the 19 applicants, who were respondents to the advertisement  

in the first meeting of the Committee held on 2nd November,  

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

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

AMC  for  interaction.  The  Search-cum-Selection  Committee  

based  on  the  qualification,  experience  and  personal  

interaction with the short listed candidates, recommended the  

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

order  of  merit,  for  being  considered  for  appointment  as  

Chairman SEBI. The letter further mentions that the Finance  

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

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

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

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

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

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

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

The letter also notes that the prescribed Performa, duly filled  

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

to  play  in  the  whole  procedure  except  for  accepting  the  

invitation  of  the  Search-cum-Selection  Committee  for  

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

cannot cast a shadow on the integrity of the proceedings held  

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

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

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

then  Finance  Minister  was  Mr.  Pranab  Mukherjee.  He  is  

renowned  for  his  transparency  in  the  performance  of  his  

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

58.   Mr. Salve, in our opinion, has also rightly submitted that  

there is nothing surprising in respondent No.4 accepting the  

post of Chairman, SEBI which carried much lesser emoluments  

than he enjoyed as Chairman, UTI AMC. It is not abnormal for  

people of high integrity to make a sacrifice financially to take  

up the  position of honour and service to the nation.  In any  

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event, we are of the opinion, the acceptance by Mr. Sinha of  

lesser salary as Chairman of SEBI cannot ipso facto lead to the  

conclusion that he accepted the position for the purpose of  

abusing  the  authority  of  Chairman,  SEBI.  Adverting  to  the  

allegation of non-disclosure of ESOP, in our opinion, Mr. Salve  

has  rightly  submitted  that  it  was  not  done  to  avoid  any  

investigation  by  the  ACC  into  the  question  as  to  why  

respondent No.4 would wish to join Chairman, SEBI when he  

was drawing much higher emoluments as Chairman, UTI AMC.  

This  non-mention  cannot  lead to  the  conclusion  that  if  the  

same had been mentioned, respondent No.4 would not have  

been selected as Chairman, SEBI on the ground that it would  

have been illogical for a person drawing higher emoluments  

on one post to join another post having lesser emoluments.  

Mr.  Salve  has  rightly  reiterated  that  there  was  nothing  

abnormal;  in  the  course  adopted  by  respondent  No.4.  No  

material has been placed on record to show that respondent  

No.4 was in receipt of ESOP illegally. It has been pointed out  

that  under  ESOP,  an  employee  is  given  an  option  by  the  

company to buy its shares upto the given quantity allotted to  

him which can be exercised after a specified time. In the case  

of UTI AMC, the stock option was to vest after a period of three  

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

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

year, 20% in the     5th year, 30% in the 6th year and last 40%  

in the 7th year. After vesting of each trench, the employee had  

one year to make up his mind whether to exercise his option  

or  to  let  it  go  by.  In  UTI  AMC,  ESOP was approved by the  

shareholders. The HR Committee of the Board and the Board,  

the decision by the Board was taken                      on 27 th  

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

dated 12th April, 2008 clearly shows that the stock option was  

exercised  by  respondent  No.4  in  accordance  with  due  

procedure.  However,  even  though  the  decision  had  been  

taken by the Board of Directors on 17th September, 2007 to  

grant  respondent  No.4  market  based  compensation,  the  

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

April,  2008  that  the  Board  took  a  decision  to  release  the  

market based compensation to respondent No.4. The actual  

allocation of ESOP was made to respondent No.4 on 17th May,  

2008 through the letter of head of HR Committee of the Board.  

In fact in 2011 after respondent No.4 got appointment in SEBI  

and  had  to  leave  UTI  AMC  on  31st January,  2011,  he  

surrendered  his  entire  ESOP and rescinded all  his  rights  to  

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exercise his option in future. We, therefore, find no substance  

in the submission of the petitioner that there was any ulterior  

motive  involved  in  non-disclosure  of  the  information  with  

regard to ESOP to the ACC.  

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

hatched  to  ensure  the  selection  of  respondent  No.4  as  

Chairman,  SEBI.  The  petitioner  stated  that  the  conspiracy  

involved taking seven steps, namely:-

i. Mr.Sinha  would  seek  voluntary  retirement  from  IAS.

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

iii. Mr.Sinha would seek approval for post retirement  commercial employment.

iv. Ministry of Finance would recommend commercial  employment.

v. DOPT  would  approve  the  same  and  waive  the  waiting period.

vi. All  concerned  persons  in  the  decision  making  process would designate the employment with UTI  AMC as commercial employment.  

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

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

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

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

conspiracy  has  to  be  taken  seriously  as  it  involves  the  

commission  of  very  serious  criminal  offence  under  Section  

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

had to be clearly pleaded and established by evidence of very  

high degree of probative value. No notice of such allegations  

can be  taken based only  on  pure  conjectures,  speculations  

and interpretation of notings in the official files.  

61.  The observations made by this Court in the judgments  

noticed  earlier  make it  clear  that  it  was  incumbent  on  the  

petitioner not only to make specific allegations, but to produce  

very strong evidence to lead to a clear conclusion that the  

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

by the petitioner to establish conspiracy per se do not amount  

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

such a coordinated overt and covert operation to have been  

even conceived, let alone successfully executed just to have  

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

of  Mr.  Sinha  is  strictly  in  conformity  with  the  procedure  

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

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

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

retirement commercial employment, there is no requirement  

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

find  substance  in  the  submission  of  Mr.  Salve  that  the  

petitioner has not placed on record any material to establish  

that any conspiracy was hatched to ensure the selection of  

respondent No.4.  

62. The  submissions  made  by  the  learned  Attorney  

General and Mr. Salve have also been supported by learned  

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

Prasaran submitted that baseless allegations have been made  

against respondent No.6.  She was neither the recommending  

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

was appointed as Advisor to the Finance Minister on 26th June,  

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

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

execution  of  her  duty  have  been  deliberately  warped  and  

distorted  to  unnecessarily  involve  her  in  the  trumped  up  

controversy.  Her  role  as  Advisor  was  limited  to  

advising/assisting the Finance Minister on the work assigned  

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

role  of  a  functionary  who  performed  an  assigned  line  of  

functions.  She could have neither recommended respondent  

No.4 for  appointment nor  negated any recommendation.  By  

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

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

Central  Government  by following an established process  by  

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

basis of Search-cum-Selection Committee of the Government  

of  India.  The  opinion  of  other  independent  and  reputed  

experts in the field of Economics, Finance and Management is  

also taken through an institutional  mechanism approved by  

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

learned  Solicitor  General  that  the  allegations  made  against  

respondent  No.6  are  imaginary  and  based  on  a  distorted  

interpretation  of  the  official  notes  appended  with  the  writ  

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

the learned Solicitor General relied upon the averments made  

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

of  2011.   The  aforesaid  affidavit  has  been  attached  as  

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

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

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

made by the Committee as decided by the Finance Minister  

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

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

high powered Selection Committee constituted by the Finance  

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

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

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

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

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

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

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

which  provided  that  the  Chairman  and  every  whole  time  

member shall be appointed by the Central Government on the  

recommendation  of  the  Selection-cum-Search  Committee  

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

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

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

eminence  from  the  relevant  field  to  be  nominated  by  the  

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

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

a note was initiated on 18th July, 2010 for the constitution of a  

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Committee.  Various  names were  suggested  for  inclusion  as  

experts.   While  approving  the  constitution  of  the  Selection  

Committee, the Finance Minister also observed that going by  

earlier  precedent,  the  Committee  should  have  composition  

that  includes  Secretary,  Finance  Services,  who  functionally  

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

with  the  addition  of  the  Secretary  Finance  Services,  the  

number of nominees in the Search-cum-Selection Committee  

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

Selection  Committee  was  sent  to  the  DOPT  for  approval.  

However,  on  23rd September,  2010,  DOPT  pointed  out  as  

noticed  earlier  that  inclusion  of  Secretary  Finance  Services  

was not within the rules amended on 23rd July, 2009 which led  

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

the amendment of the rules became necessary. It was within  

the powers of the Central Government to make the aforesaid  

amendment,  which  was  carried  out  in  accordance  with  the  

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

petitioner  that  the  amendment  in  the  rules  was  made  to  

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

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

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

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

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

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

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

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

given much credence unless it is supported by very convincing  

material. We are also not much impressed by the submission  

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

Selection  Committee  was  changed  at  the  instance  of  

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

ultimate  selection  was  made  by  a  Selection  Committee  

consisting  of  Members  who were  all  serving Officers  in  the  

Government. Therefore, it is difficult to accept the submission  

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

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

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

AMC was  kept  vacant  for  17  months  to  accommodate  the  

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

malicious  and  without  any  basis,  and  therefore,  cannot  be  

taken into consideration.

63. This  now brings  us  to  the preliminary  objections  

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raised by the respondents that the writ petition deserves to be  

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

According to the respondents, the petitioner has been set up  

by interested parties. We entirely agree with the submissions  

made  by  the  learned  Attorney  General  that  the  first  

requirement  for  the  maintainability  of  a  public  interest  

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

the petitioner  has unjustifiably attacked the integrity of  the  

entire selection process. It is virtually impossible to accept the  

submission  that  respondent  No.6  was  able  to  influence the  

decision  making  process  which  involves  the  active  

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

Committee with the final approval of the Finance Minister and  

the  Prime  Minister.  The  proposition  is  so  absurd  that  the  

allegations with regard to  mala fide could have been thrown  

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

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

demonstrate that it is not entirely inconceivable that a petition  

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

ulterior motive or at the instance of some other person who  

hides behind the cloak of anonymity even in cases where the  

procedure for selection has been meticulously followed. The  

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respondents  have  successfully  demonstrated  how  the  

petitioner has cleverly distorted and misinterpreted the official  

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

the  petition  does  not  satisfy  the  test  of  utmost  good  faith  

which  is  required  to  maintain  public  interest  litigation.  We  

have been left with the very unsavoury impression that the  

petitioner is a  surrogate for some powerful  phantom lobbies.  

Respondent  No.2-SEBI  in  its  affidavit  has  stated  that  the  

petitioner is a habitual litigant. He files writ petitions against  

individuals to promote vested interest without any relief to the  

public at large. We are at a loss to understand as to how in the  

facts  of  this  case,  the  petitioner  can  justify  invoking  the  

jurisdiction of this court under Article 32.  This is not a petition  

to  protect  the  Fundamental  Rights  of  any  class  of  down  

trodden or deprived section of the population.  It is more for  

the  protection  of  the  vested  interests  of  some unidentified  

business lobbies.  The petitioner had earlier filed writ petition  

in which identical relief had been claimed and the same had  

been dismissed.  The aforesaid writ  petition is  sought  to  be  

distinguished  by  the  petitioner  on  the  ground  that  three  

successive  writ  petitions  were  withdrawn  as  sufficient  

pleadings  were  not  made for  the grant  of  necessary  relief.  

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Even  if  this  preliminary  objection  is  disregarded,  we  are  

satisfied  that  the  present  petition  is  filed  at  the  behest  of  

certain interested powerful  lobbies.  The allegations made in  

the letter written by Dr. Abraham are without any basis and  

clearly  motivated.  Further,  a  perusal  of  the  record  clearly  

reveals  that  several  complaints  were  filed  against  Dr.  

Abraham, wherein some serious allegations have been made  

against  him  in  relation  to  his  tenure  as  the  Whole  Time  

Member (WTM), SEBI.  Also,  it  was only after the Ministry of  

Finance decided not to extend his tenure as WTM, SEBI and  

advertisements  for  new appointments  were  issued  that  Dr.  

Abraham  started  complaining  about  interference  of  the  

Ministry of Finance in SEBI through the present Chairman. We  

may  also  notice  here  that  the  letter  dated  1st June,  2011  

written  by  Dr.  Abraham  to  the  Prime  Minister,  that  the  

Petitioner seeks reliance upon,  was written merely a month  

and a half before Dr. Abrham’s tenure was to end. From the  

above, it  is manifest that the letter written by Dr. Abraham  

was clearly motivated and espouses no public  interest.  The  

affidavit  also  narrates  the  action  which  has  been  taken  by  

SEBI  against  very  influential  and powerful  business Houses,  

including  Sahara  and  Reliance.  It  is  pointed  out  that  the  

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petitioner is a  stool pigeon acting on the directions of these  

Business  Houses.  We  are  unable  to  easily  discard  the  

reasoning put forward by respondent No.4. It is a well known  

fact that in recent times, SEBI has been active in pursuing a  

number of cause celebre against some very powerful Business  

Houses. Therefore, the anxiety of these Business Houses for  

the removal  of  the present  Chairman of  SEBI  is  not  wholly  

unimaginable. We make the aforesaid observations only to put  

on record that the present petition could have been dismissed  

as  not  maintainable  for  a  variety  of  reasons.  However,  we  

have chosen to examine the entire issue to satisfy our judicial  

conscience  that  the  appointment  to  such  a  High  Powered  

Position has actually been made fairly and in accordance with  

the procedure established by law.

64. We  find  no  merit  in  this  petition  which  is  

accordingly dismissed.   

…………………………… J.

       [Surinder Singh Nijjar]

……………………………J.         [Pinaki Chandra Ghose]

New Delhi; November 01, 2013.

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